Stakeholders invest in Ghana's ICT start-up ecosystem

With one of the region’s highest levels of mobile data penetration and a thriving start-up scene, Ghana’s ICT sector is one of the most active parts of the economy. The government sees ICT development as central to meeting the country’s goal of entrenching and developing its middle-income status. Just as better transport infrastructure is seen as essential to industrial and logistical development, the availability of broadband internet is a growing necessity to support businesses of all kinds. With this in mind, the country is currently in the process of rolling out 4G networks. “By 2025 half of the world’s working population will be in Africa,” Andrew Takyi-Appiah, CEO of domestic financial technology company Zeepay, told OBG. “However, the infrastructure on which they work must be up to global standards or else productivity will suffer.”

Oversight

The ICT sector is regulated by the National Communications Authority (NCA), while sector development is guided by the National Telecommunications Policy, which aims to make telephone and internet connectivity available and affordable for all citizens. Initiatives to foster growth have been broadened in recent years to include greater support for start-ups and the recently established National Cyber Security Centre, which is part of measures designed to address growing concerns over cybersecurity (see analysis).

Mobile Market

The number of mobile subscriptions increased by more than 1m between March and September 2018 to over 40m, according to the latest available figures from the NCA, indicating that demand for mobile services remains strong given the size of Ghana’s population, which stood at 29.6m as of 2018.

Prior to the finalisation of the merger of Airtel Ghana and Tigo Ghana in 2017 under the direction of their parent companies India’s Bharti Airtel and Luxembourg-based Millicom respectively, there were five telecoms firms active on the local market. In 2018 the largest operator by market share by some margin was MTN Ghana, which is majority-owned by South Africa’s MTN Group, and has a minority float on the Ghana Stock Exchange (GSE). MTN had 19.4m mobile subscribers as of September 2018 and a market share of 48.5%, up from 46.8% six months earlier, according to the NCA.

The second-largest player is Vodafone, with 9.2m subscribers and a 22.97% market share in September 2018, down slightly from 23.33% the previous March. Vodafone Ghana is majority-owned by UK-based Vodafone, with the national government holding a 30% share. Numbers for the newly merged Tigo and Airtel, which hold third and fourth place, respectively, were not available at this time. However, separately they had 5.7m and 5m subscribers and market shares of 14.14% and 12.44%. Meanwhile, the smallest operator by market share is Glo Mobile, a subsidiary of Nigeria’s Globacom. Glo had 779,600 subscribers as of September 2018 and a 1.95% share, up from 1.8% six months earlier.

Fixed Line

Though the demise of global fixed-line telephony has been widely forecast for some years, it has yet to fully materialise. In Ghana, while there is less than one fixed-line subscription per 100 mobile subscriptions, the former is continuing to grow, albeit slowly. Fixed-line connections still offer excellent operability for the country’s expanding number of office-based businesses in particular. It also allows operators to offer bundled services, such as broadband, telephone and cable television, which are appealing to the country’s more affluent customers.

Ghana had 283,072 fixed-line subscribers as of September 2018, up from 277,310 in March. The market is split between two operators – Vodafone and Airtel. Vodafone has a 96.5% market share. Overall penetration is still rather low, increasing from 0.96% in March 2018 to 0.97% in September. This disguises the fact that most fixed lines are used by several people, meaning that the proportion of Ghanaians with access to a fixed telephone line is considerably higher.

Consolidation

The telecoms sector has been radically reshaped over the past decade. Liberalisation and growing foreign investment led to a proliferation of mobile operators in the moderately sized market, and an increasingly diverse range of product and service offerings. This was followed by a period of fragmentation and consolidation. The first ever mobile call in Ghana was made in 1992, on a network that was then Mobitel, and later became Buzz and then Tigo. In 1994 Spacefon, which later became MTN, was granted a licence to become the country’s first GSM network operator and, subsequently, entered into operation in 1996. However, it was not until 2008 that market transformation really got under way, following the government’s sale of a 70% stake in Ghana Telecom for $900m. The price reflected the strength of the company’s brand and network and the potential of its mobile arm, known then as Onetouch. In 2010 Airtel joined the market, followed by Glo in 2012.

In October 2017 it was announced that officals had approved the merger of Airtel and Tigo, which at the time had an annual combined revenue of approximately $300m. The newly merged operator is known as AirtelTigo. By combining operations, the two firms aimed to create a stronger single entity to win market share on competitive African markets, including Ghana’s.

