Andile Ngcaba

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Doreen Bogdan-Martin:

We have 3.7 billion people that are excluded from the digital world, unconnected. What's needed to connect them? Financing is one of the critical pieces and particularly, for Least Developed Countries, Landlocked Developing Countries and Small Island Developing States. We have witnessed a range of traditional as well as innovative financing approaches being tried and tested in various markets and sectors. And to talk about this, I'm absolutely thrilled to have with me Andile Ngcaba. Andile is a South African businessman who has devoted most of his life and career to the field of technology, in particular communications in both the private and the public sector. He is the chairman and the founder of the investment group, Convergence Partners. Andile, thank you for taking the time to chat with us. How are you?

Andile Ngcaba:

I'm good. How are you? Thank you for inviting me on this very important day, the Telecommunication and Information Society Day. Thank you, I sincerely appreciate it.

Doreen Bogdan-Martin:

Thank you so much. Andile, you have extensive experience in both government and the private sector, including technology, communications and investment. And, this really sounds like the perfect mix for a solution provider to the connectivity challenge that we face today. What's your take on what's required to overcome the inherent connectivity challenge?

Andile Ngcaba:

Thank you very much. I think the foundation for success for our society is that of partnership between private sector, public sector, multilateral institutions, partnership between what I call the next generation or the millennials, the young people, and those who have experience. Unless we find that very good mix of working together, listening to each other, that is the only way we can solve this big problem, or this capital required as you Doreen presented it the other day, that the world will need US$428 billion to solve this problem of unconnected people. And in Africa, where I am located with a population of 1.3 billion people and that in 2050, we will have 2.5 billion people, at least between now and 2030, we need a hundred billion dollars to close this gap.

Doreen Bogdan-Martin:

So, a hundred billion for Africa and US$428 billion, as you mentioned for the world at large to close that gap.  Of course partnerships are key, as you rightly mentioned, what else can we do to bridge the financing gap?

Andile Ngcaba:

I think the way I would answer that is, to look at how are we financing technology today. How have we financed these mobile networks,  internet companies, data centers so far, and to be able to know what is missing. In the past, and till today, we have used money from private equity funds which I'm very active in, in the continent as a leading technology sector private equity fund. We have investments through development finance institutions, the DFIs, the OPIC now DFC, the CDCs, the Proparco, the DECS, the European Investment Bank, you name them – that's another big block. We have equities market and  companies listed in various exchanges. We have bond market assisting and universal service funds coming out of license fees from regulators that are predetermined in law.

And we also have startups and entrepreneurs, there is a mix of all the funding platforms that we see today. But we all know very well that these are not enough to be able to address the gap that we are dealing with. Now, how do we innovate for new models of funding to bring more capital into our industry? This is an area that we have been spending a lot of time researching.

For instance, one area we have seen is that of using this model of DeFi, or distributed finance basically, through blockchain, through cryptocurrency, as one new vertical of funding growth or development in the ICT or Telco or tech sector, that is one area. The second one, we believe that the appropriate utilization of what we define as the funds coming out of license fees, other people call universal service funds, other people are renaming them as digital funds. So that's another bucket that really requires more dynamic management than the way it has been managed in the past. I think we need to engage governments in that side.

Now the last one is what I call digital bonds. We have seen a good example recently by the European Investment Bank that has launched a digital bond and Goldman Sachs basically is a lead manager of that digital bond. I will just give you those three for now. I can take in a little bit into detail of each of these as we go forward through the podcast. Thank you.

Doreen Bogdan-Martin:

Thank you. So, you've mentioned lots of new and more innovative methods. How about the traditional ones, you touched on universal service funds?  We have things like spectrum auctions. We've seen some community financing arrangements. Can you share your thoughts about whether those models are working?

Andile Ngcaba:

I think those models can be improved.  They have worked in the past, but I think there are a lot of gaps. Where are the gaps? I think the government is very good in putting in laws and policies and regulations, but managing funds is a game that requires experts. While some of the money paid via regulator, they then go to the fiscals, but the money went to these funds to get a return on investment.  In my view, you need to give them to people who understand managing funds, in the same way as development finance institutions, they look for private equity funds to manage those funds, Because governments are very good at policies and regulations – but as fund managers, they require much more dynamic innovation. That is why  we are  saying: there's a need for maybe changing that model a little bit. Yes, a percentage of license fees must go to the universal service fund or digital fund, but the management of these funds in order to get maximum utilization to address this 428 billion globally or the hundred billion in Africa, we need to manage these funds with good skills, appropriate deployment, good return on investment and continue to reinvest this money.

