South Sudan – the next frontier for mobile money in Africa

It seems mobile operators are keen to replicate the success of Kenya’s mobile money industry in neighbouring South Sudan.

A recent Reuters article reports that telecoms operators MTN and Zain have targeted South Sudan, the world’s youngest nation, as the next untapped market for mobile money, with both groups planning to launch services that will turn cell phones into virtual bank accounts.

For every adult in the country, which marked its first year of independence this month, there are fewer than 0.01 bank accounts, compared with 0.3 for Africa as a whole and 1.6 for western Europe. That means everything has to be paid for in cash, and in a nation the size of France, with barely 100km of paved roads, sending money can be costly and dangerous.

Zain and MTN, which compete with Vivacell, Gemtel and Sudani in South Sudan, say that mobile money will make payments easier and more transparent, provide rural communities with access to financial services and could transform the economy, as Safaricom’s M-Pesa service has in Kenya. The two companies said that they intend to take on partner banks in their ventures but did not name any possible contenders.

Only 13% of South Sudan’s 10 million people own a mobile phone, but Zain predicts that this will grow to 36% by 2016. “There’s pent-up demand for it, particularly in the NGO sector, government and business,” said Hakeem Dario N’Moi, chief executive of Zain South Sudan. “They want to be able to pay their staff and transact in a more efficient way. It would certainly bring some advantages over taking money by road.”

Both operators, which have introduced mobile money services in other African countries, say that they want to emulate the success of M-Pesa. Launched in 2007, the service now accounts for more than three quarters of all mobile money transactions in Kenya. The World Bank estimates that transactions through M-Pesa and similar services equate to 20% of Kenya’s GDP. South Sudan, however, will prove a more difficult proposition because of its small population and the near economic collapse since the shutdown of oil production after a dispute with the north over transit fees.

“The path to profitability is through volume of transactions,” mobile banking consultant Loretta Michaels said. “The smaller a country is, the harder it is for any one carrier to get the kind of volume it needs.”

South Sudan offers attractive opportunities across all sectors of its economy despite the current difficulties it is facing in its dispute with Sudan. We believe the introduction of mobile money services will help boost economic activity in the world’s newest state.

Imara is an investment banking and asset management group renowned for its knowledge of African markets.