2018 will be the year African fintech takes off
Next year will be a good year for Sub-Saharan Africa. After a challenging 2017 for many of its nations, 2018 will see economic growth return across the continent, gas activity boom and fintech innovation pick up in speed.
So says Ecobank Research as it recently launched the newest version of its yearly Fixed Income, Currency and Commodities Guidebook, which provides analysis on African markets for investors and businesses.
The research department of the Pan-African bank forecasts three key trends that will take hold across Africa during the next 12 months. GTR takes a closer look at them.
1. Rebounding economy after a trying year
Low commodity prices have hit many economies across the African continent over the past few years and put the brakes on years of steep growth. But 2018 is expected to be the year that gives African growth a new boost.
“Growth is returning to Africa next year,” Edward George, head of Ecobank Group Research, tells GTR. “Now that doesn’t mean we are seeing these amazing growth rates we saw maybe 10 years ago of up to 5% a year, but growth is definitely returning.”
This growth will in particular be driven by a recovery in the region’s economic heavyweights such as Nigeria and South Africa – countries that have been especially challenged by slumping commodity prices. Ecobank also points to the ongoing growth in the continent’s top performers, Ethiopia, Côte d’Ivoire and, more recently, Ghana.
Sub-Saharan #African (SSA) #growth to pick up speed in 2018 as economic activity across regional heavyweights, #Nigeria and #SouthAfrica, improves. Green shoots of growth visible in #Ethiopia, #Ghana and #CotedIvoire. #AfricaChat pic.twitter.com/qebQwjCIM1
— Ecobank Research (@EcobankResearch) November 16, 2017
“A lot of people got the wrong impression about the slowdown in growth in Africa over the last two years, because it was so skewed by Nigeria and South Africa, which account for over 50% of GDP in Sub-Saharan Africa, and they are very heavily dependent on minerals, particularly hard minerals and oil. So when those prices slump, their economies slump,” George says.
Some of the rebound will come from a moderate improvement in oil prices, with George estimating an average rise of about US$10 a barrel next year compared to 2017. However, this is not the full story.
“Increasingly it’s all the other sectors that will be growing. It’s so much to do with trade, the financial sector, manufacturing, logistics, construction, infrastructure – all of this is driving economic activity, it’s not just about commodity prices anymore,” he says.
Of the most important factors that will contribute to African growth in 2018, Ecobank emphasises strengthening infrastructure investment across West and East Africa and improved weather conditions which bode well for crops.
3. Gas is West Africa’s new oil
A second emerging trend, Ecobank points to West Africa’s gas sector becoming “a hive of activity in 2018”, with the development of gas pipelines, floating liquefied natural gas platforms and major gas field projects – from Senegal to Angola.
George explains that given the largely negative long-term outlook for oil, gas offers governments in Sub-Saharan African a good opportunity to boost domestic power generation and diversify its revenues away from crude oil.
“Gas has a very different prospect, because gas is so perfectly designed to power local industry. There are abundant resources of gas particularly in West Africa, and they have been overlooked because it’s always been about crude oil,” George says.
“The key change here is that it’s not just about getting the gas out of the ground and selling it on the global market. It’s about harnessing a fair amount of it for power generation.”
Governments in the Gulf of Guinea and across West Africa have started to recognise these opportunities, ramping up efforts to secure gas supply, including regulatory moves to support investments in the sector.
Deregulating the gas market and allowing market-driven gas prices will be key to unlocking further gas infrastructure investment across the region, according to Ecobank’s research.
Sub-Saharan gas reserves, it says, can support power generation of about 40GW for another 200 years.
The bank points to the planned extension of the West Africa Gas Pipeline (WAGP) to Cote d’Ivoire, the East-West Offshore Gas Gathering System in Nigeria and the Trans Saharan Gas Pipeline as three major gas pipeline projects that could be transformative for West Africa.
3. Africa’s evolving role in fintech leadership
Finally, Ecobank suggests that 2018 will be the year fintech innovation in Africa picks up in speed, buoyed by a new generation of ‘digital native’ Africans.
“Fintech is so incredibly significant to the way all business activity is being driven in Africa,” George says. “What’s interesting with Africa is that it has proved the testing ground for many of these innovative technologies, with huge success.”
But 2018, he emphasises, will see African fintech firms increasingly driving this innovation. “There will still be international investors, but the actual leadership of fintech development is going to start coming increasingly from the Africans. It’s not going to be the Europeans and Americans going in, saying, ‘you should do this’.”
Ecobank’s research highlights South Africa, Kenya, Rwanda, Nigeria, Ghana and Côte d’Ivoire as tech hubs that will nurture the next wave of African startups and help connect them with investors.
Much of the digital innovation in Sub-Saharan Africa is being driven by the explosion in mobile phone usage, which is providing a range of alternative payment, lending and savings services that are helping to boost financial inclusion. According to Ecobank, 57% of the world’s active mobile money accounts are found in Sub-Saharan Africa.
One fintech that has caught Ecobank’s attention in particular is IroFit, a firm that uses the mobile network to enable real-time financial payments without the need for an internet connection. The startup recently won Ecobank’s Fintech Challenge.
#Mobile penetration across Africa is extremely varied.
Even at the regional level, it is a mixed-picture, with some countries like ????#Kenya ???? and ????#Ghana ???? leading the way, and countries like #SouthSudan and #CAR falling behind. #AfricaChat pic.twitter.com/CBCgMx8sLT
— Ecobank Research (@EcobankResearch) November 16, 2017
Other emerging innovations in Africa include digital tools to build credit profiles for the previously ‘unbankable’ or using blockchain technology for digital identity and KYC solutions.
“Africa is relatively behind on blockchain and that’s because it’s extremely technical and has so far been used for cryptocurrencies and for very high-level institutions involved in sharing and protecting data between them,” George says.
“But now, in this coming year, I think we’re going to see a lot of work with blockchain, including governments working with blockchain to try and improve for example land title, data registries, education and health records.”
Driven increasingly by Africans themselves, fintech innovation will undoubtedly accelerate in 2018 across the continent, and remarkably change the way people conduct business, particularly cross-border trade, George summarises.
“The technology is accelerating and getting much more efficient, and so more people start to use it. That means the economy is really going to grow. The outlook for Africa is positive, but what we need to understand now is that it’s being driven by a different force, and that different force is technology.”take me back