Africa Defies Challenges to Race Ahead in Cloud Adoption

African companies have about 45% of their workloads in the public cloud today, on par or even ahead of cloud adoption rates in North America and China.

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African companies are surprisingly ahead of the curve when it comes to cloud computing, according to a new report by McKinsey & Company. The management consulting firm’s survey of over 50 major businesses across the continent found that these companies have, on average, about 45% of their workloads in the public cloud today.

That’s on par or even ahead of cloud adoption rates in North America and China, defying the conventional wisdom that Africa lags behind in technology. “Early indications show that Africa is moving quickly onto cloud, and there are no signs of slowing down,” said Sven Blumberg, a senior partner at McKinsey and co-author of the report.

The rapid cloud adoption in Africa is driven by factors similar to the continent’s mobile revolution. “Limited legacy infrastructure and innovative technology advances are in place when it comes to cloud, providing African businesses with another opportunity to leapfrog ahead,” the report says.

And the potential payoff is significant. McKinsey projects the global value of cloud to reach $3 trillion, with $797 billion of that value sitting in Africa and Europe. Many of Africa’s key industries, like banking, telecoms, and oil and gas, stand to benefit greatly from cloud adoption.

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Regionally, the report found the highest cloud adoption rates in East Africa, West Africa, and Southern Africa, where 70-77% of workloads are on the cloud on average. North Africa had a higher percentage of on-premises workloads compared to other regions.

“Respondents in North Africa had a higher percentage of workloads on-premises compared to those in other African regions,” the report notes.

Leading the cloud charge are companies in the technology, media, and telecommunications (TMT) sector, with an average cloud adoption rate of 83%, with 61% of workloads in the public cloud. Financial services organizations had the lowest cloud usage at 56% on average.

“Financial services companies had the lowest rates of cloud adoption, likely due partly to regulatory restrictions,” the report explains.

The types of cloud services being used also varied by industry. TMT companies were heavily leveraging compute-intensive cloud services, while global energy and consumer goods firms had high storage usage, likely due to data residency concerns.

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Despite the overall strong cloud adoption, the report found that African companies are still struggling to fully realize the expected benefits. “The lag in value realization suggests that the cloud adoption journey for African companies has proven to be more complex than anticipated,” the authors write.

Chief among the challenges are legal and regulatory constraints, which over 50% of respondents cited as a significant roadblock. Data residency laws in countries like Algeria, Gabon, and Morocco that require regulated data to be stored within national borders effectively prohibit the use of public cloud for many organizations.

Cross-border data transfer restrictions in other African nations also pose a critical hurdle, particularly for multinational companies. “Regulatory bodies, organizations, and service providers will need to collaborate to establish policies and frameworks that address legal and regulatory concerns while encouraging cloud adoption and innovation,” the report states.

Talent acquisition and retention is another key issue, with 97% of African companies expecting tech skills shortages in 2023. Businesses are forced to rethink their sourcing models and create better attraction and incentive strategies to hang onto skilled cloud professionals.

“Those companies that have had success in attracting talent have trouble keeping them in the face of strong incentives to move to a higher-paying region or find remote work,” the report notes.

Despite these challenges, the report paints a picture of a continent rapidly embracing the cloud and poised to reap significant rewards. All respondents expressed confidence that their organizations would expand their cloud presence in the next 1-3 years, with financial services firms predicting the highest growth.

The authors point to strong indicators of increased adoption, including planned expansions across both public and private cloud, as well as major investments from global and local cloud providers in building African infrastructure and services.

“The vast majority of participants said they plan on using cloud for new application development, with half of them planning to take a cloud-native approach for all new apps,” the report states.

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With a more cloud-friendly regulatory environment and a focus on addressing local challenges, the report’s authors believe African businesses have a unique opportunity to capture an outsized share of the cloud’s $3 trillion global value.

“An increased focus on addressing local issues, coupled with a more cloud-friendly environment, are promising signs that companies in Africa are expanding their opportunities to capture a greater share of cloud’s significant potential value,” the report concludes.

As Africa continues to defy expectations and rapidly scale its cloud adoption, the continent’s businesses appear poised to leapfrog the competition and cement their place at the forefront of the global cloud revolution.