Penetration

Mobile subscription penetration reached 136.7% in September 2018, according to the NCA, up from 134.2% six months earlier. The high level reflects the increasing availability of affordable handsets and the low cost of calls, as well as strong demand. For many Ghanaians, as with people worldwide, having a mobile telephone has become a necessity rather than a luxury over the past ten years. However, as in other markets, the high penetration rate does not imply that every Ghanaian has at least one active SIM card. The old, very young and poor have considerably lower levels of mobile phone ownership and usage. Subscription and penetration figures are boosted by the fact that many citizens have more than one SIM card, switching between them to take advantage of on-network tariffs and special offers. There is also a rate of “churn”, with customers buying new pay-as-you-go SIM cards without deactivating their old ones, again to take advantage of new offers. It then takes time for the operators to deactivate the old subscriptions.

Growth Drivers

While the high reported mobile penetration rate might suggest a market nearing saturation, the potential for subscriber and revenue growth for GSM operators is considerable.

Wider economic growth stimulating rises in income is a significant factor. After a slowdown in the middle of the decade, Ghana’s economy is resurgent and is once again one of the fastest-growing worldwide. GDP expanded by 8.1% in 2017, according to figures released by the Ghana Statistical Service in September 2018 following the rebasing of the economy. Growth moderated to around 6.3% in 2018 but is expected to accelerate to 7.6% in 2019 before easing to 5.5% in 2020, according to IMF projections.

The performance led to strong levels of private consumption in 2018, a reflection of increasing incomes. Over the past decade Ghana has achieved middle-income status and its middle class has expanded, with a disposable income to match. These trends – combined with the falling costs of handsets and subscriptions – have made mobile technology available to an ever-wider group of the local population.

The market is also growing demographically. As of 2010, the latest year for which official census statistics are available, the size of the population was increasing by 2.5% per year – a rate that independent analysts believe has not slowed since. According to Demographic Dividend, an organisation backed by US-based Johns Hopkins University and the Bill and Melinda Gates Foundation, 38.8% of the population was under the age of 15 in mid-2016. Growing up immersed in mobile internet and other ICT, this age demographic is likely to drive demand in the sector for years to come.

Demand Pull

Another element driving demand is the increasing availability of applications and content that appeal to local consumers. A growing range of online local language content and apps with practical uses – including mobile money and services, which process agricultural and medical information – are attracting more people to take up mobile subscriptions as well as acquire smartphones and use mobile internet. “For lower-income categories, the mobile GSM network is a catalyst for being able to access a wide variety of technological innovations,” Samuel Amanor, founder and CEO of Blue Space Africa, a business financial technology integration company headquartered in Accra, told OBG. “Products such as mobile money are very successful, but they are just the first step on the way to more socially beneficial technology.”

Data

As in markets across the world, Ghana’s operators see growing data use as key to driving higher average revenue per user (ARPU). The data market is already fairly well established; there were 23.5m mobile data subscriptions as of September 2018. Almost 60% of all mobile subscribers are estimated to have data subscriptions, and the penetration rate is thought to be quite high, at just over 80%. As in the mobile telephony market, the scope for data growth is considerable. Many subscribers go online sparingly, due to the relatively high cost of data. This has opened up a space for businesses that offer data free applications.

With data use seen as the leading area for ARPU growth, local mobile operators are investing in technology capable of supporting greater data volumes. In December 2015 MTN acquired a 800-MHz 4G spectrum licence for $67.5m and has been rolling out the network nationwide. In December 2018 Vodafone acquired a 4G licence for $30m and expects to launch its network in the first half of 2019 (see analysis).

Going Public

In part to raise capital for future infrastructure investment, in August 2018 MTN Ghana raised GHS1.1bn ($237.7m) in its initial public offering (IPO) on the GSE. It was the biggest IPO in the country’s history and exceeded the previous record almost three-fold. This is despite falling somewhat short of expectations, with fewer shares sold than were on offer. The float accounted for 12.5% of the company’s stock, with 85% remaining in the mother company’s hands and the rest held by other minority shareholders. In addition to financing the expansion of 4G and then 5G, and ensuring MTN meets the terms of its 4G licence, the IPO will provide a welcome boost to the GSE, providing greater liquidity and adding a high-profile blue-chip stock to the bourse, hence the contractual obligation to list.

Following Vodafone Ghana’s successful bid for a 4G licence, there has been some debate over whether the firm will be obliged to list on the GSE under the terms of the licence. While the bourse has stated that it is liaising with the Ministry of Communications to ensure that Vodafone Ghana is listed, the company has said that the 4G licence does not require it to list, but merely to ensure that 25% of its shares are in Ghanaian hands. As the government owns a 30% stake in the operator, Vodafone argues that it already meets these terms, even before the licence acquisition.

