The gaping digital divide between Africa and the rest of the world has never been so obvious as it is right now.
Digital divide refers to the gap in access to, usage, or knowledge of modern information and communications technologies (ICTs) – such as personal computers and internet connectivity – among certain groups.
Within a country, such inequalities mainly exist between populations in urban and rural areas; the educated and the uneducated; and other socioeconomic groups. Globally, it plays out between countries and by region, Africa lags far behind others like Europe and North America.
The digital divide predates the outbreak of Covid-19. However, the pandemic has further exposed the fault lines of digital inequalities across the world.
While countries like the United States and the United Kingdom with strong digital infrastructure could sustain stay-at-home restrictions, most developing nations in Africa were forced to renege on lockdown measures. This is partly because they lacked broad access to technology and high-speed internet connectivity essential for remote study and work.
Africa’s relatively slow-paced digital progress, primarily due to the lack of digital infrastructure, is well published.
Mobile networks are key to internet access in the region. Still, mobile broadband penetration stands at only about 34% while fixed broadband is at less than 5% across most of sub-Saharan Africa, apart from South Africa.
Covid-19 has increased the urgency to bridge this funding and digital gaps, according to Brandon Doyle, CEO of Convergence Partners, a private equity firm focused on the technology sector across sub-Saharan Africa.
“With digital infrastructures and communications proving crucial amid the pandemic, there’s now a more urgent demand for improved network availability and capabilities,” Doyle told TechCabal.
Funding digital infrastructure projects
Convergence Partners is one of the earliest investors in Africa’s technology and digital sector. It invests as value-adding partners into private equity and infrastructure opportunities across Southern, East and West Africa.
The Johannesburg-based company was founded in 2006 by ICT industry veteran and now CP chairman, Andile Ngcaba, with Doyle being one of the co-founding partners.
“I was a banker then, around 2003, when Ngcaba approached me with the idea of setting up an investment firm for ICT and that resonated with me deeply because I had a history in that space,” said Doyle, who had spent most of his professional career as an investment banker focused on telecoms and tech.
The firm has invested through three funds in the last 15 years – Convergence Partners Investments, Convergence Partners Communications Infrastructure Fund and the recently launched Convergence Partners Digital Infrastructure Fund (CPDIF).
Some of the projects in its portfolio include submarine cable systems, geostationary satellites, terrestrial long-haul, metro and access fibre, wireless networks, data centres, as well as service provision delivered by these networks – such as enterprise connectivity, SD-WAN, fintech & health tech solutions, data switching, etc.
Now with more than $400 million of capital under management, after the recent first close of its third fund at $120 million, Convergence Partners remains one of the largest ICT-focused private equity investors in Africa.
The PE imperative for Africa’s digital infrastructure
Over the past two decades, there have been advances in the rollout of broadband and digital infrastructures such as fibre and subsea cables in Africa. These projects have been mostly funded by private sector players, and have contributed to an exponential growth of internet penetration on the continent.
But extending these infrastructures and coverage to the offline population remains an onerous task and the pandemic has served as a reminder that much work needs to be done to drive digital inclusion.
However, African governments are often reluctant to invest in infrastructure and spend a meagre 1% of gross domestic product (GDP) on digital investment, compared to an average of 3.2% in advanced economies.
The private sector, including private equity firms, is therefore expected to provide more than half of the $100 billion required to bring sub-Saharan Africa to acceptable levels of digital access by 2030.
There has been growth in private equity investments in African infrastructure over the past decade. Between 2012-2015, the total value of PE infrastructure fundraising deals in Africa reached $11.6 billion.
Doyle expects digital connectivity to continue offering investment opportunities in Africa as the need for high-quality broadband increases. But convincing foreign private investors to put their monies in the region remains a challenge, in large part due to unfriendly macroeconomic conditions.
“With unstable local currencies and political risks across African markets, the macroeconomic environment is difficult from a private equity point of view,” Doyle said. “But we’re fortunate that the global development banks and DFIs understand the critical need to put capital to work into digital infrastructure on the African continent.”
The main investors in Convergence Partners’ funds have been multilateral development finance institutions (DFIs) and global development banks – including the UK CDC Group, World Bank’s IFC, the U.S. International Development Finance Corporation, and the European Investment Bank.
The CPDIF, which is targeting a final size of $250-$300 million, will build on the strategy in existing funds but with a focus on emerging growth themes in the digital infrastructure ecosystem.
“Investments via the third fund will be driven by the infrastructure needs like fibre, wireless, data centres, towers etc., as well as 5G, Cloud, Internet of Things (IoT), Artificial Intelligence (AI), fintech and network virtualisation,” the company said in a recent statement.
According to the World Economic Forum, an open, modern 5G infrastructure, jointly built by the telecom, cloud, and IT industries, can help close existing global digital divides.
CP aims to have assets under management of $600 million in the near term as well as open a new office in Nairobi, in addition to those in Johannesburg and Lagos.
“We invest pretty much everywhere across the continent,” Doyle said. “So we need our feet on the ground in all regions across sub-Saharan Africa to keep accelerating digital inclusion through our focus on infrastructure development.”
Convergence Partners has successfully managed to keep the core team formed in 2003 together, which is “fairly unique” according to Doyle. That, in addition to disciplined capital deployment and good returns, positive social impact and strong corporate governance make the firm an attractive proposition for investors, he added.
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