US risks handing Africa’s e-commerce sector to China

America’s tech giants could lose out in the battle with Huawei

First published on the FT’s BeyondBRICS blog on 25 June 2019

Africa has long been a battleground for influence between China and the USA, and the latest phase in this rivalry is digital. As the largest builder of mobile phone masts in Africa (around 70% of them), the producer of Africa’s most popular handsets, and the key player in developing 5G technologies in the region, Huawei stands in the way of America’s digital ambitions in Africa. As a result, the company is a natural target for the Trump administration’s ire.

Huawei’s dramatic growth in Africa is not an isolated phenomenon but part of a broader Chinese digital strategy that is only now reaching maturity. China has spent the past decade building the region’s digital infrastructure. Most of Africa’s mobile phone masts are Chinese made and constructed, while two Chinese companies – Transsion & Huawei – hold nearly half of Africa’s handset market.

Transsion has gone to great lengths to understand African consumers, setting up research centres in Nigeria and Kenya and an assembly plant in Ethiopia. These have enabled the company to produce handsets that are adapted to local market demands and income levels. Transsion’s ‘smarter phones’ (Internet-enabled feature phones) cost as little as USD20 and their quality is improving with each iteration. They come with dust-resistant screens, long battery life and multiple SIM card slots which are critical in African markets. Transsion sold over 10 million of its Tecno and Itel handsets in Africa last year, giving it a third of Africa’s ‘smarter phone’ market.

The falling cost and ready availability of Chinese mobile phone technology have been key drivers in boosting mobile connectivity in Africa. The proportion of Africans with mobile phones has surged from around 1% in 2000 to around 50% now, and in most cities it is 100% or higher (as many Africans have multiple SIM cards). Mobile phones also provide the platform for 10% of Africans to receive financial services, and this proportion is rising every year. This has made Chinese tech a key component in digital and financial inclusion and has bred credibility for Chinese companies like Huawei in Africa.

The much-trumpeted Belt and Road Initiative (BRI) is also a digital play by China. Each physical hub in the ‘belt’ and ‘road’ chain is a digital hub, routing data through a vast network feeding back to China. Much of Asia is being integrated into this digital network, with land hubs in Bishkek and Tehran and sea/port hubs at Kuala Lumpur, Jakarta, Kolkata & Colombo. East Africa – focused on Kenya – is the next link in this digital chain. With a trade infrastructure that is well integrated into East, Central and Southern Africa and one of Africa’s most digitised and mobile savvy economies, Kenya’s place in the digital BRI could provide an entry point for China to access all African markets digitally.

With the digital network in place and millions of Africans being connected to it every year, the groundwork has been laid for the next wave of Chinese tech giants waiting in the wings – the BAT. Baidu, Alibaba & Tencent have over 1.5bn users on their platforms and are the key reason that over half of all e-commerce in the world takes place in China. The BAT’s digital offering is unrivalled, combining on a single platform the kinds of services provided by Amazon, eBay, Uber, Google and Airbnb (and many others), as well as providing chat, payments and more recently digital banking. The BAT’s strength and experience in delivering services in China positions them strongly to serve Africa’s emerging generation of e-consumers.

Alibaba was the first mover, in 2017 setting up an Alipay service for Chinese tourists in South Africa. WeChat was not far behind, last November launching a partnership with Kenya’s ubiquitous payment platform, M-PESA. The two companies’ combined network has the potential to capture the lion’s share of the billions of dollars of goods and payments that flow between China and East Africa every year, much of it handled by lone traders and SMEs. In the process they could help digitalise billions of dollars of informal trade which is currently transacted in cash, by barter or hawala.

In this context the efforts by the Trump administration to isolate Huawei could backfire in Africa. Because in Africa the Americans are up against serious competition. Chinese mobile brands are entrenched and the low cost and ready availability of Chinese handsets give them a dominating market edge. Moreover, the BAT are poised to strike and they can rely on a network of over 1 million Chinese entrepreneurs who have set up shop in Africa over the past decade to promote Chinese platforms and connect them to African businesses and consumers.

America also faces opposition from African governments who are unenthusiastic about winding back their relationship with China. The African Union has shrugged off allegations that China harvested confidential data from its HQ in Addis Ababa and in May signed a three-year MOU with China on ICT cooperation. This programme has a strong focus on bleeding-edge technologies like 5G, AI and cloud computing, all areas where China will compete with America’s tech giants in the coming years.

As a result the only like losers In this digital stand-off will be America’s tech giants. Google has pledged to limit the Android services it offers to Huawei after the executive order issued by President Trump, which will directly affect millions of African users of Huawei handsets. Facebook and its wildly popular WhatsApp could also find themselves in the crosshairs. WhatsApp has become the key means of communication for millions of Africans and is the platform over which Facebook plans to roll out chat-based financial and other services (including its own cryptocurrency, the Libra). But WhatsApp’s dominance and Facebook’s ambitions could be thwarted by efforts to block Huawei from using American software or tech.

Such a move would achieve the opposite of curbing Huawei’s influence and would instead remove key competitors like Google, Facebook and WhatsApp from the race to conquer Africa’s e-commerce market. Because for the first-time African buyer of a mobile phone, the choice between a handset they can afford that doesn’t use WhatsApp and one they can’t afford that does, is the choice between having a phone and not having one.

The BAT stand ready to provide every conceivable data, search, e-commerce or chat service over their platforms, enabling the next generation of African e-consumers to migrate seamlessly onto China’s digital network. And partnerships like the one between WeChat and M-PESA enabling African consumers to buy goods directly from China rather than via Western companies will further shut out American e-commerce platforms.

Africa’s e-commerce sector is poised for dramatic expansion over the coming decade and no company has the upper hand at the moment. If it chooses to bar America’s tech giants from competing in Africa’s e-commerce sector just as the battle is about to start, the US government could end up handing it to China on a plate.