Africa stands on the cusp of a digital revolution, with the potential to leapfrog into an era of unprecedented connectivity and innovation. At the heart of this transformation lies the smartphone – a tool that has become indispensable in accessing information, services, and opportunities in the global digital economy. However, the promise of a digitally inclusive Africa is tempered by the challenge of smartphone affordability, a critical barrier for many across the continent. With the proliferation of digital services and the increasing need for internet connectivity, smartphones have become essential for many Africans. However, the high upfront cost of these devices remains a barrier for a significant portion of the population. As smartphone adoption continues to surge across Africa, a unique and untapped market opportunity exists: smartphone device financing.
Sub-Saharan Africa has the highest percentage of basic or feature phone connections, accounting for 45%. In addition, a significant share of smartphones in Sub-Saharan Africa support 3G only, whereas in other regions, most smartphones are 4G or 5G capable. The diagram below shows smartphones as a proportion of total mobile connections for high-income countries and LMICs (by region). Growth continues in Sub-Saharan Africa but is still lagging behind other regions, with smartphones accounting for less than half of total connections.
Emerging markets in Asia Pacific, Latin America and Sub-Saharan Africa will see the most significant increase in smartphone adoption, helped by increasing affordability. Average selling prices for smartphones continue to decline, and initiatives are proving successful in driving uptake. Meanwhile, most new phone users are digital natives who rely on devices for multiple activities beyond traditional voice calls and SMS. This factor will sustain demand for smartphones across every region for the foreseeable future. This is a massive opportunity for mobile network operators, fintech startups and investors in device financing as the industry converts 2G/3G users to 4G/5G users. By 2030, sub-Saharan Africa is expected to reach 50% of subscriber penetration. Of that 50%, 87% is expected to be using smartphones (GSMA, The Mobile Economy, 2023). Addressing this gap, smartphone device financing presents a novel investment avenue, coupling social impact with economic viability.
The Catalyst of Connectivity
Smartphones have revolutionized how we communicate, work, and access services. In African markets, where traditional banking and service access can be limited, smartphones offer a gateway to various essential services, from mobile banking to health and education resources. The digital divide remains a significant global challenge, particularly pronounced in emerging economies lacking widespread access to digital tools, such as smartphones. Owning a smartphone is essential for adopting and using mobile internet and benefiting from the life-enhancing services the internet can offer. Recent research has found that smartphone owners are much more likely than owners of feature phones or basic phones to progress to regular mobile internet use. Smartphone adoption continues to increase. Globally, smartphones accounted for 68% of total mobile connections in 2020, compared to 64% in 2019 and 47% in 2016 (GSM, The State of Mobile Internet Connectivity 2021).
The rapid expansion of mobile internet across Africa has positioned smartphones as pivotal tools for empowerment, serving as the primary means of internet access for millions. These devices offer a portal to a wealth of resources and services, from digital banking and online education to e-health and e-commerce. Yet, the full potential of this digital gateway remains untapped for a significant portion of the population, hindered by affordability challenges.
Target Demographic for Device Financing
Focusing on the 'bottom of the pyramid,' device financing taps into an underserved market segment, offering significant scale potential. Device Financing's inclusive strategies, particularly alternative credit scoring, open doors for millions lacking formal financial histories, positioning device financing as a market expander rather than a market competitor. Africa boasted over 477 million mobile users in 2020, with a continued CAGR of 3.4% and predicted to reach 614 million by 2025 (GSMA, 2020). Smartphone adoption will reach 88% in sub-Saharan Africa by 2030, up from 51% in 2022, according to the “The Mobile Economy - Sub-Saharan Africa 2023” report released on Feb. 27, 2023, by the Global System Operators and Manufacturers Association (GSMA).
Barriers to Smartphone Ownership
Economic Constraints: The cost of smartphones, while decreasing, still represents a significant expenditure for many, particularly when juxtaposed against the backdrop of varying economic conditions across African nations.
Limited Infrastructure: In areas where digital infrastructure is still developing, the incentives to invest in a smartphone are diminished by inconsistent connectivity, affecting the perceived value of smartphone ownership.
Access to Credit: Traditional financial systems in many African countries offer limited credit services, especially to those without formal financial histories, making it challenging to finance the purchase of smartphones.
Pathways to Affordability
In response to these challenges, a variety of innovative approaches are being adopted to make smartphones more accessible. Device financing represents one of the most common interventions in promoting smartphone access. Converting the upfront cost of smartphones into instalment payments makes devices affordable for those unable to save enough money to cover the device's purchase price. Practical designs for device financing, like affordable loans with flexible payments, help to make 4G devices readily available and enable control of payment patterns according to incomes. Customers can access device financing through Mobile Network Operators (MNOs), formal and informal financial institutions, alternative credit providers, or government initiatives (Strategies Towards Universal Smartphone Access, 2022).
Creative Financing Models: New financing models are emerging, providing flexible payment options that allow consumers to acquire smartphones without the burden of upfront costs. These models often utilize non-traditional data to assess creditworthiness, broadening eligibility beyond those with formal credit histories.
Partnership-Driven Solutions: Collaborations between mobile manufacturers, telecom operators, and governments are yielding subsidized and economically priced smartphones, specifically tailored to meet the needs of the African market.
Bundled Offers: Telecom operators are packaging smartphones with data and service plans, offering them at attractive prices or on installment plans to encourage uptake among their user base.
Thriving Second-Hand Markets: The rise of certified pre-owned and refurbished smartphone markets is providing a sustainable and affordable alternative for consumers looking for quality devices at lower price points.
Forging Ahead
The journey towards universal smartphone affordability in Africa is a collaborative endeavor that necessitates concerted efforts from all sectors. Policy reforms can lower the cost barrier, infrastructure enhancements can increase the utility of smartphones, and continued innovation in financial and business models can provide the means for acquisition.