The Impact of Gen AI on Africa’s Economy
The rapid rise of gen AI has captured the world’s imagination and accelerated the integration of AI into the global economy and the lives of people across the world. Gen AI heralds a step change in productivity. As institutions apply AI in novel ways, beyond the advanced analytics and machine learning (ML) applications of the past ten years, the global economy could increase significantly, improving the lives and livelihoods of millions.
Nowhere is this truer than in Africa, a continent that has already demonstrated its ability to use technology to leapfrog traditional development pathways; for example, mobile technology overcoming the fixed-line internet gap, mobile payments in Kenya, and numerous African institutions making the leap to cloud faster than their peers in developed markets. Africa has been quick on the uptake with gen AI, too, with many unique and ingenious applications and deployments well underway.
Across McKinsey’s client service work in Africa, many institutions have tested and deployed AI solutions. Our research has found that more than 40 percent of institutions have either started to experiment with gen AI or have already implemented significant solutions. However, the continent has so far only scratched the surface of what is possible, with both AI and gen AI. If institutions can address barriers and focus on building for scale, our analysis suggests African economies could unlock up to $100 billion in annual economic value across multiple sectors from gen AI alone.
Africa is ready to unlock growth and productivity from gen AI
Analytical AI is already indispensable in several industries, with ML solutions solving analytical tasks faster and more effectively than humans. Now, with gen AI’s broad utility and revolutionary ability to convincingly mimic the human ability to create, including writing text, producing digital art, and composing music, the excitement about the potential of the technology has surged globally and the economic impact is expected to be substantial. McKinsey estimates that gen AI could add $2.6 trillion to $4.4 trillion to the global economy annually across various use cases.
The application of gen AI and AI more broadly already has significant momentum in Africa, with African institutions rapidly catching up with, and in some cases leading, global developments. Businesses and governments are incorporating gen AI in their technology strategies, using it to solve some of Africa’s most pressing problems in novel ways. For example, across Africa, AI-driven translation services for local languages that are underrepresented on the internet are being used to improve cross-cultural communication, increase access to information, and enhance social cohesion.
Although many gen AI applications in Africa tend to be in the experimental or developmental phase, several organizations have successfully implemented AI and gen AI at scale and fully transformed workflows. For example, in Nigeria, a mobile telecommunications provider has been scaling a chatbot that functions as a digital assistant to improve customer experience. In South Africa, financial services providers have been hyperpersonalizing their outbound sales campaigns and significantly cutting down internal time to market using gen AI.
African front-runners are showing us how it’s done but are still just scratching the surface
More than half of the economic potential from gen AI in Africa is concentrated in sectors where there are already front-runners: banking, retail, consumer packaged goods (CPG), telecommunications, insurance, mining, heavy industry, energy, and the public sector. In each of these sectors, organizations are doing pioneering work in advancing the application of gen AI. However, these use cases represent just the tip of the value iceberg. Below, we explore noteworthy developments and opportunities for fully scaling the impact of gen AI in these sectors.
Banking Leapfrog
Around the world, the banking industry’s unique access to large amounts of customer data has created fertile ground for a range of innovative AI use cases along the entire banking value chain. Several banks in Africa have started to seek productivity gains through gen AI by distributing copilot licenses to employees in customer service, risk, and IT. Some are going much further by using gen AI to hyperpersonalize outbound sales campaigns to replace generic marketing messages and cut down on time to market and lengthy review processes.
Most African banks, however, have yet to move their gen AI use cases beyond the proof-of-concept stage. Our analysis indicates that deployment of gen AI across the banking value chain could help unlock $4.7 billion to $7.9 billion in economic value for African banks.
Recommended Actions for Banks:
- Focus on at-scale deployment of gen AI solutions
- Implement new workflows to drive adoption
- Leverage gen AI for hyperpersonalized customer engagement
Retail Leapfrog
Across the world, the adoption of gen AI stands to enhance the entire consumer-facing retail value chain. Many African retailers are unleashing AI across their operations. Prominent retailers with a well-established physical presence across the region have expanded into the online market and are reimagining the shopping experience with gen AI–powered conversational bots that act as personal shopping assistants.
The race is on between digital disruptors and incumbent offline retailers going digital, and gen AI can be a key differentiator. Our analysis suggests that gen AI could unlock $6.6 billion to $10.4 billion of economic value in Africa’s consumer-facing retail sector.
Recommended Actions for Retailers:
- Implement next-gen customer shopping experiences
- Utilize gen AI for hyperpersonalized sales campaigns
- Optimize store operations and in-store experience with gen AI
CPG Leapfrog
Gen AI has significant potential to enhance the entire CPG value chain. Multinational CPG companies in Africa are already using gen AI to engage consumers with creative content and personalization. However, African CPG players have yet to fully exploit their analytical AI opportunities, which moves the gen AI discussion a bit further out of reach.
Our analysis suggests that gen AI could unlock $5.4 billion to $8.9 billion in economic value for African CPG players across the value chain.
Recommended Actions for CPG Players:
- Enhance customer engagement with gen AI
- Optimize operations and manage supply chains with gen AI
- Utilize gen AI for accelerated product pipeline
Telecommunications Leapfrog
Africa’s telecommunications sector is poised for growth as demand for connectivity and data services increases. African telco operators are exploring more ambitious applications of gen AI, including using advanced chatbots to manage more-complex customer interactions and optimize network performance.
