Fintech, other knowledge-intensive services could drive Africa’s prosperity

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Paul Akiwumi Director Of Unctads Division For Africa
Paul Akiwumi Director Of Unctads Division For Africa

Paul Akiwumi, Director of UNCTAD’s Division for Africa, discusses a newly released report that urges diversification of African economies

The United Nations Conference on Trade and Development (UNCTAD)’s Director of the Division for Africa and Least Developed Countries Paul Akiwumi is usually intense when talking about Africa’s economic development. That much is the case in a discussion regarding UNCTAD’s latest report titled Rethinking the foundations of export diversification in Africa: the catalytic role of business and financial services

The report makes a clarion call for African countries to diversify away from commodities into knowledge-intensive services. Mr. Akiwumi echoes one of its core arguments that externalities such as the Ukraine crisis and the COVID-19 pandemic will continue to imperil commodity-dependent economies.

To be sure, a staggering 83 per cent of African countries are commodity dependent. These countries also constitute 45 per cent of commodity-dependent countries worldwide, notes the report. According to UNCTAD, a country is commodity dependent when its share of primary commodity exports is more than 60 per cent of its total merchandise exports.

Africa’s commodity dependency is a stark reality that worries Mr. Akiwumi. “When we look at Least Developed Countries [LDCs], over 40 years only five [countries] have graduated [out of LDCs]. That means our development model, the commodity development model, has not been working,” he contends, warning that events that can shock the global economy will keep happening.

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 percent of the value of trade is within Africa while 85 percent goes outside the continent,” he adds, underscoring the interconnectedness of the global economy.

Mr. Akiwumi further explains that small and medium-sized enterprises (SMEs) in fintech, agri-tech, health-tech and other high knowledge-based and technology-driven SMEs can help the continent achieve financial and social inclusion.
Therefore, Africa must diversify into knowledge-intensive services to achieve the twin goals of providing “support for existing traditional economic activities” and creating “innovative approaches that will boost productivity,” he insists.

Mr. Akiwumi further explains that small and medium-sized enterprises (SMEs) in fintech, agri-tech, health-tech and other high knowledge-based and technology-driven SMEs can help the continent achieve financial and social inclusion.
Fintech on an upswing

The good news is that investment in fintech in Africa is on an upswing. UNCTAD reports an increase in investment in the sector from $400 million to over $2 billion between 2017 and 2021. And Mr. Akiwumi projects the figure could reach $4 billion by the end of 2022.

Still, he would prefer a faster and even growth among countries. “Nigeria is doing extremely well. You go to Nigeria and they have all these financial mechanisms to support fintech. But this needs to be the case across Africa,” he advises.

The UNCTAD report touts Opay, a Nigerian point of sale platform and mobile payment service company, which raised $400 million in 2021 and currently boasts 160 million users, including millions in the huge unbanked population.
Investment in fintech in Africa is on an upswing. UNCTAD reports an increase in investment in the sector from $400 million to over $2 billion between 2017 and 2021. And Mr. Akiwumi projects the figure could reach $4 billion by the end of 2022.

Mr. Akiwumi says other examples abound in Africa of technology “providing food storage capabilities and satellite data to farmers on when they should plant because they know when the rains are coming and supporting extension services through just taking a photograph of a leaf of a plant and knowing what needs to be done.

“We have health techs providing affordable dialysis systems for the population. We have fintech fostering the financial inclusion of people. You don’t need a physical bank anymore. People don’t need to have an address anymore. They can manage their accounts in their apps. There’s wealth management fintech helping the poor and the lower middle class.”

Source: UNCTAD, based on data from Fintech Global, 2022.
The UNCTAD report touts Opay, a Nigerian point of sale platform and mobile payment service company, which raised $400 million in 2021 and currently boasts 160 million users, including millions in the huge unbanked population.
Hurdles in the way

Despite such progress, hurdles remain in the way. The report lists “restricted access to finance, poor integration in regional and global markets, and a limited skills base.”

