By Samkele Mchunu
Africa is the continent with more than 1.2 billion people, endowed with rich natural resources among others, vast arable land, livestock, mines, rivers, oceans and lakes with their marine life. However, though it is rich with such resources, the continent is unable to exploit the resources fully due to lack of technology, finance and well trained man power. As the result, it has remained one of the pauperized in the world.
Africa has only three percent share on the world trade. It mainly exports mines, crude oil and livestock in their raw form to the foreign market and obtains small amount of hard currency which doesn’t cover its imports’ bill which again leaves it in negative trade balance.
To eradicate poverty and to change the natural resources in to wealth, Africa needs to export value added products and to that end, expanding the manufacturing sector is essential. The sector plays pivotal role in job creation, creates market linkage with the agricultural sector, boosts export, substitutes import, and attracts both foreign and local investors.
Side by side with these, digitizing the economy has been a preferred option to reduce transaction cost and to advance financial inclusion. The financial sector in the continent is in its infancy level.
Despite the number of banks, insurance companies, and small and medium size financial institutions including the increasing credit associations, reaching the rural population through financial services has been a critical matter. The vast number of African population is engaged in subsistence farming and up to 75% of the population is resided in the rural part. The introduction of mobile telephone in the last two decades created enabling environment for the expansion of mobile banking service in the rural part.
The Information Communication Technology boosted farmers bargaining power. They can easily access the market price of their products in the urban centers and could supply their products by shortening the value chain with no broker’s intervention. They can transfer and receive money. They also obtain information with regard to metrology so that enable to prepare themselves to withstand extreme climate conditions.
However, as compared to the number of population, the digital service provision is very less than the demand. And to transform the continent’s economy into digital, pulling more foreign investment and constructing IT infrastructure is vital.
According to the recent report of the Economic Commission of Africa (ECA), since 2018, digitization has provided an important avenue for the African economy to leapfrog not only financial development but also development across other sectors of the economy. There are infinite opportunities on the digital platform, and fintechs are working round-the-clock to develop and introduce new products here.
However, these changes will benefit only those economies that embrace digitization, invest in the required infrastructure, and introduce commensurate regulatory technology. Digitization is transforming African economy in four major ways: retail payments systems, financial inclusion, sustainable business models, and revenue administration. Given that Kenya has stood out in its success in pursuing and utilizing digitization, the experiences of the country, explored and its experience shed light on Africa’s digitization potential since 2018.
Digitization and retail payments systems: Digitization has revolutionized the retail payments system and the payment infrastructure. Economies are saving billions of dollars per year by using electronic payments and centralizing those payments. The retail payments infrastructure is one of the earliest beneficiaries of mobile-phone-based payments and transactions platforms. Electronic payment platforms save on transaction costs in terms of time, travel, and even unit costs. Indeed, this revolution cuts across rich and poor, underserved and formal and informal businesses.