Looking back: Unpacking the trends that shaped Africa’s business environment (Part 3)

2018 has been an interesting year for Africa, with various events and trends becoming visible. 2016 saw the effects of the slowdown of China’s economic growth due to its rebalancing of its economy and the end of the commodity price super cycle. 2017 brought some relief. In Africa, 2018 demonstrated a number of continued trends, but also some new events.

The NTU-SBF Centre for African Studies, situated in Singapore, publishes a weekly newsletter. These were studied to pick up on the trends prominent in 2018. Some of these trends are more elaborate than others.

This article comprises three parts. Click to read part 1 and part 2.

Trend 9: Financial Services

The financial services industry in Africa has seen a lot of development throughout the past few years, as was the case in 2018.

The mobile phone as a platform business model is gaining traction and scale on an unprecedented scale. It has vastly increased the percentage of people now formally included in the financial systems of many African countries. It is leapfrogging the traditional development of branch networks in rural areas.

Mobile telephony has driven the US$300 million monthly transactions in Africa from 7.2 million new people (up 250% from 2012) using digital financial services and 45,000 new banking agents due to a financial inclusion project. Financial inclusion in sub-Saharan Africa has increased from 23% in 2011 to 43% in 2017. Mobile money solutions and agent banking now offer affordable, instant, and reliable transactions, savings, credit, and even insurance opportunities in rural villages and urban neighbourhoods where no bank had ever established a branch. In the DRC, mobile money services have risen to 16% by 2017. This has pushed the overall financial inclusion rate from 3.7% to 26% from 2011 to 2017. While East Africa has long been the star performer in terms of the evolution of digital financial services, West Africa is the new growth market.

In Rwanda we have seen the roll out of new tech-based banking facilities by BPR. This has increased the level of financial inclusivity significantly. BPR will introduce agency banking and roll out a mobile micro-lending facility, and various debit and credit cards. The bank has also launched an improved internet banking platform. BPR has already formed a partnership with telecom firms Tigo Rwanda and MTN to launch services, allowing its customers to deposit or withdraw money from their accounts to their Tigo and MTN e-wallets and vice versa. Customers can also pay for different government services electronically.

In Uganda, Centenary Bank has added itself to the growing number of financial service providers targeting mobile phone users. The bank recently launched Cente Mobile Loan, a mobile phone enabled service through which customers will be able to access loans from as low as Shs5,000 up to Shs2 million.

Funds for start-ups are also a challenge in Africa. A new angel investing network was set to launch in Tanzania in May 2018, to support the emergence and growth of a local angel investor community in the country. The Tanzania Angel Investors Network (TAIN) will be the first community for angel investors in Tanzania.

In Ghana, mobile money has been its backbone in financial inclusion and has spurred increases in account ownership to other financial services. While the current African leaders of mobile money account ownership are Kenya at 73%, Uganda at 51%, and Zimbabwe at 49%, mobile money activity in Ghana has led to an increase in financial inclusion. Ghana is now one of the fastest growing mobile money markets in sub-Saharan Africa. The number of transactions stand at 82 million average per month and 7.2 average on a monthly basis per user.

Another country that has become prominent in this sector, is Somalia. The World Bank suggests that Somalia can emerge as the biggest mobile money market in Africa, with the number of mobile money transactions in Somalia surpassing that of Kenya. Kenya recorded 137.4 million mobile money transactions worth US$3.17 million in June 2018. Somalia recorded 155 million transactions worth US$2.7 million in the months of 2017.

MTN announced it would launch mobile money services in its two biggest markets, South Africa and Nigeria, in the first half of 2019 as part of its efforts to be “the biggest provider of mobile financial services in Africa.” In Nigeria, the Central Bank has agreed to allow mobile operators to act as payment-service banks. MTN, which has 55 million subscribers in Nigeria, will apply for a licence to launch mobile money services in Nigeria in the second quarter of 2019. It has about 27 million mobile money customers and is targeting 60 million customers in the next few years.

Banks in Nigeria should be watching this development with trepidation. They were asleep in Kenya when Safaricom opened M-Pesa way back, and have only wakened recently. This is a greater imperative when Africa’s central banks actively support mobile telephony companies’ attempts at providing mobile money services.

The formal banking industry in African countries have also experienced a number of developments. Amongst others, Kenya is looking for strong banks that would be capable of withstanding shocks to finance large infrastructure projects, which has left the future of about 20 small banks hanging in the balance. In 2018, the Kenyan Central Bank quietly engaged with these small banks in merger and acquisition talks to help them voluntarily close shop. Kenya has 42 banks; the 20 small banks control only 8.7% of the banking business, while eight big banks control 65% and 11 medium-sized banks 25% of the market share. The struggling state-owned banks (National Bank, Development Bank of Kenya and Consolidated Bank) are also looking for strategic investors.

