Africa: Fintech and other knowledge-intensive services could boost Africa’s prosperity and boost inclusion
Paul Akiwumi, Director of UNCTAD’s Division for Africa, discusses a recently released report that calls for the diversification of African economies
The Director of the Division for Africa and the Least Developed Countries of the United Nations Conference on Trade and Development (UNCTAD), Paul Akiwumi, is usually intense when he talks about Africa’s economic development. This is indeed the case during a discussion on the latest UNCTAD reports report entitled Rethinking the foundations of export diversification in Africa: the catalytic role of trade and financial services
The report makes a clear call for African countries to shift away from commodities towards knowledge-intensive services. Akiwumi echoes one of his key arguments that externalities such as the Ukraine crisis and the COVID-19 pandemic will continue to challenge commodity-dependent economies.
Certainly, no less than 83% of African countries depend on commodities. These countries also make up 45% of commodity-dependent countries in the world, the report notes. According to UNCTAD, a country is commodity dependent when its share of commodity exports exceeds 60% of its total merchandise exports.
Africa’s dependence on commodities is a stark reality that worries Mr. Akiwumi. “When we look Least Developed Countries [LDCs]over 40 only five [countries] have graduated [out of LDCs]. This means that our development model, the commodity development model, has not worked,” he says, warning that events that could shock the global economy will continue to occur.
Africa is feeling the impact of war “6,000 miles away”, he laments. “When global energy prices go up, everything goes up. Only about 15% of the value of trade is in Africa while 85% goes outside the continent,” he adds, underlining the interdependence of the world economy.
Mr. Akiwumi further explains that small and medium-sized enterprises (SMEs) in fintech, agri-tech, health-tech and other high-knowledge and technology-driven SMEs can help the continent achieve financial and social inclusion.
Therefore, Africa needs to diversify into knowledge-intensive services to achieve the twin goals of providing “support to existing traditional economic activities” and creating “innovative approaches that will boost productivity,” it insists. he.
Mr. Akiwumi further explains that small and medium-sized enterprises (SMEs) in fintech, agri-tech, health-tech and other high-knowledge and technology-driven SMEs can help the continent achieve financial and social inclusion.
Booming fintech
The good news is that fintech investment in Africa is on the rise. UNCTAD reports an increase in investment in the sector from $400 million to more than $2 billion between 2017 and 2021. And Mr. Akiwumi predicts that this figure could reach $4 billion by the end of 2022.
Still, he would prefer faster and even growth across countries. “Nigeria is doing extremely well. You go to Nigeria and they have all these financial mechanisms to support fintech. But that has to be the case across Africa,” he advises.
The UNCTAD report touts Opay, a Nigerian point-of-sale platform and mobile payment services company, which raised $400 million in 2021 and currently has 160 million users, including millions in the huge unbanked population.
Investment in fintech in Africa is on the rise. UNCTAD reports an increase in investment in the sector from $400 million to more than $2 billion between 2017 and 2021. And Mr. Akiwumi predicts that this figure could reach $4 billion by the end of 2022.
Mr Akiwumi says other examples abound in Africa of technology “providing farmers with food storage capacity and satellite data on when to plant because they know when the rains are coming and supporting extension services.” by simply taking a picture of a leaf of a plant and knowing what to do.
“We have health technologies that provide affordable dialysis systems for the population. We have fintech that promotes financial inclusion for people. You no longer need a physical bank. People no longer have need to have an address. They can manage their accounts in their apps. There’s the wealth management fintech that helps the poor and the lower middle class.”
The UNCTAD report touts Opay, a Nigerian point-of-sale platform and mobile payment services company, which raised $400 million in 2021 and currently has 160 million users, including millions in the huge unbanked population.
Obstacles on the way
Despite this progress, obstacles remain. The report lists “restricted access to finance, poor integration into regional and global markets and a limited skills base”.
Moreover, the fintech sector is not sufficiently developed to support production. “For example, mobile money, the most commonly used financial technology in Africa, is only used to offer short-term microloans to users,” the report said.
Does globalization or the growing interdependence of world economies force African fintechs to offer services that meet international standards?
Mr. Akiwumi is not concerned about such matters. Rather, he believes that an appropriate regulatory environment and the necessary infrastructure will attract foreign investors anyway.
Insisting that the quality of African fintech is good, he explains: “You have venture capitalists from India, the United States or Europe coming to East and Southern Africa via Mauritius because Mauritius is now a financial centre.Businesses come in because good standards exist there.
“So if the money comes from America, it [Mauritius] maintains the standards demanded by American companies. “It’s about pursuing the right policies. Mauritius has decided to diversify away from textiles, sugar cane and tea. And they said their financial sector would be the gateway to the Eastern and Southern Africa Now, if you go to Mauritius, there are local financial companies that know all about global rules and regulations.
His concern – again – is that “it shouldn’t be just one country; it should be many countries that attract these companies.”
According to the report, some 50 million microenterprises and SMEs in Africa need about $416 billion a year. Where does this money come from?
Mr. Akiwumi says it is first the responsibility of governments to provide the right environment, including cybersecurity, as most transactions are electronic; an adequate power supply, because there can be no development without electricity; Internet infrastructure and other regulatory frameworks.
After that, he said firmly: “The government must let the private sector carry on with its life.
Fintech and alternative finance are primarily focused on the private sector, and the report says they could boost export diversification if the right legal and institutional frameworks are in place. This is all the more important because of “the reduction in inefficiencies in the allocation of resources within the traditional banking sector”.
The AfCFTA is a catalyst
Mr. Akiwumi, and this is not the first time, talks enthusiastically about the African Continental Free Trade Area (AfCFTA), which could potentially consolidate a market of around 1.2 billion people. “This [market] is a huge potential for export diversification,” he points out. “The AfCFTA will facilitate business transactions as businesses will operate under continental rules, regulations and procedures as opposed to those of individual countries.
The report notes that the AfCFTA will help national efforts to “prioritize service sectors relevant to a strategically important value chain for a given country.”
“I tell you, in 10 years you will see a different Africa. There may still be poverty, but you will see economic growth, development and prosperity in many places. There will be more countries like Nigeria, much more like South Africa, Kenya, Mauritius, of course, Egypt and Morocco. It will happen. I guarantee it. Africa Renewal asks: “You must be an incurable optimist. “We must be optimistic, my friend. We have no choice,” replies Mr. Akiwumi, with a smile.
The report’s recommendation to countries to scrap protectionist policies is questionable given that Africa’s top economists and development experts are divided on the issue. For example, Carlos Lopes, former Executive Secretary of the United Nations Economic Commission for Africa, once advocated for what he called “sophisticated protectionism“, which is a strategic government intervention with policies that target specific sectors for the benefit of the national economy.
Mr. Akiwumi counters that “protectionism only makes you less prepared for competition. There has to be competition, and competition leads to efficiency and profitability.”
He is not against policies that protect certain areas related to national security but, apart from that, he insists, “protectionism stifles innovation and the ability to absorb new technologies”.
Based on current realities, what might Africa look like in, say, 10 years?
“I tell you, in 10 years you will see a different Africa. There may still be poverty, but you will see economic growth, development and prosperity in many places. There will be more countries like Nigeria, much more like South Africa, Kenya, Mauritius, of course, Egypt and Morocco, it will happen, I guarantee it.
Africa Renewal wonders: “You must be an incurable optimist, right?”
“We have to be optimistic, my friend. We have no choice,” replies Mr. Akiwumi, with a smile.
