Farmers in the sleepy town of Bahati, located on the outskirts of Nakuru city in Kenya’s western rural hinterlands, have become an unlikely focus for innovation. Based in one of Kenya’s most fertile regions, Bahati has for years played a vital role supporting Kenya’s agricultural sector, which is the largest contributor to the country’s GDP. Yet a majority of farmers in Bahati operate on a subsistence basis and their only source of information about the market rate for their crops is the people trying to buy them. As a result, many stay poor and the town’s overall agricultural performance remains well below its potential.

Yet a new mobile phone application called M-Farm, which combats the lack of pricing transparency, solves this challenge by providing farmers with up-to-date market prices via a free mobile phone application or an SMS. And by connecting farmers with buyers, M-Farm cuts out the middlemen and increases farmers’ earnings. M-Farm’s developers collect wholesale prices on 42 crops from traders near five cities in Kenya, including Nakuru, Kisumu, Eldoret, Mombasa and the capital Nairobi.

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This information is then made available on M-Farm and farmers can view the latest information on crop prices and buyers. M-Farm is a prime example of how telecommunications in Africa have evolved well beyond traditional voice-related services, to a range of software functions. Similar innovations have been replicated elsewhere on the continent.

Mix it up

Mxit, which initially begun as a research project in 1997 at South Africa’s Stellenbosch University, evolved to become Africa’s largest mobile phone-based social network. Combining instant messaging and social networking with online learning and education tools, as well as banking services, the app is a cost-effective solution for users’ educational and entertainment needs. Mxit rapidly grew beyond South Africa and today has 50 million users across the continent, according to company estimates.

In Nigeria, the creation of a mobile phone app in 2012 called Konga, which works as an e-commerce platform that sells a range of products from washing machines to refrigerators and television sets, also illustrates the continued salience of telecoms, and their use in facilitating consumer needs.

In the past decade, the activation of submarine cables across Africa, including EASSy and Seacom on the continent’s east coast, coupled with the declining cost of mobile phone handsets, means Africa is home to the world’s fastest growing telecoms industry, according to professional services firm Deloitte. As a result, the purchase and consumption of products has shifted onto mobile platforms. Services traditionally associated with traditional brick-and-mortar providers – including healthcare insurance and banking – are now available remotely on mobile phones.

Shifting habits

“Consumer demand for social networking, cloud-based music, entertainment, mobile banking and healthcare services is surging, as consumers increasingly see such services as a mainstay of their mobile lifestyles,” says Charles Laurie, head of the Africa practice at the political risk consultancy Maplecroft. FDI in Africa has diversified beyond natural resources and into telecoms, as the middle class expands rapidly. Indeed, a Standard Bank study predicts that the combined middle classes in Angola, Ethiopia, Ghana, Kenya, Mozambique, Nigeria, South Sudan, Sudan, Tanzania and Uganda will number 40 million people by 2030, against 15 million today.

Data from greenfield investment monitor fDi Markets shows that in the past decade investors in Africa have positioned themselves to benefit from the continued demand for telecoms products. Between 2003 and 2014, the communications sector ranked third, ahead of Africa’s coal, oil and gas sector, in attracting the most greenfield projects. The communications sector attracted 554 greenfield projects, while the financial and business services sectors ranked first and second, attracting 1152 and 592 projects, respectively, during this period.

“Many sub-Saharan African countries have seen an increase in their citizens’ disposable income, which translates to an increase in consumption,” says Alisa Strobel, an economist at IHS Insight. “This therefore supports a demand for telecommunications.”

Slowing growth

While the growth of mobile phone subscriptions had largely driven the development of Africa’s telecoms sector over the past decade, rates are beginning to peak in countries such as Kenya. Moreover, rates of investment have slowed from the rapid influx of foreign telecoms operators seen previously.

Indeed, the failure of many of the region’s governments to sufficiently loosen regulatory constraints for private operators, coupled with high pricing pressures and onerous investment costs, have seen FDI into the sector in the past year decline sharply. Data from fDi Markets reveals that although FDI into the communications sector in Africa increased by 37% in 2012, in 2013 it contracted by -2.6%.

“A number of legal and regulatory bottlenecks are hampering growth in this sector, more so than the issue of the lack of physical infrastructure,” says Ms Strobel. “Our long-term outlook suggests a moderation in the market.”

Yet, Ms Strobel maintains that investors are beginning to view the telecoms landscape in Africa through a more country-specific lens. While some countries will experience a marked decline in FDI, others will emerge as regional telecoms leaders.

Silicon Savannah

Take the example of Konza Technology City, dubbed Kenya’s 'Silicon Savannah'. Its development reveals Kenya is seeking to position itself as a long-term hub of innovation in the telecoms industry. Initiated in 2012 by the government, the new city, located 64 kilometres south of Nairobi, will receive $14.6bn in investments. Once completed in 2030, it will host a science park and a convention centre, and it will also function as the country’s research and development centre for telecoms and software firms.

While larger countries including Nigeria and South Africa, will witness a marked decline in FDI, investors will increasingly be attracted to Africa’s smaller and less penetrated markets, says Ms Strobel. Underinvestment in the telecoms sectors of Senegal and Cameroon means that in the short term they could experience FDI from operators seeking less saturated markets.

“Our outlook, based on eight major African economies, suggests that in 2014 a slowdown in growth will occur, yet the picture is nuanced,” says Ms Strobel. “Senegal and Cameroon will see an uptick in growth as their communications sectors – particularly their LCD and semiconductor industries – take off. The slowdown in 2014 will be down to the weaker performances of South Africa and Nigeria amid their rather disappointing macroeconomic performances.”

And there is no shortage of innovation, according to Ms Strobel, who says: “Africa is full of entrepreneurial creativity – a recent example is MedAfrica, which is a medical services content platform that seeks to create health awareness among consumers from the comfort of their mobile phones. Investors will increasingly take a nuanced approach when choosing where to go.”