Our analysis suggests that at-scale deployment of gen AI with telcos in Africa can unlock $6.0 billion to $9.6 billion in economic value.
Recommended Actions for Telco Operators:
- Boost B2B and B2C marketing and sales with copilots
- Automate activities in procurement and equipping teams for better outcomes
- Enhance customer service and operations with gen AI
Insurance Leapfrog
Globally, the insurance sector has been using AI to improve predictive capabilities. The South African insurance market is pursuing wider and at-scale applications of gen AI, including using gen AI for personalized outbound sales campaigns and hyperpersonalized customer engagement.
We estimate that gen AI could unlock around $2.1 billion to $3.2 billion in economic value for African insurers.
Recommended Actions for Insurers:
- Use gen AI for personalized and gamified educational content
- Automate and standardize customer underwriting, servicing, and claims operations with gen AI
- Implement gen AI for predictive capabilities in leads management and distribution
Mining, Heavy Industry, and Energy Leapfrog
The mining, heavy industry, and energy sectors already rely heavily on analytics and AI. African companies in these sectors are starting to test gen AI’s boundaries, with applications such as gen AI–powered maintenance interfaces to support operators during daily work in the field.
Our analysis indicates that at-scale deployment of gen AI could achieve $5.3 billion to $8.5 billion in economic value for Africa’s mining, heavy industry, and energy sectors.
Recommended Actions for Companies in these Sectors:
- Streamline decision-making in production and operations with gen AI
- Automate activities in procurement and equip teams for better outcomes
- Enhance safety and environmental awareness with gen AI
Public Sector Leapfrog
The public and social sectors in Africa face many challenges that hinder effectiveness and efficiency. Gen AI offers an opportunity to revolutionize citizen services and healthcare and drive effectiveness and efficiency across government departments and state-owned enterprises.
We estimate that gen AI could unlock $2.9 billion to $4.8 billion in economic value across public sector entities in Africa.
Recommended Actions for Public Sector Entities:
- Implement gen AI-enabled chatbots for 24/7 support in navigating government services
- Reimagine public engagement and communication with gen AI
- Use gen AI to automate internal processes and facilitate personalized training and skills development
Unlocking the full potential of gen AI in Africa: Addressing barriers and how to scale
AI technologies have immense potential to drive economic growth and innovation in Africa, but most African organizations have yet to adopt them at scale. The challenge they face is twofold: there are significant barriers to be negotiated, and the approaches to scaling that work in an African context need to be defined. In the spirit of remaining competitive as the rest of the world surges ahead, African front-runners are setting the pace, actively exploring ways to overcome the barriers, and defining scaling approaches to unlock AI’s full value.
Challenges faced by African organizations in scaling gen AI solutions
- Limited enabling infrastructure
Strong gen AI ecosystems are built on robust infrastructure including reliable power, high-performance computing, and regional cloud resources. Over a third of survey respondents cite limited infrastructure as a roadblock.
- Few skilled professionals with gen AI expertise
The labor market for digital skills is already highly developed in both sub-Saharan Africa and North Africa, but filling those jobs with the right caliber of talent will be a challenge that is exacerbated by the need for deeper AI and gen AI expertise.
- Uncertainty regarding regulation
Africa’s gen AI regulations are still evolving, with data protection, privacy, and cross-border transfer laws varying by country and no comprehensive regulations in place.
- Managing risks from gen AI
Gen AI challenges, including bias, privacy, job displacement, and cybersecurity, are global, but they are exacerbated in Africa by structural inequalities and limited resources.
- Data availability and quality
High-quality, well-structured data is key to driving innovation and efficiency, but among most African institutions, there are real concerns about poor or inadequate input data leading to incorrect predictions and biased content production.
What will it take to build the capabilities needed to scale gen AI in Africa?
African front-runners are demonstrating how to overcome obstacles and leapfrog on the journey to scale the deployment and impact of AI and gen AI. A holistic transformation approach addressing important questions across six dimensions can boost chances of success: strategy, talent, operating model, technology, data, and adoption and scaling.
The substantial economic contribution of gen AI can only be realized if there is a clear vision of how to harness its power. Organizations may need to take a hard look at how AI and gen AI fit within their current strategies and define a road map of use cases that will yield the most value soonest with the least amount of resistance or challenge. Effective AI implementation starts with a fully committed C-suite and an engaged board.
Building the best modeling solutions without adoption by users will yield little value. An adoption and scale-up plan is required for every use case, including the necessary training and change management. Furthermore, the right user interface is needed for a given use case; this is where design thinking meets AI.
FAQs
What is gen AI?
Gen AI refers to the next generation of artificial intelligence that has the ability to create, mimic human creativity, and produce content such as text, digital art, and music.
How can African organizations overcome the barriers to scaling gen AI solutions?
African organizations can overcome the barriers by investing in infrastructure, developing talent with gen AI expertise, navigating regulatory uncertainties, managing risks effectively, and ensuring high-quality data availability.
Conclusion
This is a transformative moment for the continent that cannot be allowed to slip away. The potential of generative AI to reshape economies and daily lives is undeniable, and every sector has a role to play to ensure that Africa can take its place as a global leader on this technological frontier. Pockets of innovation and excellence are showing the way, but much more remains to be done to create the structures and processes that unlock meaningful value from gen AI.
A strategic and holistic approach can help to dismantle barriers and rewire African institutions to excel in an AI-powered world, raising the bar for innovation and impact across African economies and societies and setting the benchmark for global adoption of this transformative technology.
