More companies in Africa are embracing artificial intelligence through M&A activity

South Africa's AI investment is significant, with $1.6 billion invested over the past ten years.

More companies in the African continent are believing in the hype around artificial intelligence (AI), as they continue to make significant investments into technology-led solutions to improve efficiency in their organisations.

This has resulted in companies either building AI solutions from scratch or embarking on the process of acquiring existing entities that focus on technology and innovation.  AI has to do with machines demonstrating intelligence normally displayed by humans such as learning and problem-solving.

South Africa’s overall investment in AI is significant, with $1.6 billion (R23.7 billion) invested over the past ten years (2008 to 2018), according to a new report by EY Africa. The total amount invested in Africa and the Middle East over the same period is $9.07 billion.

The largest AI deal in South Africa was for almost half a billion dollars in the Internet of Things (IoT) technology sector.  IoT refers to a vast number of “things” that are connected to the internet so they can share data with other things – IoT applications, connected devices, industrial machines and more.

These findings are contained in the AI Maturity Study, which was commissioned by Microsoft and conducted by EY. The study looked at the planned adoption and use of AI in companies and was based on surveys, interviews and case studies from 112 companies across the Middle East and Africa. It found that the ICT & Media and Financial Services are sectors with the highest AI adoption rates.

Along with the United Arab Emirates and Turkey, South Africa was one of three countries in Africa and the Middle East with the highest AI investment activity ($1.6 billion) in the last decade. The bulk of this investment went towards IoT and social media, followed by planning, scheduling, and optimisation, as well as smart mobile.

The number of AI transactions in Turkey was 252 out of the total of 929 mergers and acquisitions (M&A deals), followed by the United Arab Emirates (160), South Africa (134), Egypt (100) and Nigeria (87) (see below).

Source: EY-Microsoft AI Maturity Study.

Although the study found that AI in Africa and the Middle East region was still in the early adoption phase, companies are beginning to make large investments in technology-driven solutions.  There has been a steady growth trend in AI investment over the past ten years in the regions, from a mere two mergers and acquisitions (M&A) transactions in 2008 to 171 transactions in 2018 – with two early adopters being Saudi Arabia and Egypt.

The amount of funding coming from M&A activity ($3.9 billion) and corporate investment ($1.1 billion) makes up more than half of the total amount ($9.07 billion) invested in AI in the Africa and Middle East regions.  Although angel investors and seed funding are involved in a significant number of transactions, the total value remains small by comparison, reflecting a cautious attitude to betting large amounts in the high-risk/high-return arena of AI start-ups.

Embracing AI technology still conjures up concerns around job losses especially in a country like South Africa, which faces an unemployment rate of 27 percent. For example, 54 percent of companies rate the impact on personnel as the top business risk in implementing AI.

However, Microsoft SA’s managing director Lillian Barnard (pictured) believes that the same technology can create new prospects and industries, bringing new jobs in the process.

“What we need to focus on is providing the skills and training to ensure that we balance the equation. We need to reskill people for the AI world.

“AI will bring immense opportunity for South Africa. Our research shows that AI has the potential to solve some of the most pressing challenges that impact the country, driving development in sectors crucial to social and economic growth such as agriculture, healthcare, public services, and education, unlocking the huge potential that already exists here.”