In the last decade, the growing impact of digitisation on the world economy has significantly surpassed all expectations. With seven of the top ten most valuable companies being technology companies, it is clear that the internet has had a transformative effect on much of the world.
However, there are still 4 billion people who do not currently use or have access to the internet. This is more than 55% of the global population and shows there is still a massive growth opportunity in much of the developing world. The internet is not only a major driver of productivity for firms but also one of the fastest growing sectors of the last decade. The submarine cable industry will play a pivotal role in connecting the next 4 billion people. In doing this it will be absolutely necessary for significant digital integration between lower income countries, emerging markets and high income countries. In the coming decades we will likely see far greater internet investment between rapidly growing emerging regions such as Pacific Asia and sub-Saharan Africa. With this, there will be a raft of opportunities to shape the future of the digital development.
Leapfrogging and the Digital Economy
While the benefits of digitisation are self-evident to many, for low income countries there is a necessary cost benefit analysis in pursuing digitalisation. Budgets for developing key services such as healthcare and education are already highly constrained. However, digitisation can often bring about substantial economic benefits. As with the example of M-Pesa where the mobile money introduced by Kenya has helped to reduce extreme poverty and increase consumption. Better internet coverage also helps make up for a lack of investment in infrastructure, a process known as leapfrogging. In some cases this can actually solve weighty developmental problems for a far lower cost: by giving farmers access to an accurate price for their crops or providing training and remote working opportunities at some of the best companies in the world.
As digitisation has gathered pace in Africa there has also been a proliferation of technology hubs across the continent. With over 442 technology hubs currently active and several more planned it is clear that there is a strong urge to create homegrown digital businesses across Africa. iHub in Kenya has already helped more than 150 start-ups, while programs from large multinationals like Microsoft BizSpark give access to training and technical experience that can be extremely valuable. The spread of these hubs has been made possible by the increased availability of internet services on the continent. This is especially the case regarding the expansion of international services such as Massive Open Online Courses providing free education and Social Media sites which have helped to connect like-minded technologists in their countries.
The Rapid Expansion of International Data
The expansion of international data has been strongly affected by the American cloud giants however it would not be possible without the accelerating demand from developing nations. According to TeleGeography global international bandwidth grew by 40% year on year between 2012 and 2016 with the large cloud American providers being responsible for approximately 70% of the growth in global international bandwidth. While American companies use the international cloud providers for their expansion so do many firms expanding between developing nations this figure therefore does not fully clarify the true extent of growth from developing nations. In fact, one of the most significant factors for American cloud companies has been growth of demand for internet services in developing nations. India has become the second largest user of LinkedIn worldwide and the hosts 270 million Facebook members far surpassing the United States’ 210 million. This need for content will only continue to increase as the next 4 billion people come online and provide a robust demand for international data capacity.
In the last two decades one of the most important developments underscoring the expansion of international internet companies has been the rapid growth in submarine cables carrying data internationally. With 98% of international data being carried through submarine cables it is clear they account for a massive expansion in capacity between countries. As countries continue to connect with each other and more OTT companies develop and choose to expand internationally it will become increasingly important for capacity to keep up with the generation of data. Governments and businesses the world over have realised this, leading to vast sums being invested in building new submarine cables. From 2017 there has been more than $4.4 billion proposed for 41 projects, with capacity expected to rapidly increase. While between 2003 and 2015 Africa had the highest regional share of investment there is still a significant connectivity divide between Africa and Europe or North America and far more investment necessary for African nations to bridge this gap.
The Rise of New Submarine Cable Routes
The growing demand for connectivity in Africa has meant that submarine cable routes that where once not viable have now begun to see investment. For example Angola Cables has built the South Atlantic Cable System (SACS) — the first submarine cable carrying data directly between South America and Africa. This new route provides opportunities for the transit of IP. Historically for data to travel between US and Asia it would use the cabling route in the Suez Canal region which has had more than its fair share of military and economic instability, DDOS and cable damage. Ultimately this vulnerability impacts IP transit speeds, reliability, bandwidth and latency. Instead, the new SACS route will save between 20-40 milliseconds in latency. Projects such as this have historically been seen as risky by companies from the US and Europe thus leading to a lack of investment between developing regions.
Where there was once an absence of capital there are now a large number of companies from developing countries investing in each other’s technology sectors especially in the case of China. Much of this investment is part of the Belt and Road Initiative first announced by Xi Jinping in 2013. This includes significant capital expenditure in Africa where China is aiming to promote development not just via trading routes but also digitally. Whether it is the Chinese internet giant Alibaba providing training; or Huawei’s multitude of investments in African telecoms, there has been a considerable amount of engagement between China and a multitude of African nations. Huawei first established sub-Saharan operations in Kenya 20 years ago, from there it has become one of the three telecommunications companies in the region. This engagement has worked particularly well as Chinese companies often provide low cost solutions such as affordable smartphones and telecommunications networks custom built for African nations. In the case of Tanzania China has helped finance much of the telecommunications infrastructure for the country as well as providing a large suite of ancillary system services. African countries and China are very much committed to continuing this mutually beneficial collaboration at the recent 2018 Beijing Summit of the Forum on China-Africa Cooperation (FOCAC) President Xi announced “eight major initiatives with African countries”, this is on top of the announcements he made at the BRICS summit regarding investment of $14 billion in South Africa. In the next decade the cooperation between African countries and China is likely to continue and even grow in depth.
As larger emerging markets continue their rapid economic growth they will play an ever-greater role in helping lower income nations improve their connectivity. This will be coupled with the continuous increase in demand for capacity as data availability grows around the globe and services continue to reach more remote regions.
Emerging nations having gone through the process of leapfrogging themselves will be in a prime position to invest in lower income countries and offer affordable services and devices as well as key training and development. These cross-border flows of investment, technological training and capacity will further contribute to the integration and economic growth of developing countries. Underscoring much of this will be investment in submarine cables that provide the infrastructure for connecting the global south.
By António Nunes, Chief Executive Officer, Angola Cables