by Marc Gunther
December 7 2007: 12:02 PM EST
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IBM's next big thing: Africa

While all eyes are on India and China, the technology giant sees business opportunity in the expanding economy of the world's poorest continent, says Marc Gunther.

By Marc Gunther, senior writer


NEW YORK (Fortune) -- Stereotypical images of Africa, as a global backwater plagued by poverty, disease, conflict and corruption, hide some encouraging realities. Democracy has taken root across the continent. The African economy is expanding briskly. So, too, are opportunities for businesses.

That's why IBM (Charts, Fortune 500) announced this week that it's expanding its stake in sub-Saharan Africa. The $91-billion-a-year technology giant will open a research and innovation center in Johannesburg for its biggest business customers. It will donate what it says is by far the most powerful supercomputer in Africa to a nonprofit computing center in Cape Town. Working with the poverty-fighting organization CARE, IBM will roll out a technology platform to reduce the costs of microfinance.

Finally, it will expand a mentoring program at 20 African universities, working with other multinationals, including Cisco (Charts, Fortune 500) and FedEx (Charts, Fortune 500). Altogether, IBM said it would increase its investment in its African operations by about $120 million over the next two years.

While U.S. companies have operated in Africa for decades, IBM is a bellwether. When ExxonMobil (Charts, Fortune 500) builds a pipeline in central Africa, that's because there's oil to be extracted. Coca-Cola (Charts, Fortune 500) expands because people have a few cents to spend each day on a Coke. Other firms export diamonds, cocoa or coffee.

But a technology company like IBM - which no longer sells to consumers or small companies - is betting on the growth of other businesses that will buy its hardware, software and consulting services.

"Remember, we're a business," said Nick Donofrio, executive vice president for innovation and technology at IBM. Mark Harris, general manager of IBM South Africa, said. "Africa is a huge market and it's mostly untapped." Yes, IBM has philanthropic ventures there as well, but there's no mistaking IBM's intent.

The company's big customers in Africa include banks, telecommunications firms, and retailers, all sectors that are growing and need more sophisticated technology. According to Harris, they will now be able to turn to what IBM calls a "High Performance on Demand Solutions Lab" in Johannesburg for help with complex problems. Researchers, meanwhile, will be able to use the company's "14-teraflop Blue Gene/P" supercomputer to study the impact of climate change or the spread of disease.

IBM unveiled its plans at a conference called "Africa: Open for Business" that it organized and sponsored in New York. "I can assure you that these are the first of many things you will hear from IBM," said Donofrio. The New York gathering, which brought together businesses, governments and nonprofits, capped off a yearlong study of Africa that unfolded at similar sessions in Atlanta, Beijing, Cape Town, Dakar, Nairobi, Paris, Beijing and Atlanta. Even for a firm as sprawling as IBM, that's a big commitment.

What emerged from all the talk was a hopeful view of a region in transition. Africa remains very poor, of course; its 930 million people make up 14% of the globe's population but generate only 2% of its economic output. Fewer than 20% of its people have access to electricity, and modern roads, ports and airports are badly needed.

Even so, Africa's GDP has grown by an average of 5.4% over the past decade. "African growth has outpaced global growth since 2001," said Haiko Alfeld, head of Africa programs for the World Economic Forum. Foreign investment has grown even faster, he said.

According to IBM's report, the number of wireless phone subscribers in Africa has exploded from 10 million to more than 200 million in the last four years. More fundamentally, 40 of the 54 countries in Africa have held multiparty elections in the last several years, a dramatic uptick from the 1970s, when dictators ruled most countries.

If all goes according to plan, IBM's efforts will be felt both by Africa's biggest companies and its newest entrepreneurs. Its mentoring program is aimed at producing more scientists and engineers for a continent that still suffers because thousands of its best-educated young people go elsewhere.

The microfinance work with CARE should provide more access to capital for rural people who want to start small businesses. And IBM will enhance its brand and make more money. What's not to like? To top of page

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