That is where I say that the way in which these universal service funds were created, they were created under 2G environment. And, there was a very, unfortunately I would say… in the nineties, I was part of advocating for this, but the fund management has actually evolved and it's more sophisticated. But the way this money is managed by state institutions, has has not evolved to modern management of funds today, taking into consideration, clean environment, CO2 emissions [etc.] You cannot fund new development and disregard issues of ensuring that in whatever way you fund universal service, you must take into consideration environmental issues for instance, or broadly ESG, as we say it.

Doreen Bogdan-Martin:

That's great. Those are some really valid recommendations on  the ways that we can retool our universal service funds. Thank you for that. Maybe switching a little bit to incentives. Do you think we need incentives to encourage investors to put money in connectivity and help connect those 3.7 billion unconnected?

Andile Ngcaba:

Absolutely. I mean if we go back to the early nineties. When the spectrum of 2G at 900 mega Hertz was given out in different parts of the world. If you remember the interconnect model between fixed and mobile, none of us during those days in 1992, 1993 or 1994 knew the extent to which mobile is going to be what it is today. We all thought that what we knew as a fixed telephony driven by fixed telcos, mobile was going to grow to a certain extent right? But it is  the tariff model that propelled mobile to be where it is today. So yes, incentives are very critical as we get into IOT, as we get into this new digital way of communications. How would that incentive be designed? That incentive can be designed, for instance, by relaxation of license fees, maybe for the first five years, as we don't know how connected cars, connected tractors… take for example agri-tech and agri-connectivity, because we want to solve food security. We need to relax spectrum fees, to connect agri-tech, to connect tractors, to connect technologies that will drive agriculture. There must be maybe a relaxation of spectrum or license for those people who want to provide connectivity to modernize agriculture because of the direct benefit to society, through food security etc.

The second one is connectivity for instance, to drive smart energy. We need to subsidize, or  create incentive plans because we want to accelerate clean technology, clean environment. That needs to be accelerated. In the energy sector, connecting the national smart grid, for instance and clean tech and agri-tech.,

If you take the Giga project that we have been involved in since 2019– that you have been leading— one of the critical issues as we were finishing Giga, COVID-19 came. We realized that connecting schools, learning through digital is a priority. And yet the pricing of connectivity to education content for schools is still making it difficult for children to have access to education and COVID has laid bare that challenge. That is where incentives in education, in health, in agriculture are needed. So our licensing model as regulators, our policy environment, both from a national policy and global policy at the UN or ITU level, there has to be sectors that are prioritized, that are almost created with an incentive ecosystem. These are the areas I’ve identified; agri for food security (how you provide connectivity there), education through the GIGA project, for instance, and health tech to connect clinics. You need to find a way and a model to create incentives, innovation subsidies for those critical sectors in the world. So that's where I would see innovation and the model of incentivizing by setting tariff models, licensing models, for those people who focus in those areas

Doreen Bogdan-Martin:

Those are terrific examples from education to health, agriculture, smart energy, clean environments. Maybe switching gears to your investor side and your early bets on ICT connectivity in Africa, which at the time in some cases were perceived as risky. What do you think is one of the most misunderstood perceptions of ICT connectivity investing in emerging markets?

Andile Ngcaba:

I think a lot of investors that I talk to is a return on investment. I mean, that's the question I get. Every time we present to a new investor, showing them our history of return on investment, whether in submarine cables, whether in land-based fiber, whether in mobile, whether in the application layer, people are  saying, ‘are these the margins or the returns you have been getting?’, ‘can we go and ask your other investors?’. And they realize that  these are the returns that you get, but there is this perception that investing in Africa, or in emerging markets in the tech sector, they are risky or there are limited returns compared to the other parts of the world. I can tell you, I'm a true example of that. We went in the Indian ocean for the first time, there was no cable there. We went in after modeling what we believed was the traffic there.  That business is profitable. Now how many more people came into East Africa to put in cables after us? There are more than four cables, who else is going there? Facebook is going there again.  Is there new further opportunities for future cables? The answer is yes. Will those cables make money? The answer is yes. So, what I'm saying is if you look at the micro level of revenue per user in Africa. It might be smaller than revenue per user in Europe, but the number of users we have and the age of the users we have is what is called demographic dividends, and the number of that population balances the fewer numbers of users in Europe. But the older population in Europe does not live on the internet. The younger population in Africa that is below the age of 30, they spend most of their time on the internet. And the numbers are big. So, it depends on the way in which you model these things; we are talking about scale, but revenue per user might be small, but from a scale point of view, it gives us that huge ability. If you look at the latest research done by TeleGeography of looking at traffic in the continent that is traffic to data center, internet traffic, Africa is growing at 47% year on year of traffic from 2016. That's growing faster than any other part of the world. Yes, we're moving from a lower base, there's no doubt about it. That one is accepted. But look at the upside, the upside is phenomenal. There's an opportunity for investors.