Cables 

The country’s position on the West African coast and its political stability have made it a key landing point for international submarine telecoms cables. It is linked to fewer than five major international cables, including the African Coast to Europe system; the Glo-1 cable between the UK and Nigeria; the South Atlantic 3/West Africa cable running from South Africa to Portugal and Spain; the West Africa Cable System; and the Main Onelink between Portugal, Nigeria and several other West African countries. This provides Ghana with substantial international communications capacity.

However, infrastructure inland could be improved, particularly in last-mile connectivity. The fiscal challenges faced by successive governments have meant that public investment in broadband backhaul has not always matched ambitions, leaving room for the private sector to take the lead. Broadband connectivity increasingly comes from mobile technology – such as 4G, which is developed by telecoms firms– and private cable companies investing in fixed infrastructure. “Current international connectivity is sufficient; the capacity is there,” Angelo Govina, general manager of MainOne, a cable and data centre company, told OBG. “If you want – and can pay for – a 100-GB per second connection there are no problems. The issue is with lastmile connectivity and costs, though those are coming down.” Main One, for example, has developed beyond its original market of Accra and the adjacent port city of Tema to include Kumasi and Takoradi – the so-called “golden triangle” of Ghana’s economic centres. Takoradi is a national hydrocarbons centre, and oil and gas companies operating there demand fast and reliable connectivity for their operations.

Digital Governance

Improved connectivity and expanded access to broadband services has enabled the government to implement two important public service digital initiatives in recent years. The first, which began rolling out in 2017, is the national Digital Address System. It aims to provide every property or piece of land in the country with a digital address by utilising Google mapping technology embedded in a mobile app. The second is the National Identification System, which provides every citizen with a new smart national ID called the Ghana Card. The initiative aims to collect and store citizens’ biometric data on a centralised database. Both programmes have been identified by the government as key to improving governance and formalising the economy, and could improve a number of public functions and services, including utilities service provision and tax collection. “National-level projects, such as the Ghana Card and Ghana post address system, show a country ready to digitise operations,” Amar Deep S Hari, CEO of IT firm IPMC, told OBG. “These projects started strong, though it remains unclear how they are progressing during the mid-stage.”

Start-Ups

The presence of improved ICT infrastructure has also helped foster a supportive environment for technology start-ups. Other factors conducive to new business growth in Ghana include the relatively low cost of skilled labour and high level of political stability, the fact that English is widely spoken, and that successive governments have supported ICT development.

The past few years in particular have seen the start-up scene gather momentum. Young tech companies have proliferated, some of the most notable names among them being MeQasa, an online real estate marketplace which secured $500,000 in funding from global venture capital firm Frontier Digital Ventures in 2015; and Expresspay, an online payment platform, which received $200,000 from a remittance grant facility set up by the governments of Ghana and Switzerland. Daniel Abunu, managing director and co-founder of local technology company Viotech, told OBG, “Barriers to entry are lower in the ICT sector so there is more entrepreneurship and more young people coming through. Talent is perhaps Ghana’s biggest competitive advantage.”

Ecosystem

One of the key factors behind the growth in new tech businesses is the supportive ecosystem. A virtuous circle has been created in which established companies support the development of university and college faculties focusing on tech-associated sectors, as well as helping mentoring in the country’s tech incubators. In August 2018 the government launched the ICT Innovation Project at the Accra Digital Centre under its broader eTransform Ghana programme. The initiative includes the participation of several private sector partners in the start-up and tech space, and aims to provide a range of business development support for tech start-ups from the pre-incubation phase onwards.

In the higher education sector, there are two institutions that play a key role in skills development: the publicly owned Kwame Nkrumah University of Science and Technology; and the privately run Ashesi University, which was established by former Microsoft employee Patrick Awuah and has a strong focus on ICT as well as management and entrepreneurship.

Research published in March 2018 by the Ecosystem Accelerator Programme, an initiative of the global industry body the GSM Association, found that 24 of Africa’s 442 tech hubs were based in Ghana. Among them is the Meltwater Entrepreneurial School of Technology (MEST), which is an offshoot of the US-based non-profit Meltwater Group. Meltwater’s pick of Ghana as the location for its first school in Africa is indicative of the country’s competitiveness as a centre for startups and their international backers.

