The Trump administration has made a perceived global rivalry with China the centre of US foreign policy. This competitive stance has coloured the view of African countries in Washington and a tale of Chinese mercantilism in the region has come to dominate the narrative, under which China greedily demands privileged access to Africa’s natural resources in exchange for no-strings-attached infrastructure financing.
But that story is outdated and fails to capture an emergent area of true competition — that among US and Chinese tech giants.
Over the past decade, Chinese commercial engagement has quietly become more diversified and increasingly private-sector led. Chinese tech companies, in particular, have taken a deeper interest in African markets. Building on their success in other emerging markets, Huawei, Tecno, ZTE, Tencent and, now, Alibaba, are making investments in countries from Nigeria to Kenya.
The Forum on China Africa Cooperation, which is held every three years, is happening this week in Beijing and presents an opportunity for recalibration.
US policy and business leaders will have to reframe their understanding of Chinese commercial engagement in African markets and prepare for growing competition in tech and ecommerce. To remain competitive in African markets, US groups such as Amazon will need to be increasingly flexible in their market entry strategies and focus on providing a diversified, innovative product mix.
US and Chinese tech companies are not new to Africa’s tech landscape. For more than two decades, western companies from IBM to Microsoft made multimillion-dollar investments in Africa’s digital infrastructure.
Huawei and ZTE were later to the game but helped build out the second wave of the continent’s mobile network. These early investments contributed to an explosion in mobile telephony and the birth of ecommerce in African countries.
Today, internet penetration is growing, especially in more advanced markets such as Nigeria and South Africa, and unique mobile subscriber penetration has reached more than 44 per cent. Chinese phonemaker Transsion Holdings has become Africa’s top smartphone maker, selling more than 80m phones a year.
Online access coupled with increased urbanisation is creating an environment ripe for ecommerce and mobile entertainment services, where revenue is expected to reach $29bn by 2022.
From music and movie streaming to social media and collaboration platforms, there are hints of battles to come. In Africa’s pay TV market, which is expected to reach more than $6bn in revenue by 2021, the new on the scene Chinese provider StarTimes has more than 10m subscribers and just announced a 10-year $7m contract with Uganda’s football association. Meanwhile, Netflix has expanded to provide its service to all 54 countries on the continent.
The biggest battle will certainly play out between the world’s leading ecommerce groups, Amazon and Alibaba, which, with a combined market capitalisation of almost $1.5tn, have money to burn. While south-east Asia and India have been priorities, African markets are increasingly drawing their attention. In 2017, Alibaba made its first big commitment to Africa, with founder Jack Ma pledging $10m to start an African Young Entrepreneurship Fund to begin learning about the market and assessing key local players.
Since then, Alibaba has signed a partnership with French conglomerate Bolloré Group, which runs a large logistics business in French-speaking African countries, to focus on logistics, cloud computing services, clean energy and new digital technologies. Alibaba already expanded its secure payment system, Alipay, to South Africa and is entering the east African market through a partnership with Kenyan-based Equity Bank.
Amazon’s expansion into Africa is proceeding at a slower pace. Last year, Amazon acquired Souq.com, a Dubai-based retailer with a presence in north Africa. However, Amazon tends to build out its own infrastructure to support Amazon Web Services, recently announcing the launch of new locations in Cape Town and Johannesburg to expand its content delivery network.
Amazon’s expansion strategy often relies on replicating key aspects of its US model. In contrast to Alibaba, which invests in local players, Amazon funds subsidiaries with the same service offerings. Amazon recently launched in India, where it adapted aspects of its business model but still built a similar network of warehouses and inventory as seen across the US and Europe. Its $5bn investment in India has yet to return large dividends and Amazon will have to be committed for the long term. Africa’s infrastructure challenges would require a significant investment from Amazon if a similar model is followed on the continent.
In contrast, many of Alibaba’s lessons learned in China from innovations in payments to logistics can be directly applied to the African ecommerce landscape. Alibaba’s business model as a middleman between buyers and sellers is likely to translate well to the African market, where there are thousands of small, informal businesses. Ant Financial, Alibaba’s affiliate that includes Alipay, recently raised $14bn to focus on global expansion and is likely to see success in African markets where mobile banking is the norm and traditional financial institutions are limited.
As in other emerging markets, US tech companies must be prepared to face competition from their Chinese counterparts or fear missing out on the opportunity of the last frontier.
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