The revolution of payments
Certainly the most remarkable advancement in mobile technology has been the offering of new payment solutions. Mother of all exchanges, money is a complex subject in Africa where over 80% of the population are unbanked.
For a long time, the only payment method for a large majority was cash. Undeniably constraining, informal cash exchanges have without a doubt hindered economic and social development in Sub-Saharan countries. Running a business becomes complicated with no bank account, therefore with limited access to savings or loans. This also makes invoicing clients and paying suppliers much harder. This incapacity to manage money in a structured and safe manner has naturally lead to a dependency on exterior aid characterised by NGOs, development assistance and microfinance.
Having grown weary of this alienation, the African people sought their own solution, becoming experts of the System D (D for “Débrouille” – French slang). For a long time now, community-driven solidarity initiatives such as tontine systems, based on trust and informality have allowed the people to meet their needs.
However, it is the arrival of the mobile phone in the 2000s that triggered the first revolution; payments through mobile credit. This initiative caught on fast and became a true currency for a number of countries. Kenya became a figurehead of this tendency with the emergence of m-Peza, a mobile operator. Although the country remains very rural, the mobile payment penetration rate was reaching 86% in 2015 according to a McKinsey report!
For several years now, with the advent of smartphones and broadband, mobile payments in Africa are rapidly mutating from mobile credit towards the use of electronic money. This is spreading at an accelerated rate across the continent. Through electronic money accounts, individuals can now benefit from accessible and simple financial inclusion. Allowing them to manage their account, save money, pay in shops, reimburse people, withdraw cash and receive money from abroad sent by the diaspora. A revolution in motion. All the studies indicate that Africa will be the first continent to mass adopt electronic money; the growth potential is exceptional. In fact, according to the Bill and Melinda Gates foundation, over 2 Billion individuals from underbanked regions will employ mobile payments daily by 2030. Over 30% of these new users will be African!
Pan-Africanism and the returning diaspora
The growth of financial inclusion will create a boom in local enterprise but should also increase easy access to healthcare, education and social benefits. Formalising payments, be it for short or international channels is supposed to provide the necessary reassurance needed to develop social, business and entrepreneurial sectors.
Daily interactions between the continent and the diaspora are more likely to be reinforced. For a while now, African diasporas living in Western regions have had a significant financial influence on the local people. This is known as “Remittance”. This refers to the part of the diasporas’ salary that is sent home. This practice is anchored within African culture, it contributes greatly to the principals of family aid and community-based solidarity. Remittance often acts as a maintenance wage that keeps the locals afloat, unfortunately, it tends to encourage an unproductive dependency. According to the GSMA research institute, the total amount sent annually by the diaspora to the continent is estimated to be more than a hundred billion, contributing to over 6% of the countries consolidated GDP.
The emergence of new, faster, safer and cheaper mobile transfer solutions has had an impact on the relation between the diaspora and the continent. Not so long ago, options were limited to sending cash in the post or transporting it in a suitcase as well as resorting to Western Union whose fees regularly surpass 10%. Therefore, mobile transfer platforms such as Transferwise and Worldremit, to name a few, have rapidly become popular with the diaspora. This digitalisation is only beginning and hopefully a variety of new diversified distributions channels for the remitted money should start to appear. Whereas until now members of the diaspora have mostly limited their exchanges to members of the family, today, they can contribute on a larger scale to the region’s development by sending money directly to other types of project leaders such as entrepreneurs, foundations, etc.
The interest in having a higher impact on Africa’s economic and social emancipation is growing among the diaspora. More and more are focusing on building up trusted relations with local entrepreneurs and funding projects. In addition, Africa is seeing the return of its intellectuals; needless to say the continent already boasts a large intellectual wealth. Indeed “returnees” or previous members of the diaspora are making their way back home in large numbers leveraging their experience and with an ambitious to drive for business and social development. In fact, 70% of African students who obtained a degree overseas move back to Africa to work, according to a 2013 study lead by Jacana Private Equity Africa.
Africa is becoming attractive for the new generation of diaspora who have been hardened by the quality of life in Europe or America.
This movement is associated with the rebirth of Pan-Africanism which has lain dormant during decades of disillusionment. The youth within the diaspora as well as the continent’s talented youngsters seem to want to liberate themselves of the fragile multilateral equilibrium of an Africa arbitrarily divided into 54 countries! For this emerging Pan-African class, their cultural and ethnical diversity is an incontestable force. Pan-Africans advocate that this multiplicity should not hinder Africa’s uniqueness and solidarity as they believe every African on the continent and within the diaspora share a common history and destiny.
What place in a global arena
Africa is obviously not only attracting the diaspora. An interest in this expanding market can be felt worldwide. Africa will have to deal with major international powers to get what it is due within the scope of globalisation and this is no easy feat. This troubles the African people. How to avoid being neglected and once again missing out on the sharing of the continent’s wealth?
