By James Hall
Analysis in brief: The global pandemic COVID-19 has already hit Africa’s economies hard. Mobile money and other on-line financial solutions that have taken root in recent years are providing valuable financial services and are keeping economies functioning. Having proved their essentialness during this crisis, e-commerce and digital networks can expect investment from governments and the international private sector, as well as further consumer growth in the coming years.
The medical crisis presented by the Coronavirus pandemic is unprecedented for Africa. The recurring Ebola outbreaks were restricted to particular countries and at worse were sub-regional in scope. But COVID-19 is continental, indeed global in its reach. The crisis has struck the economies of every African nation hard, as well as Africa’s trading partners abroad. The closest comparison to social and economic disruption from a medical crisis would be HIV/AIDS, which has also impacted all African economies. However, the sexually-transmitted disease is far harder to transmit than COVID-19, and its spread was measured in years, not in days.
Map courtesy: GSMA
The manner in which African economies are faring during this emergency can already be detected through trends and consumer activities. A conclusion can be drawn that these economies would be faring far worse if not for the availability of online commerce options like mobile money. E-commerce has taken root in some urban centres but is far less ubiquitous than mobile money. Beginning in East Africa and spreading throughout the continent, mobile money use has skyrocketed in recent years.
According to the World Economic Forum last year, “mobile money accounts now surpass bank accounts in the region and greater financial inclusion has benefited large swathes of the population that remain unbanked including the poor, the young, and women.” Africa is quite clearly the leader in mobile money, and this may be an important saving grace amidst the COVID-19 pandemic.
The COVID-19 crisis has highlighted the value of mobile money to keep commerce functioning to some degree. Millions of Africans have access to financial services through mobile money who have long been excluded from the formal banking sector – just as millions of Africans long unable to obtain landline telephones are now connected to telecommunications and the internet through mobile phones. As COVID-19 makes bank queues potentially deadly sources of viral infection, and face-to-face contact that might spread the disease is discouraged and, in some areas, prohibited, Africans without mobile money accounts face difficulties.
Out of this crisis, the private sector and governments will appreciate e-commerce more than ever and put in place policies to encourage its growth and safeguard its operations during future disease outbreaks and other emergencies.
Mobile phone penetration fuels internet use
From zero in 1990, mobile phone ownership in 2020 is nearly universal in Africa. Those countries that first harnessed mobile phone usage saw their economies grow. Kenya, focused on becoming East Africa’s hi-tech hub, saw mobile phone penetration rise from just 1% in 2002 to 39% in 2014 and 100% in 2019. Meanwhile, mobile money services were introduced, spreading quickly throughout East Africa. The sub-region’s economies grew impressively as a result.
Graphic courtesy: Omdia
The ownership of mobile phones exceeds the population of Sub-Saharan Africa (SSA) – in Kenya it’s 100.1% – because of multiple SIM-card possessions by individuals. Concurrent with the expansion of mobile phone coverage has been the roll-out of data services. More than 90% of the population in SSA was covered by 2G networks at the end of 2017. Six new 4G networks were launched in the first half of 2018, which brought to 120 the number of 4G networks in the sub-region. These networks that both enable and drive data usage expanded just as the price of smartphones declined. Both twined developments retired old analogue systems in favour of mobile broadband, allowing for the growth of mobile money and e-commerce. By 2025, 60% of all mobile connections will be 3G, in addition to users connected to faster 4G networks and a privileged few connected to 5G.
A 2019 study of West Africa found an internet penetration rate of 26%, but the days when one out of four West Africans is connected to the internet are already passed. Internet penetration is now growing faster than mobile phone penetration, which approaches the saturation point. By 2025, West Africa’s internet penetration rate will be 40%. A myriad of studies has confirmed that countries with higher concentrations of mobile phone usage and mobile phone access, such as Kenya, Nigeria and South Africa, have more successful economies. Without mobile phones and broadband access, economies lack today’s primary tool to expand their GDPs in the global communications/information economy.
Narrowing the digital divide is now an economic necessity
Both the formal and informal sectors have benefitted from internet connectivity via smartphones. In the COVID-19 emergency, Kenya’s Central Bank urged all Kenyans to do their banking online, including paying bills and loans. One reason is to avoid physical contact with money because banknotes can be tainted by the virus. South Africa’s banks are sending e-mails and text messages to their customers throughout the Southern Africa region outlining the ways to meet financial needs and obligations entirely by using phones. This comes just as a ruling by South Africa’s Competition Commission takes effect. The leading mobile phone and data service provider, Vodacom, has followed the commission’s order to significantly lower the price of its data bundles. On 19 March 2020, MTN South Africa did the same.
Governments can also do their share. Some steps that will assist internet penetration growth and expand the e-economy would include curbing over-regulation of the telecommunications industry, privatising state-owned telecommunications companies and passing legislation forbidding governments from shutting down the internet for any reason. African governments facing criticism or political dissent during the past decade have shut down the internet for months at a time in Cameroon, Egypt, Ethiopia and elsewhere. Each shut down was a blow to those countries’ IT sectors, and their economies as a whole.
Mobile money is established just in time, and will remain a lifesaver for many
As for the general public, mobile money has proved a lifesaver. A large percentage of Africans work as subsistence farmers and herders, still unconnected to mobile money services. But African nations’ informal sectors – from street vendors to auto mechanics – account for more jobs than formal sector employment and have remained in business during the crisis using mobile money. Only the extreme measure of restricting populations to their homes has hindered informal sector commerce. But even then businesses and customers, buyers and sellers, stay in touch using their phones. Governments must appreciate the value of this connectivity, which did not exist 30 years ago and promote policies to accelerate its growth.
Measures to boost internet connectivity will go far to bridge the digital divide that has hobbled Africa’s economic growth in the Information Age. The COVID-19 emergency, which is shutting down much of the economy in all countries, has left on-line activity unaffected. This part of the economy is holding its own, and in the case of some e-businesses, thriving. This economic argument should encourage governments to invest more in their IT infrastructures.
Key points
- The COVID-19 pandemic devastation on African economies would be far worse but for financial transactions and business communication via mobile phones
- Informal sector businesses have benefited from mobile money services, which have given financial services to millions of Africans unable to afford bank accounts
- Expansion of mobile phone penetration since 2000 and big improvements of internet data services have enabled mobile money and e-commerce across Africa. The COVID-19 emergency has highlighted these as essential economic services, and governments should now expedite the expansion of African IT infrastructures.
| The views expressed are the opinion of the author and do not necessarily reflect the position of In On Africa. |