Remittances have started to play a prominent role in supporting economic growth in African countries. Nigeria was the biggest receiver of remittances, receiving 29% (US$22 billion) of total remittances flowing to Africa in 2017. Egypt was the second biggest receiver of remittances with US$20 billion. Remittance flows also continue to play an important role in Ghana, amounting to US$2.5 billion in 2014 (18.6% of exports); in 2017 they declined to US$2.2 billion (15.8% of exports). As remittances play an important role in African economies, policies should focus on reducing the cost of remitting funds. After FDI, recorded remittances are Africa’s largest source of foreign inflows.

Trend 10: E-commerce

The growth and continuation of e-commerce in Africa has received various boosts during 2018. Africa’s leading online shopping platform, Jumia, reported in 2018 it wanted to make Egypt its biggest market in Africa, and it’s tapping into Egypt’s vast network of unlicensed vendors. Jumia wants a 10-fold growth in revenue from Egypt and a six-fold growth in the number of products offered on its platform by 2021. To achieve that, Jumia is urging the government to regulate informal retailers by offering them tax incentives and cheap loans that would allow them to market their goods online.

While Jumia is the largest e-commerce platform in Africa, Kenya’s Kilimall has been growing as well. In 2018, Kilimall stated it planned to spread across Africa by the end of 2022 to serve the growing demand for online shopping. Kilimall’s plan is to revolutionize the retail sector by allowing anyone to sell their goods and services online.

We are therefore seeing the growth of an e-commerce sector in Africa, with an increasing number of people turning towards this platform to buy. It also shows upon an increase in the number of people trusting the process of e-commerce. The number of e-commerce platforms is also growing. In South Africa, Spree merged with Superbalist in 2018, both online fashion retailers and both owned by Naspers. In Kenya, a new e-commerce platform, Masoko (Safaricom), will be targeting formal retail and informal online trading, providing a platform for SMEs interested in moving into the e-commerce sector.

We also find e-commerce transactions in the agriculture sector. Zambian startup eMsika is helping farmers find, buy and receive agricultural inputs in a fast, trustworthy and convenient way, as well as access markets for their produce. eMsika lists over 300 different products in 10 different categories of agricultural input, including poultry, crop protection chemicals and seeds. They also serve areas in Zimbabwe, the DRC, Namibia and Mozambique, with plans to eventually spread across Africa.

Trend 11: Political issues

Africa has seen a number of developments on the political front in various countries. Below are a few examples, which are by no means an exhaustive list.

Angolan President Joao Lourenco is cleaning up the Dos Santos family links in government positions in a bid to eradicate corruption. He dismissed his predecessor’s son as head of Angola’s US$5 billion sovereign wealth fund. He also removed the former president’s daughter, Isabel, as chairwoman of the state-owned oil company Sonangol, and fired the central bank governor and the head of diamond company Endiama. He’s also terminated management contracts for state TV channels with two of Dos Santos’ younger children. All public building projects will have to go through tender processes instead of being directly granted.

When President Jacob Zuma, South Africa’s president resigned on 14 February 2018, it ended nine years of his scandal-marred administration. Cyril Ramaphosa was sworn in as president on 15 February 2018. Ramaphosa is widely expected to adopt business-friendly policies. Ramaphosa subsequently reshuffled his cabinet and got rid of various controversial figures. He also initiated commissions of inquiry to investigate issues such as state capture, the problems with SARS, etc. Ramaphosa will, however, need to balance his clean-up act and the needs of his party with great caution. At this stage he does not enjoy overwhelming support in the ANC.

The East African Community (EAC) has frequently been described as the most efficient of the major regional economic communities in Africa. The trade disputes between Tanzania and Kenya the past few years have undermined the efficiency of the EAC. We saw various actions that clearly showed the two countries were struggling to subordinate national interest to regional interest. In the process, we also saw Uganda becoming involved, frequently supporting Tanzania’s position in the “trade wars” between Kenya and Tanzania.

At the FOCAC 2018 Summit Meeting in Beijing, Chinese President Xi Jinping offered US$60 billion in financing for Africa, while warning against funds going towards “vanity projects”. He promised tangible development that would be green and sustainable. China has denied engaging in “debt trap” diplomacy, and his offer of more money comes after a pledge of another US$60 billion at the summit in South Africa in 2015. The new US$60 billion will include US$15 billion of aid, interest-free loans and concessional loans, a credit line of US$20 billion, a US$10 billion special fund for China-Africa development, and a US$5 billion special fund for imports from Africa. Chinese companies will be encouraged to invest no less than US$10 billion in Africa in the next three years.

These funds would grow the manufacturing and other sectors, with the concomitant benefits. Some of the funds will be used to finance imports from Africa. China will also be writing off government debt of very poor indebted African countries. One must also see the FOCAC 2018 spending within the context of the BRI, where all of Africa have been invited to participate.

Trend 12: Horn of Africa

The Horn of Africa has increasingly become the scene of activity, driven not only by players in the region, but also from abroad.

