Africa’s cloud market is small but growing fast, and everyone wants a slice

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Amazon recently announced it was launching its e-commerce service in South Africa—its second dedicated African market. But like its other big tech rivals, Microsoft and Oracle, the group’s heart is in Africa’s fast-growing cloud services market.

Sales of cloud services are slowing down in North America the world’s biggest cloud market. Amazon’s cloud computing unit has been particularly affected and is losing market share to Google Cloud and Microsoft Azure among others. Africa is one of the global regions where a significant portion of demand for cloud services is expected to come from. According to digital research consultancy, Xalam Analytics, demand for cloud computing services in Africa is growing at between 25% and 30% annually. This compares favourably with Europe where compound annual growth rates (CAGR) is estimated at 11.27% between 2023 and 2028. In North America, the figure is 10.34%.

Elastic cloud computing is the technology at the heart of cloud computing. Elastic computing refers to virtual server programs that allow users to rent units of storage space, network connectivity, and computing power from clusters of data centres globally. Created by a small Amazon team in Cape Town, South Africa in 2003, the service that has become AWS, Amazon’s largest subsidiary accounted for half of Amazon’s operating profit in 2022 and helped reduce heavy losses incurred by Amazon’s e-commerce business, investments and movie streaming platform last year. AWS has been described as Amazon’s profit engine. But this profit engine is slowing down in the most developed markets and showing signs of promise in smaller markets that are rapidly adopting digital technology.

African banks, insurance companies, airlines and airports are moving their data and IT systems to virtual servers and shuttering costly self-operated data centres. Even telecommunications giants in Africa like MTN Group are not left out. In March, the telco announced it had deployed the core service for its 5G service on Microsoft’s cloud platform Azure. South Africa’s Old Mutual, shut down its physical data centres to move its workloads almost entirely to the cloud. At TechCabal’s Moonshot conference, Osahon Akpata, Ecobank’s Head of Consumer Payments, noted that the pan-African bank was progressively moving assets to cloud platforms. African startups which continue to raise billions in funding from investors are naturally built on cloud platforms.

Potential market built on a handful of big spenders

While Africa represents an opportunity for cloud service providers, the market is still small. The German research service, Statista predicts that revenue from public cloud services in Africa will reach ~$8.3 billion by the end of 2023. By comparison, public cloud revenue in India last year reached $6.2 billion, market intelligence firm International Data Corp reported.

Unlike more mature markets where cloud services like AWS face growing competition, slowing investment into technology startups will not significantly affect the growth of cloud computing services in Africa. “Our priority customers are enterprise businesses with deep pockets and $100 million in annual revenue,” a cloud engineer at AWS told TechCabal. Startups are a distant second in terms of revenue, and video streaming is beginning to make its mark in cloud service demand. Senior AWS staff who spoke with TechCabal say digital content including video streaming from local media outlets, like Arise News, is helping grow demand for cloud services in Nigeria. But the big cloud service providers have not cracked Africa’s public purse yet. 

Governments are hesitant to move data to public cloud platforms. On-premise data systems or contracts with smaller cloud service providers continue to dominate government cloud spending. Moreover, new data localisation rules threaten to constrain the private cloud market, where some of the biggest customers are financial institutions. Concerns about data localisation requirements were partly behind AWS’s decision to open a Local Zone in Lagos earlier this year.

A race to win early market share

In their latest report released during Mobile World Congress in Kigali in October 2023, the GSM Association (GSMA) says smartphones will account for 88% of total mobile connections in Africa (with the exception of North Africa) by 2030. In the same year, they expect 200 million new unique mobile subscribers to join the growing number of Africans who use mobile phones.

The variable but growing use of digital platforms for government services, private businesses, and personal life in Africa is forcing IT companies to find dynamic ways of serving this demand. Cybersecurity concerns and the ability to quickly ramp up services to respond to brief spikes in service demand increase this pressure. 

For example, when a central bank demonetisation program forced Nigerians to use digital money transfer options earlier this year, the money transfer services offered by Nigerian banks were frequently down and failed transactions were a common complaint. Fintechs with cloud capability were better able to handle the spike in digital transactions and grabbed valuable market share as a result. 

As digital financial services providers and other technology startups begin to become an embedded part of African economies, cloud platforms are in a race to grab market share. Almost all of AWS’s staff in Lagos—about 20 in total—are involved in sales and marketing. Flutterwave recently announced a 5-year partnership with Microsoft that will see the $3 billion (at last valuation) fintech process payments for its global merchants on Azure. Oracle, on the other hand, is leveraging its existing relationships with clients who use other Oracle products to cross-sell its cloud service. Last year South African retailer began the process of moving its digital operations to Oracle’s Retail Merchandising Cloud Services. The retailer shed its internal inventory management system for the costly change which was completed in March 2023. 

“We needed to modernise our retail infrastructure and leverage cloud technology to establish a sustainable and stable application foundation for our high volume processes,” Kim Sim, Chief Information Officer, Mr Price said. “Our vision is to be the most valuable retailer in Africa and we know that Oracle’s proven cloud platform can help us meet the needs of our growing community.”

The transition to the cloud did not come without cost – all ERP implementation projects typically do. Earlier in the year, the retailer acknowledged that the switch negatively impacted its revenue for the full year ending April 2023.

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