Regulatory reforms pave the way for ICT development in Ghana

 

Although it does not have the market size and reputation of some of its regional peers, Ghana offers a stable environment for innovation and the development of IT products and applications in Africa, thanks in part to a welcoming regulatory framework and rapid uptake of data services.

With an increasingly extensive infrastructure network and an emerging start-up ecosystem, the government is hoping to accelerate that technological development further, in part to catalyse activity in other sectors, such as finance. “We are seeing double-digit growth in software development. It’s gone beyond just having a website,” Roberto Bezzicheri, CEO of Africa Loop, told OBG.

Key Indicators

IT has become a crucial component of economic growth in Ghana over the last decade. In eight of the last 10 years the sector has grown at double-digit rates, and it has repeatedly outperformed the economy as a whole.

In 2016 the IT sector expanded by 21.7%, lifting its GDP contribution from 2.7% to 3.3%, according to the Ghana Statistical Service, while the economy grew by 3.5% in the same year.

Ghana has the highest mobile broadband penetration rate in sub-Saharan Africa, at 68.4% at the end of 2016, up from 65.3% in 2015. It also has substantial bandwidth as a result of five sub-sea cable connections that land in the country. Ghana currently has 7.16 TB of bandwidth capacity.

Demand

Rising consumer demand – buoyed by increasing network capacity and broadband usage – is a primary driver. “Demand for IT services is growing three times faster than GDP,” Derek Appiah, country manager at Microsoft Ghana, told OBG.

However, the rise in online activity by retail consumers is not necessarily being matched by corporate clients. In terms of services, the IT sector is still dependent on a limited number of verticals. “Besides telecoms and financial services, there are not that many companies investing in IT products and services,” Jonathan Tawiah, CEO of Ostec, told OBG. “However, as other sectors increasingly formalise and see a greater degree of development, that will change.”This is not unusual in a developing economy. However, there is currently little sign that large contract opportunities will arise outside of the financial services industries. “Most of the demand for IT products comes from the banking sector. As the government’s deficit goes down, the banking sector needs to transform its business to be more customer oriented. They will require the help of IT services for this,” Appiah told OBG.

To some extent, this is an issue that cannot easily be resolved. The most developed areas of the economy drive IT investment. Currently, services account for 59% of the country’s GDP, with financial services playing a leading role in the local economy. As such, the current concentration of IT services is rather a reflection of the current structure of the local economy, rather than the focus and abilities of IT firms. There are other factors constraining the industry too, such as the high operational costs associated with the exchange rate, and finding qualified employees. “It is very difficult to engage skillful staff. Everybody comes from schools that are not very well equipped to teach high-level programming. They know a bit of everything but only at a surface level,” Bezzicheri told OBG (see analysis).

Government Policy & Oversight

The sector is overseen by the Ministry of Communications and its IT-specific arm, the National Information Technology Agency (NITA). The government is aiming to address the constraints on the industry through a number of initiatives. The state’s primary IT plan is the ICT for Accelerated Development Policy, which has been in place since 2003.

However, a range of government departments and initiatives have been concerned with the development and uptake of IT infrastructure and services. In July 2017 the government launched the National Entrepreneurship and Innovation Plan (NEIP) via the Ministry of Business Development. While the policy has a broad remit to foster entrepreneurship in young Ghanaians, the IT sector comes in for particular attention. The strategy has several components, including a commitment of $10m in seed money to support the raising of further capital from the private sector; tax incentives for start-ups; and a “buy local” provision under which IT services are contracted to Ghanaian youth-owned businesses.

On launching the NEIP, President Nana Akufo-Addo said, “We need to do all within our power to create an entrepreneurial climate, to enable our young people [to] come up with creative ideas that can be developed into businesses.”

The government is also looking at improving its own IT capabilities through the e-Government Infrastructure Platform Project and NITA’s Open Data Initiative, which seeks to make government data available to the public through the development of mobile and web applications.

Outsourcing & Cloud

The government has also launched a number of other initiatives to support IT growth, including a collaboration between the Ministry of Communications and Ghana Technology University College to develop Ghanaians as call centre and data entry trainers to support the domestic business process outsourcing (BPO) industry.

The rationale behind this is clear. According to the 2016 AT Kearney Global Services Location Index, Ghana was the number one destination in sub-Saharan Africa for BPO. Out of the 55 global economies included the country ranked 29th.

The index ranks the top nations for BPO worldwide based on financial attractiveness, people skills and availability, and business environment. In terms of BPO Ghana has many advantages, including a cost-competitive workforce that speaks English and an attractive time zone location.

Progress has been slow in some areas. The World Bank and the Rockefeller Foundation funded the $8.3m Accra Digital Centre, a BPO facility, in 2011, yet it took until 2017 for it to be ready to accept tenants. Once fully operational, the project has the potential to create 10,000 direct and indirect jobs.

There is also much to be done in terms of hosting and routing. Often data is routed via Europe and back into the country as a result of the superior infrastructure and pricing for hosting services overseas. “Pricing for services outside the country, like Amazon, is better than that offered by local providers, but this will change,” Daniel Abunu, co-founder of Viotech, told OBG. The government has already taken steps to boost capacity locally. In January 2016 it opened a $300m data centre in Ghana. Planned by NITA and developed by Alcatel and Huawei Technologies, the facility is used for government services but also offers colocation space for private businesses.

