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Could innovation in payments and e-commerce expand intra-African trade?

Last month, one of the world’s largest trade accords, the African Continental Free Trade Area (AfCFTA) covering more than a billion people and with a GDP of greater than $3-trillion, went live. Experts predict that removing tariffs alone could boost trade between African countries by 15% ($50-billion) to 25% ($75-billion) by 2040. 

As governments, corporations and SMEs grapple with implementation to capitalise on the expected increase in interregional trade, it is important to ensure the benefits of expanded trade between nations on the continent positively impact more Africans. The answer may lie in a digital payment revolution sweeping across the continent.

Financial inclusion is essential for democratisation of access to opportunity among Africans seeking to benefit from the AfCFTA. 

A Senegalese microentrepreneur working in the leather industry needs to have a way of accepting payments from local or regional off-takers of her products, in order to participate in the new opportunities that the trade pact brings. Approximately 350-million Africans do not have access to a financial services account and according to Mastercard, 95% of transactions on the continent are still done in cash. This reduces the scope for cross-border payments and trade.

Thankfully, things are changing quickly. The Covid-19 pandemic accelerated the adoption of digital financial services as consumers embraced e-commerce and contactless payments, and governments and NGOs across the continent leveraged digital wallets to make palliative funds transfers to their most vulnerable citizens. 

Ghana’s central bank eased know-your-customer (KYC) regulations in March 2020 for an initial period of three months, fuelling what is already the fastest-growing mobile money market in Africa. In Kenya, Safaricom’s MPesa saw transactions grow by 33% year-on-year to $82-billion as more people made transfers on the platform.

Accessing financial services

A key step to accessing financial services is having a government-issued identity. Africa’s most populous nation, Nigeria, recently embarked on an accelerated drive to register all its citizens with a national identification number (NIN) with its government mandating that all mobile phone lines without a valid NIN linked to them must be switched off by the mobile network operators. In a country with approximately 172-million unique mobile subscribers and 87% global system for mobile communications (GSM) penetration, this caused some panic as citizens scrambled to enrol in this national identity database. 

Within the chaos involved in the monumental task of registering a hundred million citizens in a short period of time lies an opportunity – laying the foundation for a boom in digital payments.

Adamu, a grain farmer from rural northern Nigeria, could never open a bank account because he could not meet the KYC requirements. With the recent registration drive, he has been compelled to enrol in a national identity database and now has the necessary documentation to open a savings account and receive payments from buyers without having to handle cash. 

A recent report from the Brookings Institute found that 85% of payments for the sale of agricultural products were received in cash only. A lack of access to financial services makes it more difficult for farmers to invest, save for the future and insure against risks. It also limits the ability to conduct business across borders. Agriculture represents a large percentage of most African economies. Financial inclusion needs to be addressed to get the full benefit of the AfCFTA for all Africans. Adamu could tap into a larger agricultural value chain as trade expands distribution options of produce across the continent.

Expanding market access via e-commerce

Improved market access is also critical for the benefits of the trade agreement to trickle down to the common person. To be sure, even with reduced trade barriers, there are still logistical issues of moving goods and services across the vast terrain that is Africa. 

Fatima, an entrepreneur who produces household items for middle-income families, is excited about the prospect of serving customers outside her home country of Cote d’Ivoire but has a challenge of how to find those customers. Small businesses like hers on the continent are increasingly flocking to the internet with the hope of reaching more customers as mobile broadband penetration and smartphone adoption increases. 

Nigeria’s Interswitch Group recently launched Quickteller Business, a business payments solution that enables these SMEs to establish an online storefront presence and uses fintech payment capabilities. Both Flutterwave and Paystack, two Nigeria-based fintech firms, have recently launched e-shop solutions, leveraging on their payment capabilities to serve clients better.

Elsewhere on the continent, where there is telco-led mobile money, MTN and MasterCard announced a strategic partnership that would enable millions of mobile money wallet holders make online payments with a virtual MasterCard solution. With more digital payment forms available to consumers and merchants, transactions costs should reduce. Any easier way for mobile money wallet holders to shop online could have a significant impact on e-commerce transactions on the continent. 

Sub-Saharan Africa is the largest region for mobile money adoption, with 469-million registered wallet holders generating 23.8-billion transactions worth $456.3-billion in 2019. This MasterCard-MTN collaboration has the potential to reduce the payment friction many online shoppers in Africa face. 

As e-commerce transactions grow on the continent, this may also increase the participation of small and medium-sized businesses in cross-border trade. 

Big Tech payments and social e-commerce

Big Tech could also play a significant role in driving trade and commerce across Africa, with the key players already participating in financial services in several markets across the globe. For example, consumers in the US, UK and select other territories can make payments with Apple Pay and Google Pay. Last year, Facebook successfully introduced WhatsApp payments into India. It does not take a stretch of the imagination to see Big Tech introducing payment options in sub-Saharan Africa. The only question is how soon.

It is important to note that unlike India, a single country with a population of 1.3-billion people and one currency, Africa is made up of 54 countries with a population of about 1.2-billion people and several currencies. There are foreign exchange restrictions and other considerations any organisation seeking to facilitate payments across Africa needs to take note of. As in other markets, Big Tech firms will enter the financial services industry with requisite regulatory approval and likely in collaboration with select financial institutions. The opportunity for Big Tech firms to bring scale to interregional trade transactions is significant given their large user bases, resources and capacity for innovation.

Small businesses and social media

Small businesses are already selling their goods and services via social media platforms such as Facebook and Instagram. Entrepreneurs capitalise on the reach of social media to advertise their goods and services and consumers are able to discover more choices than previously available. 

However, in some African countries, governments are now raising barriers to social e-commerce as they observe the fast growth of this informal sector that is not subject to taxes or consumer protection laws. A compromise may be reached here, with regulators leveraging digital tools to enable easy registration of businesses selling goods and services online and granting tax waivers that encourage the growth of these enterprises.

These are exciting times for payments, e-commerce and trade across Africa. As governments, businesses and other stakeholders forge ahead with implementation of the AfCFTA, we can expect to see technological innovation playing a key role in spreading the benefits of increased interregional trade to all. For maximum benefit is to be achieved, there will need to be strong collaboration and understanding among interested parties.

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