Meanwhile, contenders for the new African Eldorado are flooding towards the continent. A study by EY proves this saying that foreign direct investments towards Africa have grown by 136% within a year reaching 128 Billion $ in 2014 and China are leading the way. Prior to them and since the beginning of the colonial age, Europeans and Americans have maintained their strategic positions securing favourable bilateral relation with local authorities.
Colonial history, the dependence African currencies have with Occidental currencies, the alienation of debt and all too many cases of corrupt governments are all open wounds that encourage the African people’s latent defiance towards Western countries. It’s all comes down to perspective, the perception of what is right can vary greatly depending on the interests that we seek to defend. Besides, this somewhat bitter feeling towards Westerners can be dated all the way back to slavery and colonisation. In this way, Jomo Kenyatta, a Kenyan politician expressed himself at the beginning of the XX century: “When the Missionaries arrived, the Africans had the Land and the Missionaries had the Bible. They taught us how to pray with our eyes closed. When we opened them, they had the land and we had the Bible.”
A number of Western multinational groups who only consider Africa as a hotbed of mineral riches or a new breeding ground for consumers must certainly suffer from a largely negative image from the local population. However, they have been able to form privileged relationships with local authorities allowing them to operate seamlessly throughout the continent and enjoy an often crushing competitive position in the market. But is this a durable arrangement? Other large groups have understood that on the contrary, it is important to leave a positive social footprint in order to withstand these mutating markets as the people’s voice is becoming more and more heard.
Doing business in Africa
Fortunately, the reality on the field is far more pragmatic, with regards to daily business relations, often people cooperate through reciprocal interest regardless of their ethnicities. Africa’s modern intellectual elite understand the importance of exterior collaborations to attract funding, innovation and expertise which are fundamental building blocks for tomorrow’s greater Africa. Africa remains a welcoming land who still wish to do business providing it positively contributes to the community and adapts to the new social requirements defined by the Pan-African movement. As a young foreign company, a key to succeeding on the continent is to leverage the growth potential the young active class represents and to harness these productive forces by creating local employment. They represents an infinite source of ideas lacking only the tools to exploit their creativity.
In Africa more than anywhere, physical contact is important, it establishes confidence which is crucial to all collaborations. Many entrepreneurs have gone to Africa in search of success having caught wind of its momentum. But don’t be fooled into thinking that imposing yourself in Africa is easy. First, you have to pick the right country for a soft landing and this in itself is a hard decision given the abundance of choice. It is imperative to gain a strong understanding of the market, the political situation, cultural, regulatory and ethnic specifics as well as how you can operate as a foreigner within the country. Then it is important to construct a Pan-African legitimacy which must be done through the recruitment of local leaders and productive forces. This is in fact paramount to integrate the ecosystem and therefore benefit from business networks who are characterised by very short and informal channels.
Playing the Luxembourg card
It is within this context, propelled by a favourable economic dynamic and in line with African society’s modern values that Koosmik plans a future deployment of its solutions towards the African diaspora and the continent. The young company has chosen to operate from Luxembourg before eventually opening offices in Africa.
The Grand Duchy’s openness towards international markets is imprinted in its DNA. Benefitting from an ideal geographic position in the heart of Europe, Luxembourg is able to easily address the main European markets. It can also rely on a multilingual workforce capable of working just as well in French, English and German. It is commonly put forward that in Luxembourg we speak the language our clients speak! The importance sharing a common language is often underestimated when founding business partnerships, along with its associated cultural symbolism. According to a study conducted by the CEPII research centre in 2016, speaking a common language can increase bilateral business by 208 %.
In terms of African relations, the multilingual dimension of Luxembourg’s ecosystem presents a real advantage. Whereby a large majority of African states can be addressed in their local language given the Luxembourgish workforce’s fluency in French, English, Portuguese, Spanish and even a basic level of Afrikaans through German and Luxembourgish. Furthermore, Luxembourg has no colonial past and is recognised for its political neutrality on the diplomatic scene. Finally, the country boasts a longstanding expertise in the combined areas of finance and ICT.
There is potentially a great number of best practices and skills present in Luxembourg that African markets could profit from. Particularly regarding regulatory issues which lack in structure and often impede economic development. This tendency does indeed seem to be heading that way. A number of local players already operate in Africa and initiatives such as LuxAfrica gathers a growing number of stakeholders who wish to reinforce relations between the two lands.
Undoubtedly, Luxembourg authorities are watching this diversification axis closely when allocating their efforts to promote the country internationally. Although Luxembourg actively participate development aid initiatives within certain African countries such as Cap Verde, Burkina Faso, Mali or even Senegal, bilateral agreements favouring commercial exchanges remain limited. The lack of double tax treaties between Luxembourg and black African states is evidence of this.
On all accounts, in the face of Africa’s growth perspective, there is certainly a strong card to play for Luxembourg to become a privileged European partner; independent and impartial.