Africa is currently buzzing with leapfrog development. How will business change amid this market's rapid growth?

Africa, where mobile phone adoption has surged and various innovations utilizing ICT (Information and Communication Technology) – such as drones and cashless payments – are emerging. This ultra-high-speed development has recently drawn significant attention as "Leap Frog" development.

Why are so many groundbreaking innovations happening in Africa now? And how will these major changes in Africa affect us? To answer these questions, this article examines the theme: "How will the Leap Frog phenomenon in Africa transform global business?" It serves as a reference not only for those exploring new business opportunities targeting the African market, but also for anyone wanting to stay abreast of the latest trends in the global marketplace.

What is the "Leapfrog Phenomenon" where developing countries advance in one leap?

The combination of Africa and frogs might seem unexpected. "Leapfrog" translates to "frog leap" in Japanese. It refers to a phenomenon where emerging nations, lacking developed social infrastructure, rapidly adopt new technologies, ICT, and digital services, bypassing the innovation processes typically seen in developed nations like Europe, the US, and Japan. In recent years, this leapfrog-style development has been remarkably prominent in African nations like Rwanda and Kenya, drawing significant attention in the technology market.

A prime example of leapfrog development is the super app, which we've also covered in another article. A super app is an integrated application that consolidates various functions. While Japan and Western countries followed a process where specialized apps and web services for individual functions gradually became more sophisticated alongside the spread of mobile devices, China and Southeast Asian countries have skipped this process, seeing super apps rapidly proliferate instead.

Of course, leapfrog development in services and businesses is possible beyond emerging and developing nations. However, concrete examples in developed countries remain scarce at this stage. Moreover, reverse innovation—where outstanding products and services born in emerging or developing nations are "reverse-imported" into developed countries—has become increasingly common in recent years.

African nations, bubbling with leapfrog development and becoming epicenters for services utilizing cutting-edge technology, are now drawing significant global attention. They are seen not only as emerging economies but also as entities capable of influencing innovation in developed nations.

Rapidly growing Africa is the epicenter of leapfrog development

Now, let's examine the background of the leapfrog phenomenon in African countries. While some may not immediately associate Africa with cutting-edge technology, it is increasingly recognized as a market where new businesses leveraging advanced technology are emerging rapidly.

A prime example is the explosive proliferation of mobile phones. Currently, mobile phone penetration in Africa has reached approximately 80%, with smartphone ownership surging, particularly among the younger generation. Alongside this, the adoption of electronic payments and cryptocurrencies is rapidly advancing.

In Nigeria, considered Africa's largest cryptocurrency market, the amount of cryptocurrency sent home by expatriates—such as workers employed abroad who lack bank accounts—ranks among the highest globally. This is partly due to Nigeria's government-imposed exchange control system and foreign currency regulations, which make foreign currency payments difficult for international transactions, leading to a preference for cryptocurrency settlements.

Several companies have accurately captured this African economic growth, bypassing the fixed-line telephone phase and achieving explosive proliferation of mobile phones and smartphones. Among these, Chinese companies are particularly prominent. One Chinese mobile device manufacturer sold affordable devices with long battery life, capturing even segments previously untouched by mobile phones and enabling rapid market expansion. Although this manufacturer is based in China, it has targeted Africa as its primary market from the outset. The phenomenon of Africa's hyper-accelerated economic growth can be attributed in large part to the market expansion of mobile phones and smartphones driven by overseas companies.

Why is leapfrog development a phenomenon unique to emerging economies?

The reason leapfrog development occurs in emerging economies like Africa is primarily that advanced technology arrived first, even as social infrastructure remained underdeveloped. Introducing cutting-edge technology simultaneously creates friction with regulations and vested interests. These hurdles are likely why leapfrog development is less common in many developed nations. Conversely, in developing countries, cutting-edge technology itself is largely uncharted territory. The absence of established companies, services, or regulations makes it relatively easier to flexibly adopt new, life-enhancing innovations and services, such as the aforementioned super apps.

Other reasons why emerging economies are more likely to achieve leapfrog development than developed nations include the following:

Reasons why emerging economies are more likely to achieve leapfrog development than developed economies

1. They can utilize technologies already developedby developed countries, saving both cost and time.

2. Infrastructure and educational environments are often insufficient, creating strong demand for innovation through cutting-edge technology.

3. The market is immature and consumer needs are less complex, allowing for the release of low-cost products with limited functionality.

The vast potential to import existing technology and swiftly transform it into essential infrastructure, coupled with a landscape where services permeate the population rapidly—like sand absorbing water—due to fewer existing benchmarks. This characterizes the leapfrog development occurring in Africa.

To connect Africa's leapfrog phenomenon to the development of the global market as a whole

Next, we will examine representative examples of leapfrog development in Africa and consider the implications for global market development. First, we present the cases of Kenya and Rwanda.

Case 1: Mobile Banking (Kenya)
This case involves a mobile money transfer service launched in 2007 by Kenya's largest telecommunications provider. They developed a system enabling even those without bank accounts to easily conduct financial transactions via mobile phone SMS. Within just four years of its launch, the service penetrated approximately 80% of households and has now become an indispensable part of the infrastructure. Because mobile phones became widespread among the population before bank accounts, the service achieved explosive penetration in a short period.

Case 2: Drones in Healthcare (Rwanda)
An American startup launched a service in 2016 to deliver medicines and other supplies via drone. By ordering blood for transfusions or medicines via mobile messaging, drones deliver them to the location at speeds of up to 120 km/h. This achieves an average time savings of about 30 minutes compared to truck transport. While drone cargo transport has not advanced in developed countries due to various constraints, including legal frameworks, in Africa, where road infrastructure is underdeveloped, drone delivery has instead taken root first.

So, what insights can we gain from these examples that sparked nationwide leapfrog phenomena across African nations? Africa was once a region relatively distant from cutting-edge technology. However, as these cases demonstrate, instances where advanced technologies developed by developed nations find new applications here, or where existing businesses and transactions are rapidly expanded through the introduction of cutting-edge technology, have become noticeably more frequent in recent years.

What kinds of services and businesses will emerge in Africa next, sparking the next leapfrog phenomenon? And what should we offer in these rapidly growing markets? As mentioned in this article, combining efforts with regional development businesses targeting the BOP segment (low-income consumers with annual incomes below $3,000) may reveal valuable insights.

The BOP segment, comprising about 70% of the global population primarily in developing countries, is expected to become a powerful volume zone in the future. When considering business for emerging economies, keeping in mind a "sustainable BOP model" where people and organizations create a virtuous cycle of growth could be one key point.

If BOP business can be revitalized to achieve leapfrogging, local people can achieve economic success through their own efforts. The developed countries supporting them can then reverse-innovate by adopting advanced technologies and business utilization models. In this way, leapfrogging in BOP business and reverse innovation for developed countries could potentially create a better cycle of success.

In August 2022, the Japanese government hosted the 8th Tokyo International Conference on African Development (TICAD) in collaboration with the United Nations and others. Africa, often called the "last continent of growth," warrants continued attention not only as a benchmark for exploring next steps in business expansion, but also as a market with significant potential and within the context of the SDGs aiming for sustainable economic growth.

We have seen that key reasons for Africa's leapfrog development include the absence of regulatory friction when adopting cutting-edge technologies like smartphones, coupled with the urgent need for innovation due to insufficient infrastructure. In recent years, African nations have captured global attention and are exerting a tangible influence on the world market. In the near future, leapfrog development in Africa—potentially fueled by the active adoption of reverse innovation models leveraging cutting-edge technologies in developing countries—may significantly transform business practices across both developing and developed nations.