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 tech (fintech) products. In the process, the continent’s entrepreneurs are showing how digital access to non-traditional banking and financial services can be 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. Runaway inflation stemming from war in Ukraine, stubborn supply chain issues and rich world economies re-animating from their pandemic stupor have prompted central banks to raise rock-bottom interest rates at a blistering pace. This has ended a great stretch beginning after the 2008 financial crisis that saw global investors funneling record investments toward start-ups based on seemingly limitless access to cheap money.
However, Africa has defied this trend — its start-up funding grew by 139% during the first six months of 2022 compared to 2021, on top of raising a record $5 billion last year.
The fundamental strengths and long-term viability of the continent’s fintech sector became more apparent 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 collectively rose in Africa that year by 2.3% thanks to the underappreciated phenomenon of how remittances are counter-cyclical and tend to increase during economic downturns.
African fintechs are also unique in another way, given how their growth is being driven by the mother of all innovation: necessity.
Even after three decades of economic expansion, large swathes of Africa remain bereft of essential goods and services. And as the world’s sole 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 salient issue over time.
Here’s where mobile phone technology has been a gamechanger. Amid the convergence of a new generation of digital-savvy youth, rapid urbanization, underserved middle classes and a landmark continental free trade agreement, mobile phones have reached a 46% penetration across Sub-Saharan Africa, a rate higher than in India.
It should come as no surprise then that most of Africa’s ‘unicorns’ (firms valued at over $1 billion) are fintechs working to promote financial inclusion by reinventing remittances, mobile money, consumer lending, personal savings accounts and customisable 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 global $1tn mobile money market.
Africa’s fintech ecosystem also reached a new milestone in June, when MFS Africa, the continent’s largest facilitator of digital payments whose network integrates more than 320 million mobile money accounts across dozens of African countries, purchased an American firm to accelerate its growth strategy in a deal reportedly worth US$34 million. The rare move is indicative of how African companies are becoming more confident and assertive in their plans to become global giants within the fintech industry, and in turn provide answers for finance and development issues across the Global South.
But there are still challenges. New tax regimes and regulatory mandates could materialize down the line, as governments try to exercise more control over their digital environments through introducing domestic 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.
Policy harmonisation between countries and within regions must be improved as well, although rectifying this is a key pillar of the new African Continental Free Trade Area, launched in January 2021. The continent also suffers from perceived risks around its political stability — true or otherwise — especially considering the re-emergence of military governments and strongman regimes, particularly in west Africa.
However, it’s important to consider such challenges in their proper context. The overwhelming need and utility mean Africa’s fintech sector will still grow and evolve despite some degree of political dysfunction.
Therefore, actors in the fintech industry outside the continent are arguably 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 singular 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 widely-recognized global leader in fintech funding, 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 tech innovation, to gather opportunities for remote jobs globally, to attract investment from other global regions and,
For the Canadian side:
How to go global and diversify trade partners, to engage African newcomers and Diaspora communities more, to attract FDI from foreign tech firms.
The Afrifursa Fintech Summit, AFRIFIN will be held on the 22nd of September 2022 from 10 am – 4 pm ET/ 4 pm – 10 pm CAT. Register to secure your virtual seat at: afrifin2022. Access is free
Tapfuma is a trade and investment executive with expertise in connecting African markets and other regions of the world. Having grown up a Canadian citizen, his passion led him to spend most of his working life across Africa. He began in community development, then pivoted to entrepreneurship and established a couple of companies including a logistics company that moved FMCG’s for a blue-chip company. He then worked in market intelligence, consulting multinational clients seeking to penetrate African markets. Tapfuma possesses a unique understanding in establishing business and achieving growth in challenging economic environments.
Tapfuma has a diverse academic background, having obtained a Global Executive MBA and B.Sc. Biology from the University of Toronto, as well as an MA Theology from Akrofi-Christaller Institute. He is also passionate about leading high-performance teams and is a certified Project Management Professional. He is now based in Toronto, Canada where he founded Afrifursa – an initiative that seeks to shift the narrative around Africa in the Diaspora and hosts the annual Afrifursa Fintech Summit. He is currently a Managing Director at private equity firm Raygan Mills, which has roots in Cameroon and invests in growth companies across Africa. Tapfuma enjoys empowering others to succeed and currently mentors young professionals, as well as, advises several firms.
Kyle Hiebert, former deputy editor of the Africa Conflict Monitor, is an independent researcher and analyst, and contributing writer to the Centre for International Governance Innovation focused on globalization, conflict, climate change and
technology.