Meltwater offers a 12-month, fully sponsored programme for graduates in software development, business and communications. Successful students in the scheme have the opportunity to obtain seed funding and enter the MEST Incubator, which develops promising companies and provides hands-on support. Financing is typically between $50,000 and $200,000 – large sums for most Ghanaian companies – and delivered in exchange for a minority stake. MEST companies join a pan-African network that now includes branches in Nigeria, Kenya, South Africa and Côte d’Ivoire, as well as Silicon Valley in the US. MEST also builds links between the start-ups and local telecoms firms. As well as being the dominant force within Ghana’s ICT sector, and financially capable, the telecoms industry is interested in supporting the development of tech businesses, whose apps and services can encourage more of their subscribers to go online.

Other leading tech hubs and incubators include iSpace and Impact Hub Accra, while the ecosystem is now expanding rapidly in regional centres as well, with institutions like Kumasi Hive, HOP in Academy in Tamale, and Ho Node Hub in the Volta region.

Entrepreneurship

In addition to the ICT Innovation Project, the government is spearheading initiatives to encourage ICT entrepreneurship, including a five-year tax holiday for start-ups. In July 2017 the Ministry of Business Development launched the National Entrepreneurship and Innovation Plan, which aims to provide an integrated national support network for start-ups and small businesses. Its primary focus is providing business development services, start-up incubators and funding for new companies. It forms part of the government’s broader policy of consolidating Ghana’s middle-income status by creating skilled jobs for citizens and moving the economy up the value chain. As such, businesses do not necessarily have to be in the ICT sector; the organisation also has schemes for the agriculture sector and a range of other skilled professions, such as plumbing.

Going Local

There is considerable potential for local innovation to thrive in Ghana. Indeed, developers can be at the forefront of tailoring and developing tech from apps to cloud services that are suited to the regional market. The key is ensuring that the country can carve out and maintain a strategic place on the global tech supply chain. “Working on local adaptation of global trends in technology is a great process for start-ups to emerge, and indeed local is never truly local, there are global aspects,” Kofi Dadzie, managing director of Accra-based software company Rancard Solutions, told OBG. “That said, Ghana is well equipped with engineers and developers, and is creating new technology and finding solutions to new issues.”

Start-ups that have been successful in developing and adapting technology for use in the regional context include Farmerline, which won the King Baudouin African Development Prize in 2017 for providing smallholder farmers with information to increase productivity and build up their businesses. Another platform – SnooCODE – provides ambulances, delivery people and taxi drivers with unique location codes for areas without formal addresses. The app was developed by a local bank worker who saw the impact that informal addresses were having on social development. OMG Digital, a third start-up, provides original content that is pertinent to African tastes, culture and interests.

Challenges

One barrier to growth within the start-up sphere is a lack of highly skilled ICT specialists, which pushes up the cost of salaries. Mike Amankwa, CEO of CoreNett, a local transactions processing management company, told OBG that bright, young ICT professionals tend to prefer the security, generous pay and benefits of larger corporations over the risk and uncertainty of joining a start-up. This trend is particularly prevalent in countries with a limited safety net for workers who experience loss of income and where many people lack a large pool of savings to fall back on.

Obtaining enough funding to grow a business is also a challenge. While the process for obtaining credit is more straightforward than in many other countries in sub-Saharan Africa, a large number of start-ups still cannot afford to obtain a bank loan as interest rates tend to be very high – usually in double figures. International seed investors have made forays into the country. For example, US-based seed accelerator Y Combinator led a $1.1m investment in new media company OMG Digital in 2017. The Ghana Angel Investor Network also plays an important role in early-stage financing. Nonetheless, further development of venture capital in the country’s ICT sector would be beneficial, if not a cure-all.

Fortunately, as start-ups from the 1990s and 2000s begin to come of age, the ecosystem as a whole is graduallly getting stronger, with experienced firms passing on useful knowledge to the younger generation of entrepreneurs. “Although an illiquid market means capital is hard to come by for start-ups, there is often too much emphasis placed on this as an issue in the early stages of a company’s growth,” Nana Osei Afrifa, CEO of Vokacom, a local software developer, told OBG. “We also need increased business acumen, and with it the ability to run a lean business and achieve scale. The veteran business community is starting to aid younger businesses and help them avoid pitfalls, such as over-ambition and leakage.”

Outlook

The outlook for Ghana’s ICT industry is bright. Economic and demographic factors mean that it is a fast-growing market, with a young generation increasingly enthusiastic about communications and technology. The government recognises that ICT is a central economic driver, and has become increasingly active in its support of the industry, while also working to tackle new threats such as cybercrime.

The coming years should see the continued rollout of 4G and preparations for 5G, which could prove an economic game changer. These will require considerable investment. Mobile data penetration is nearing 100%, but there is still much that telecoms companies, software developers and businesses seeking online customers can do to increase data use. The development of mobile money and apps tailored to the domestic market will help drive growth of data in the medium term.