The UAE has reached out meaningfully to Sudan, providing continued support. As Sudan struggles to tackle an acute foreign exchange crisis, the UAE has offered US$1.4 billion to Sudan’s Central Bank. This aid comes just days after the Central Bank had agreed to a US$2 billion loan from Turkish conglomerate Ozturk to help Sudan purchase petroleum products and wheat.

In 2018, and before, we have seen Russia, Britain, Turkey, Saudi Arabia, Qatar and the UAE becoming active in Sudan. China is Sudan’s biggest trade partner, importing oil from Sudan while exporting low cost items and armaments to Sudan. The USA’s sanctions against Sudan means a zero US-footprint in the country, while it gave China the gap to increase its presence substantially.

Saudi Arabia and the Saudi private sector are investing in maritime transport in Sudan. Sudan and Qatar also signed a US$4 billion agreement to jointly develop the Red Sea port of Suakin off Sudan’s coast. Sudan also signed a separate deal with Turkey whereby Turkey would restore part of Suakin and construct a naval dock to maintain civilian and military vessels. Sudan also signed a deal with the Turkish company, Summa, to build the new Khartoum international airport at a cost of US$1.15 billion.

While Ethiopia had also been looking at developing links to Port Sudan further up north of Suakin, a more developed Suakin could reduce travelling time from Addis Ababa and provide additional flexibility for Ethiopia and reduce its dependence on Djibouti. As it is, Port Sudan has also become busy.

Sudan has also invited Russian companies to take part in the development of its oil industry by offering them several oil sites, including both producing and untapped ones, and fields that are currently being developed by other foreign companies, whom the Russian players would help to increase production. It seems that Sudan will soon have its own oil reserves to pump, instead of just being part of the supply chain for its southern neighbour.

Ethiopia has also been the scene of exciting developments during 2018. Ethiopia appointed Dr. Abiy Ahmed as Ethiopia’s next prime minister. He visited Djibouti, Sudan and Kenya, indicating Ethiopia’s search for access to ports. Ethiopia struck a deal to take a stake in the Port of Djibouti, in exchange for the option to take shares in state-owned Ethiopian firms, including the profitable Ethiopian Airlines. Ethiopia also agreed to acquire a 19% stake in the Port of Berbera in Somaliland. In Sudan, Abiy struck a deal for Ethiopia to obtain a stake in Port Sudan. Sudan would also back Ethiopia’s US$4 billion dam on the Nile. In Kenya, Abiy revived a deal to set up a logistics facility at the Port of Lamu. Ethiopia and Kenya will work on joint projects, e.g. railways, roads, and developing the border town of Moyale into a joint city and economic zone.

Ethiopia has also recently seen the introduction of franchise business Pizza Hut. A few more international franchise brands such as KFC and McDonald’s are on their way to Ethiopia. Economic experts see this as an indication of a greater liberalization of the economy ahead.

The Ethiopian government decided in 2018 that private investors would be able to buy complete or partial shares of public enterprises aimed at promoting efficiency and productivity, enhancing sustained growth and ensuring management accountability.

There are quite a number of issues involved in Somalia that are important. Firstly, the UAE and Somalia have had a fall-out with the former ending its involvement in Somalia. Secondly, Djibouti ended the management contract of DP World (from the UAE) to run its Doraleh Container Terminal. DP World will figure very prominently in the development and management of the Port of Berbera. Thirdly, Russia has shown interest in developing a naval base at Zeila in Somaliland, which will provide it with the ability to project power into the Mediterranean Sea, the Middle East and the Indian Ocean. Lastly, Ethiopia has also been “shopping” around for additional access to the oceans.

Eritrea has come in from the cold. Ethiopia and Eritrea ended a conflict in July 2018 that lasted for close to three decades after Prime Minister Ahmed came to power in April 2018. Russia and Eritrean leaders have discussed expanding trade and joint projects, while the UN Security Council reviewed sanctions imposed on Eritrea and they were subsequently lifted. The two countries discussed a port logistics centre and projects in mining and infrastructure. Eritrea has also restored relations with Djibouti and Somalia towards the end of 2018.

Russia has been looking for ports to use in the entrance to the Red Sea. Gaining a foothold in Eritrea could therefore help Russia to position its navy. This is in addition to the discussions that Russia is reportedly involved in with Somaliland to develop a port near the city of Zeila. This would help it to project power into the Middle East and the Indian Ocean region.

Eritrea is now working to regain its place in Africa and the international community. The fragile peace could be threatened if Eritrea’s growing economic interests encroach on its neighbours, particularly Djibouti. Eritrea has the potential to provide Ethiopia and South Sudan with port facilities, going into competition with Djibouti. In addition to this, it also has the option to provide military bases to outside powers, just as Djibouti has been doing.

The author, Johan Burger, is the director of the NTU-SBF Centre for African Studies, a trilateral platform for government, business and academia to promote knowledge and expertise on Africa, established by Nanyang Technological University and the Singapore Business Federation. Johan can be reached at [email protected].