Fintech in Africa: What impact will the AfCTA have on the industry in 2021 and beyond? [Opinion]
With the Covid-19 pandemic working as one of the larger catalysts in the ongoing fintech solutions in 2020, it can be attributed to adaptation and growth for various payment solutions. Whilst the world works to grapple the pandemic, one thing still hasn’t changed: the never-ending drive to make transacting easier, more accessible and mobile-driven. With a particular focus on the effects of the African Continental Free Trade Area (AfCTA), what can we expect for fintech in Africa for 2021 and onwards?
The 1 January 2021 is marked as a historical day for the African continent with the start of the African Continental Free Trade Area (AfCFTA) agreement taking effect, across all 55 member states. Home to over 1.3 billion people, the agreement is designed to reduce the bureaucratic challenges faced in intra-African trading to lower import tariffs as well as, non-tariff barriers.
According to the World Bank report, The African Continental Free Trade Area: Economic and Distributional Effects, the agreement has the potential to:
- Lift 30 million Africans out of extreme poverty and boost the incomes of 68 million individuals who live on less than $5.50 dollars a day;
- Boost the wages of unskilled workers by 10.3% and by 9.8% for skilled workers;
- Increase Africa’s overall GDP by $450 billion (7% increase), while adding an income of $70 billion income to the rest of the world, by 2035;
- Increase Africa’s global exports by $560 billion, primarily through manufacturing
The African continent has continuously proven that the conditions are rife to build onto the existing fintech solutions and foundations. This not only solves consumer’s banking wants/needs, but improves on those existing outdated systems, increasing access to banking services, infrastructure, support and client education.
The continent’s lack of adequate banking infrastructure, heavy reliance on cash and housing the youngest population on Earth (which are tech-savvy and early adaptors), results in the fintech industry being poised to contribute over $150b to Africa’s overall GDP. This industry plays a pivotal role in not just in increasing financial access to underbanked individuals and businesses but creating the systems necessary to facilitate the movement of money — in ways that are not too unfamiliar to client’s current purchasing practices and/or needs.
More defined legislations and frameworks around fintech for service providers
The key focus of the agreement is designed to reduce the red-tape, costs of trade simplifying the customs process and formulate new legislative agreements to benefit the member States. With the potential to increase intra-African trade, aspiring entrepreneurs and scientists need to continue to develop products and solutions that are not only designed for the continent but continue to foster talent and innovation across the member states.
Africa’s youthful population (many of whom have studied abroad and have been exposed to the fast, ever-changing tech landscape), has become increasingly important for the continent to adopt technologies that can address the continent’s pre-existing trade challenges. As a result, we’re seeing the growth of digital challenger banks such as Zazu and Tyme; telcos such as Safaricom’s Mpesa and Orange Money offering financial solutions; and increased enabling more people to participate in online transactions through the use and adaptation of virtual cards offered by Mastercard and Visa.
Greater support for fintechs in ecosystems designed for growth
Access to financial and support systems has always been a challenge to attain for fintech service providers to either build, operate and grow. Increased cross-border cooperation, would result in the stimulation of government grants and loans to existing and aspirant entrepreneurs. Increased investment in startups across the continent has seen a record-setting $701.5 million in funding across 397 companies in 2020, with no signs of slowing down. In addition to access to capital, support is equally important. Even card schemes are getting in on the fintech surge, with programmes such as the Mastercard Accelerate Programme, which strives to facilitate and incubate the emerging companies to continue disrupting the fintech landscape.
With Intra-African trade recorded at a low 12% of Africa’s total $560 billion worth of imports, free trade between member states can be the key to driving structural transformation. Once this transformation has been defined, legislated and implemented, it can become a primary driver of increased growth, production growth, productivity growth as well as a higher share of manufactured goods, resulting in higher incomes, both nationally and individually.
With this newfound growth, we expect aspirant and existing fintech entrepreneurs to keep crafting solutions that will need to meet the demand of specialised financial services to facilitate and drive continued growth for trade between countries.
New niches to service much of Africa’s underbanked population
With increased trade, it presents challenges, shifts in existing practices, as well as opportunities to improve on those existing practices or offer new products and services, catering to the changing landscape. New fintech players in remittance, payments, processing, banking and insurtech are facing a rising demand in simplified, accessible and reliable tech to cater to their ever-changing needs, introducing new players in the market who will help address these demands. The key to meeting the market’s requirements will rely on an ecosystem of collaboration between existing institutions (retail, banking/insurance houses), the regulators and the emerging fintech companies who are able to bridge the gaps left unattended in these industries. We have already seen
Where to from here?
Continental free trade agreements are nothing new, but each region requires a different set of specialisation in coordinating industrial policies that will help facilitate economies of scale finding collective solutions for the problems faced by Intra-African trade. African leaders must champion the path to African advancements, encourage the political will needed on a regional level and encourage cooperation among member States. The signing of the AfCTA is just the beginning, the actual work is needed which will either make Africa and her people successful or further stagnate our growth.
This article was written by the Editor of PaySpective, Ayakha Moloko. Having been involved in the fintech industry from 2013, by first building a payments solution and now currently working for a leading payments processor, Ayakha’s passion revolves around the ever-changing fintech landscape. PaySpective was formed from a need to address societal payments issues and inspired by the Creators who build interesting platforms to solve them. Happy to connect on Twitter or LinkedIn, where I share further information insights, opinions and current affairs around the exciting fintech space. For more personal thoughts and musings on African current affairs, family and friends, as well as navigating the journey on fatherhood, be sure to check out the Medium blog too :)