The Rise of the API Economy in Africa: Connecting the Continent's Tech Ecosystem

Application Programming Interfaces (APIs) have become the essential building blocks of the global tech industry. From Johannesburg to Moscow, developers and entrepreneurs are leveraging APIs to integrate standalone services and solutions, thereby delivering enhanced value to end-users.

Understanding APIs

APIs enable different software programs to communicate with each other. They are the mechanisms that allow you to order an Uber within the Google Maps app, share an article on LinkedIn, use your bank’s USSD code, pay for a laptop on Jumia using M-Pesa, and share your Taxify trip details on WhatsApp. APIs can function independently or be integrated with other services to enhance their offerings.

The Demand for Data Integration

The increasing demand for integrated data and information is driving companies to break down software components into microservices. Think of these microservices as individual bricks (like USSD APIs, location APIs, SMS APIs, etc.) that can be combined to create a complete service. This modular approach allows businesses to cater to specific customer needs without rebuilding software from scratch, leveraging APIs created by other businesses.

The Growing API Economy

The API economy is expanding rapidly. In 2006, fewer than 400 APIs were publicly available. By 2016, this number had surged to over 15,000, with 40 new APIs being launched every week. Major companies like Salesforce and eBay have been generating substantial revenue through APIs, with Salesforce attributing 50% of its income to APIs and eBay 60%.

The API Landscape in Africa

In Africa, notable companies like Africa’s Talking, Flutterwave, M-Pesa, and Paystack are at the forefront of the API game. However, telcos dominate the field, providing essential APIs for messaging (SMS, USSD), billing (direct operator billing), mobile money, and location services. Despite their critical APIs, African telcos have been criticized for unfavorable terms and high charges, which can hinder startups' growth.

One startup founder shared their frustration: “For every ten naira earned using my service, the operator takes seven, leaving us with just three naira to cover other expenses, including royalties to content owners. I’d rather manage 3,000 fully-paying users than 100,000 users where I only receive 20% of the earnings after agreeing to strenuous conditions.”

Nevertheless, there are positive exceptions. Orange has opened its SMS API in seven countries since 2015. Airtel Malawi’s operator billing API has been available since 2016, and MTN Zambia has partnered with BongoHive to provide developers access to its APIs, making them one of the first MTN units to make their APIs publicly available.

Enablers and Hurdles of the African API Economy

The biggest enablers of the African API economy are also its greatest challenges. Growing mobile broadband and phone penetration rates increase the market size at the bottom of the pyramid. However, smartphone penetration remains relatively low, limiting access to the upper market segment.

This duality allows startups to reach new consumers by leveraging APIs for SMS, USSD, direct operator billing, mobile money, and location services. However, the relatively small market size can deter founders from developing APIs, as the potential user base may not justify the investment.

Investment is another critical enabler. API firm Africa’s Talking recently raised $8.6 million, while Paystack, Flutterwave, and TravelStart have secured significant funding. This investor interest highlights the perceived opportunities within the African API space.

Building an API-Rich Economy in Africa

Achieving an API-rich economy in Africa will require extensive collaboration. Telcos, with their resources and market reach, must lead this effort by partnering with startups to deliver greater value to end-users rather than competing with them. Furthermore, all ecosystem players need to work together to make APIs public, fostering new revenue streams and innovation.

While the African API economy is still in its early stages, it holds immense potential for consumers and the broader tech ecosystem. We will continue to monitor exciting developments in this space, anticipating a future where APIs significantly enhance Africa's technological landscape.