I would say to investors: look at the models, look at ‘why would Facebook want to build 180 terabits per second fiber around Africa?’, ‘why would Google want to build a hundred terabits per second on the West coast of the African continent?’ ,‘why would AWS build a tier-four data center in Cape Town?’, ‘why would Microsoft build a tier-four data center in Johannesburg and Cape Town?’ ,‘why would Netflix invest in the content of the African continent?’.

This is just an illustration of the leading OTT companies that today have significant presence in the African continent. It proves that there is a market. You get a return on the investment. There is growth, and this market is proving to be more successful than people anticipated 10 and 15 years ago.

The cherry on top is in the FinTech space. We are leading in FinTech. If you look at the number of startups, whether using blockchain and FinTech or DeFi, or for instance mobile payments in that entire ecosystem of remittances, basically Africa is leading in that environment. And therefore, there is an opportunity for any investor. I would say to look at Africa as a market and you will get return on your investment. I have investors that I work with from Europe, from the U.S., basically who believe in Africa, whom we have been investing together for the last 10 or 15 years and we're continuing to invest  in the plans going to 2034 in the funds that we are establishing today. So, for somebody to be involved in funds till 2034 today, it's very clear that there is a great opportunity that people see. That would really be my message to any investor that is thinking about Africa.

Doreen Bogdan-Martin:

That's terrific, a very powerful, clear message to investors, opportunities for growth. There's a market, and you can get a return on investment by trying to connect the least connected, the last billion, the last mile. Thank you for that. Andile, you mentioned blockchain as a technology that can be a game changer in terms of ICT investment in connectivity. Can you elaborate a little bit about what you mean?

Andile Ngcaba:

I'll give you a couple of examples.  One of the most important areas through the use of blockchain in our industry is that there are companies today, who are using blockchain to tokenize ownership of real estate.  

Let's say there is an apartment you want to buy in Lisbon or in Geneva. This company, for instance, is based in Switzerland. You can buy a fraction of that property to own it by putting a small amount of money,  that is called fraction ownership, using blockchain. One of the most important issues we are now talking about is ‘how do you mobilize local investments’. In South Africa, there is a model called stock fells where people put money together to buy each other properties or to buy valuable assets. You come together as seven and buy a property for somebody in year one. It gets held by a particular structure until year seven, where everybody has now acquired the property. What this does, is that it reduces the interest rate over time and it's able to allow ownership of the asset in this group structure that people have done. Now, they call this stock fell model. It has been there from the fifties. How people have bought assets basically through this collective ownership and collective way of putting money together, it is very common in different parts of the African continent. People use it when they need a plow in the fields, because in a farm or in the  fields, people don't have enough resources, so they collect in order to get a tractor, and to help and then they move the tractor to somebody else and so on. So almost it is a syndication if you want. And that is a very common feature in what I call community economic evolution through history. If you look at that and you look at this fraction ownership or tokenization of assets. One way is the old rural telephone association in the U.S. which is existing even till  today, that co-op model has worked and it is still working. And when the FCC more than 50 years ago adopted this model, they realized that you cannot solve rural problems in the U.S. by applying a San Francisco model or a New York model. In the rural Midwest, you have to come up with a different approach of a co-op model.

That association still exists today and those people are building broadband now. What I'm saying is that you can adopt that same model but in the age of blockchain, in the age of crypto, and allow fractional ownership of a rural broadband in a small town of Malawi, or in a small town of Cote d'Ivoire where the farmers, the rural people, the small traders in that area are able to own a fraction of that broadband network. Today, what you only need is peering. And then if local people have a skin in the game, in the ownership of the network, they will look after it. Then a development institution can co-invest with them. This platform of blockchain would allow that to happen, it would allow fractional ownership, tokenization of that rural or small town network, where people feel ownership of it.