As well, the fintech sector is not developed enough to support production. “For example, mobile money, the most commonly used financial technology in Africa, is only being utilized to advance short-term microloans to users,” states the report.

Does globalization or increasing interdependence of world economies compel African fintech to offer services that are of international standards?

Mr. Akiwumi is not worried about such issues. Rather, he believes that a proper regulatory environment and requisite infrastructure will attract foreign investors anyway.

Insisting that the quality of African fintech is good, he explains: “You have venture capital firms from India or the United States or Europe coming to Eastern and Southern Africa through Mauritius because Mauritius is now a financial hub. Firms are coming in because good standards exist there.

“So, if money is coming from America, it [Mauritius] maintains the standards American firms require. “It’s a matter of pursuing the right policies. Mauritius decided they were going to diversify away from textiles and sugarcane and tea. And they said their financial sector would be the gateway to Eastern and Southern Africa. Now, if you go to Mauritius, there are local financial firms that know all about the global rules and regulations.

His concern—again—is that, “It shouldn’t just be one country; it should be many countries attracting these ventures.”
Some 50 million microenterprises and SMEs in Africa need about $416 billion yearly, states the report. Where is that money to come from?

Mr. Akiwumi says the onus is first on governments to provide the right environment, including cyber security, because most transactions are electronic; adequate power supply, because there can be no development without power; internet infrastructure and other regulatory frameworks.

After that, he says, firmly: “The government needs to let the private sector get on with their life.
Financial technology and alternative financing are mostly private sector-driven, and the report maintains they could boost export diversification if appropriate legal and institutional frameworks are in place. It is all the more important due to “decreasing inefficiencies in resource allocation within the traditional banking sector.”
AfCFTA is a catalyst

Mr. Akiwumi, not for the first time, speaks glowingly about the African Continental Free Trade Area (AfCFTA), which could potentially consolidate a market of about 1.2 billion people. “That [market] is a huge potential for export diversification,” he points out. “The AfCFTA will ease business transactions because businesses will operate under continental rules, regulations and procedures as against those of individual countries.

The report notes the AfCFTA will help national efforts “prioritize services sectors that are relevant to a value chain that is strategically important for a given country.”

“I tell you, 10 years from now you will see a different Africa. There may still be poverty, but you will see economic growth and development and prosperity in many places. There will be more countries like Nigeria, many more like South Africa, Kenya, Mauritius, of course, Egypt and Morocco. It will happen. I guarantee you this.
Africa Renewal asks: “You must be an incurable optimist. Aren’t you?”

“We have to be optimistic, my friend. We have no choice,” Mr. Akiwumi responds, with a smile.
The report’s recommendation for countries to remove protectionist policies is debatable given that Africa’s top economists and development experts are divided on the issue. For example, Carlos Lopes, a former Executive Secretary of the UN Economic Commission for Africa once argued for what he termed “sophisticated protectionism,” which is a government’s strategic intervention with policies that target specific sectors to benefit the national economy.
Mr. Akiwumi counters that “Protectionism only gets you less prepared for competition. There must be competition, and competition leads to efficiency and cost-effectiveness.”

He is not against policies that protect certain areas that pertain to national security but, other than that, he insists, “protectionism stifles innovativeness and the ability to absorb new technologies.”
Based on current realities, what could Africa look like in, say, 10 years?

“I tell you, 10 years from now you will see a different Africa. There may still be poverty, but you will see economic growth and development and prosperity in many places. There will be more countries like Nigeria, many more like South Africa, Kenya, Mauritius, of course, Egypt and Morocco. It will happen. I guarantee you this.
Africa Renewal asks: “You must be an incurable optimist. Aren’t you?”

“We have to be optimistic, my friend. We have no choice,” Mr. Akiwumi responds, with a smile.

By: Kingsley Ighobor

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