Infrastructure

There has also been a strong emphasis on infrastructure development in recent years. The Ghana Investment Fund for Telecommunications (GIFTEL), for example, helps support the deployment of mobile towers in underserved areas. Thus far, GIFTEL has established 39 telecoms facilities that serve at least 273 remote communities.

There has also been a successful rollout of a fibre-optic backbone across much of the country. In 2015 telecoms equipment company Alcatel-Lucent announced that it had completed the $38m Eastern Corridor project, which connects Ho, in the Volta Region, with Bawku in the Upper East Region. The 800-km fibre corridor supports internet connectivity for around 120 communities.

As is common in West Africa, the quality and cost of connectivity can vary significantly. Ghana has 52 operational internet service providers (ISPs), but last-mile deployment remains a challenge. There are currently 0.3 fixed-broadband subscriptions per 100 habitants, a figure that has not changed substantially since 2012. While significant bandwidth lands in the country through sub-sea cables, it is not necessarily reaching consumers. “I don’t see a big infrastructure push for fibre,” Bezzicheri told OBG. “We have a problem with access to bandwidth.”

Fibre Deployment

This could begin to change in the coming years. CS quared – the Kenya-based African infrastructure brand of Google, which attracted new investment from Convergence Partners, the International Finance Corporation and Mitsui in 2017 – has plans to bring wholesale broadband capacity to urban Africa, and has already delivered more than 840 km of fibre to Accra, Tema and Kumasi in Ghana.

Known as Project Link, the initiative to bring connectivity to metropolitan areas of the country will start with an initial deployment of 1000 km of fibre. The network has allowed local service providers to offer fast and cost-competitive broadband to the market. In Uganda and Ghana, more than 25 ISPs and mobile network operators have connected to CS quared’s networks, and offered broadband either through direct last-mile connections to commercial buildings or through the connection of base stations to the network. Thus far, more than 1200 towers have been connected to CS quared’s fibre.

Praveen Sadalage, CEO of Busy Internet in Ghana, told local press, “With CS quared, we are consistently able to meet and exceed our consumer and business customer expectations of reliability and quality.”

Start-Up Culture

As Ghana’s IT infrastructure expands and develops, so does its range of services and companies, with the country placing a strong emphasis on entrepreneurship, innovation and start-up culture. While Ghana may struggle to compete with the three largest start-up investment destinations on the continent – South Africa, Kenya and Nigeria – it remains an attractive location for nascent technology businesses.

“Nigeria has more liquidity than Ghana because it is a bigger market, but Ghana has better market stability,” Chris-Samson Andoh, managing director of TechFin Innovations, told OBG. “It is a better place to launch, and then you can take the same product and model to other countries in the region.”

This stability has helped bring in foreign incubators to help nurture local talent. In 2008, for example, Meltwater Entrepreneurial School of Technology (MEST), an offshoot of the US non-profit Meltwater Group, opted to set up its first facility on the continent in Ghana rather than in other, larger African markets. MEST has been a pioneer of start-up culture in Ghana, creating a sustainable ecosystem via training programmes and early-stage seed investments, usually of $50,000. In its first eight years MEST invested around $20m in African start-ups. Accra is now home to several other incubators, hubs and co-working spaces that offer a range of services. These include iSpace and Impact Hub Accra.

Seed & Venture Capital

As is the case across the continent and in all sectors, access to finance for early-stage start-ups can be a challenge, but here too the country has seen an improving outlook.

Accra is currently home to the Ghana Angel Investor Network (GAIN), which provides early-stage capital for new domestic businesses. Several local start-ups have also profited from rising international interest in the local market. For example, OMG Digital, a new media company, received $1.1m in seed funding in June 2017 from international investors, including US seed accelerator Y Combinator.

However, while Ghana can point to these success stories, not everybody is convinced that the environment for entrepreneurial development has reached its full potential yet. “In Ghana, it is very difficult for start-ups. Banking and investment houses won’t back us,” Addo told OBG. “Those getting funding are mainly getting it from outside the country.” Indeed, there is a debate around the “missing middle”, or the financing gap for small and medium-sized enterprises (SMEs) looking for funding of between GHS100,000 ($23,900) and GHS2m ($479,000).

While MEST and GAIN have provided a welcome formula for local tech investment, many early-stage start-ups continue to miss out. It can be a particularly difficult market in the nascent stages of a product, when an entrepreneur typically requires support – both financial and otherwise – to take an idea from conception to market. “Once you pass the initial stage of the product, it becomes easier,” Regina Honu, CEO of Soronko Solutions, told OBG. “Once you have created a brand, you can look outside for funding and support.”

Outlook

These challenges are far from unique to Ghana. In many developing markets in Africa and beyond, access to capital for SMEs and start-ups remains a hurdle. However, as Ghana continues to develop its IT infrastructure and ecosystem, the reticence of investors is likely to dissipate. “I think there is tremendous potential for a good return on investment based on the growth of the digital and cashless society,” Addo told OBG.

The local market will provide plenty of opportunity for a wide array of IT products and services. Although the country does not have the biggest consumer market, it has stability, relatively high broadband usage and penetration, government support, and a developing ecosystem for new tech firms. As such, Ghana is likely to continue to punch above its weight as a pioneering IT market in Africa.

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The Report: Ghana 2018

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