So taking a model that has been used in the U.S. successfully for rural communications over decades, but combining it with modern digital blockchain technology,  and bringing these things together, one will be able to come up with ownership of small town networks, where sometimes, MNOs or telcos would find it difficult, where they say to the regulator, to the policy maker, ‘how do we go there?’. Now, if you then have the community owning fractions of this using blockchain and you also have money from the universal service coming into that co-op, or that fractional ownership model. And then you also have a DFI on the other side contributing, that would be using this digital bond. So there's a digital bond from the DFI, there's money from universal service fund, there's fractional ownership from the rural community and small traders in that small town that combination of ownership would then own that business and run it. And there will be skin in the game for people in this small town to feel ownership of that asset. That is how I see the way in which you would apply blockchain basically.

Doreen Bogdan-Martin:

So, to try to orchestrate this kind of combination, what do you think would need to be done to make communities, in particular in developing countries, more comfortable with blockchain and cryptocurrencies? And then linked to that, if I can also throw in because you mentioned the demographic dividend and the large youth population in Africa, how about crowdsourcing investment? Is that also something that could be put on the table?

Andile Ngcaba:

Exactly. By fractional ownership you are almost crowdsourcing the platform. You are crowdsourcing the investment, young people will put in money into this because they know their livelihood today is online. I mean, every young person understands it more than us. For them being online all the time is not a choice, but it's the way of life today. And therefore, for them to contribute to this platform of them being online, because they realize that their livelihood is based on this. So crowdsourcing platform being blockchain and fractional ownership and tokenization, because who is going to manage the network after all? It's still them, the young people who are going to be technicians who are going to be field workers to make sure that the network is running. So, if we look at a network in the age of the Internet as different to that network of interconnect, network of termination and origination of traffic, it's all about peering today.

You have a pump in a small town, that's all what you need. And people able to access the pump in whatever form or nature using WiFI 6, for instance, using mesh technology, using unlicensed spectrum, as long as the regulators will say, if young people or people in a small town want to have a license to use, for instance license exempt spectrum. Those license fees must be almost next to nothing or zero, zero-rated license fees and zero-rated tariffs, spectrum – if you look at  at higher spectrum, the spectrum that is used by Facebook and Terragraph at E band, you don't need a license fee. That spectrum is good. That technology is usable. And they are now open-source core network technologies like Magma that has been deployed by Facebook and a number of opensource tools by the Linux Foundation. You can actually build a network outside proprietary providers using open source and be able to deliver good services to people without paying license fees, using open source. You go to GitHub, you find all these tools, they are there.

Doreen Bogdan-Martin:

Incredible Andile, thank you so much for your fresh thinking. You know, there's lots of skeptics out there, and I'm really grateful for your insights for sharing your experience, your recommendations, and of course, for your optimism. I think what you have shown during our conversation is that we can concretely and practically finance this gap in connectivity and ensure that we do connect those 3.7 billion people that are waiting to be connected. And finally, I'm putting the same question to all of my interviewees. What was your first mobile device and how did it change your life?

Andile Ngcaba:

My, first mobile device was Ericsson, the one that you flip open, and I must say that I was lucky in the fact that there was something called NMT 450, which used the 450 megahertz that is pre-2G, which was that briefcase, the briefcase that you had to carry to make a mobile call. I was fortunate to have those. When I had the 900 2G phone which couldn't roam, remember in the U.S., you couldn't roam to CDMA and GSM. Remember those days, those things were very separate. You had to go and find another SIM card, not just another SIM card, another phone. There was CDMA and there was GSM and there was (inaudible term) DMS, there was amps. I was lucky to have pre that era, the little suitcase, which was NMT 450 that we were using at the time. It was like a briefcase.

Doreen Bogdan-Martin:

I remember we've come a long way. but I do think we still have ways to go. We've made progress, but lots of work to be done to connect those 3.7 billion and daily. Thank you so much for spending this time with us again, for sharing your fascinating and inspirational stories and insights. And this concludes this episode of the UNconnected podcast, until next time let's stay connected. Goodbye.

Technician:

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