Africa poised to become a global leader in Fintech
By Tapfuma Musewe and Kyle Hiebert
Africa – one of the world’s least developed and often misrepresented regions – is leading the creation of a new wave of financial technology (fintech) products. In the process, the continent’s entrepreneurs show how digital access to non-traditional banking and financial services can be the key to overcoming financial exclusion in emerging markets.
Even casual market watchers will have noticed lately how venture capital is drying up around the world. Ongoing inflation stemming from the war in Ukraine, persistent supply chain problems and rich world economies reviving from their pandemic stupor have prompted central banks to raise interest rates at breakneck speed. This has ended an extraordinary stretch that began after the 2008 financial crisis, when global investors drove record investments into startups based on seemingly unlimited access to cheap money.
However, Africa has defied this trend – startup funding grew by 139% in the first six months of 2022 compared to 2021, in addition to raising a record $5 billion last year.
The fundamental strengths and long-term viability of the continent’s fintech sector became clearer during the pandemic, when observers including the World Bank predicted in early 2020 that remittances to the region would collapse. Instead, outside of Nigeria, they rose collectively in Africa that year by 2.3% thanks to the underappreciated phenomenon of how remittances are countercyclical and tend to increase during economic downturns.
African fintech is also unique in another way, given how their growth is fueled by the mother of all innovation: necessity.
Even after three decades of economic expansion, large parts of Africa are still without essential goods and services. And as the world’s only region still experiencing robust population growth – and one dominated by informal economies where the majority of workers remain unbanked – financial inclusion will become an even more prominent issue over time.
Here’s where cell phone technology has been a game changer. Amid the convergence of a new generation of digitally savvy youth, rapid urbanisation, underserved middle classes and a landmark Continental Free Trade Agreement, mobile phones have reached 46% penetration in sub-Saharan Africa, a rate higher than in India.
It should come as no surprise that most of Africa’s “unicorns” (firms valued at over $1 billion) are fintechs working to advance financial inclusion by reinventing remittances, mobile money, consumer loans, personal savings accounts and customizable payment applications for businesses. At the same time, Africa is home to more than 50% of user accounts and 70% of the value exchanged within the $1,000 global mobile money market.
Africa’s fintech ecosystem also reached another milestone in June, when MFS Africa, the continent’s largest digital payments facilitator whose network integrates more than 320 million mobile money accounts across dozens of African countries, acquired a US firm to accelerate its growth strategy in a deal . reportedly worth $34 million. The rare move is an indication of how African companies are becoming more assertive and confident in their plans to become global giants in the fintech industry, in turn providing answers to finance and development issues across the Global South.
But there are still challenges. New tax regimes and regulatory mandates may eventually materialize as governments seek to exercise more control over their digital environments through the introduction of national legislation. However, the hope is that African nations will follow the lead of influential countries Nigeria and South Africa; the continent’s two largest economies have both embraced digital finance.
Political harmonization between countries and within regions also needs to be improved, although correcting this is a key pillar of the new African Continental Free Trade Area, launched in January 2021. The continent also suffers from perceived risks to its political stability – true or not – especially considering on the re-emergence of military governments and strongman regimes, particularly in West Africa.
However, it is important to consider such challenges in their proper context. The overwhelming need and utility means that Africa’s fintech sector will continue to grow and develop despite some degree of political dysfunction.
Therefore, players in the fintech industry outside the continent are no doubt staring at a generational opportunity to forge innovative and meaningful connections with their African counterparts. However, far from its frequent portrayal as a homogenous bloc, Africa is incredibly diverse – no single approach will work for every country.
For forward-thinking companies who want to learn more about the opportunities for interaction between Africa and Canada – a recognized global leader in fintech financing, development and innovation – the Afrifursa Fintech Summit, AFRIFIN will bring together dynamic founders, coverage of the latest innovations in fintech, and exciting opportunities for collaboration between Africa and Canada.
More specifically, participants will learn:
For the African side:
How to engage diaspora communities that contribute significantly to technological innovation, to pool opportunities for external jobs globally, to attract investment from other global regions and,
For the Canadian side:
How to go global and diversify trading partners, to engage African newcomers and diaspora communities more, to attract FDI from foreign technology firms.
Afrifursa Fintech Summit, AFRIFIN, will be held on 22n.d September 2022 from 10:00 – 16:00 ET/ 16:00 – 22:00 CAT. Register to secure your virtual seat at: afrifin2022. Access is free
Tapfuma Musewe is the founder of Afrifursa, an organization that connects the African diaspora and others with opportunities for collaboration across Africa. Kyle Hiebert is an independent analyst and contributing writer for the Center for International Governance Innovation, and former deputy director of the Africa Conflict Monitor.
