Efficient Flow of Money Through Trade in Africa – Mobile Financial Services; A Necessity for Small and Medium Enterprises (Part 1)
By Foster Awintiti Akugri
In my previous article of the trade series, we examined the potential role of a Ministry of Integration in facilitating the effective implementation of the African Continental Free Trade Area (AfCFTA). Now, as we turn our attention to the efficient flow of money through trade in Africa, it becomes evident that mobile financial services have emerged as a necessity, particularly in markets dominated by small and medium-scale traders and enterprises. This part of the series explores how mobile financial services can drive interoperability and accelerate intra-African trade.
Who is a Small and Medium Enterprise and Why Should Africa Care?
Small and Medium-scale enterprises (SMEs) are crucial towards contributing to Africa’s inclusive socio-economic development and growth. This is because SMEs are generating work opportunities, income, and wealth creation, and thereby, enhancing poverty reduction. Notably, there is no standard international definition of small and medium-scale enterprise (SME) that exists. SMEs are variably defined in the legislation across countries. This is because the dimension “small” and “medium” of a firm is dependent on the size of the domestic economy.
The Organization for Economic Co-operation and Development (OECD) refers to SMEs as companies that employ up to 249 people. Micro employs between 1 to 9 people, small refers to hiring 10 to 49 people, and medium ranges between 50 and 249 people. This consideration and definition can enable the best comparability given the varying data collection practices across countries, as various countries are using different conventions.
SMEs account for approximately 80% of jobs in Africa and this makes SMEs a significant mechanism for socio-economic growth. For example, within Sub-Saharan Africa, there are approximately 44 million SMEs. In addition, the African Continental Free Trade Area (AfCFTA) is promising to expand access to regional and continental-wide export markets for SMEs. Further to this, the Sustainable Development Goals and the African Union acknowledge that Africa’s drivers of economic growth and long-term sustainability for emerging markets are dependent on the potential of the effective development of the SME business model.
The presence of SMEs in all sectors of the African economy signifies their vital role in steering the socio-economic development and growth of the African continent. In the context of Africa, SMEs are essentially contributing towards job creation and employment for a large populace. For example, up to 90% of the population in African countries such as Uganda, Ethiopia, and Kenya are employed within SMEs. This is because SMEs are essentially enabling invention, innovation, and the creation of new ideas and technologies. Fundamentally, SMEs are providing for pre-incubation, incubation, introduction, and commercialization of innovation and technology into the market. This provides a platform for creating and testing new products before they can be upscaled and disseminated into larger industries through macroeconomic systems.
The Necessity of Mobile Financial Services in African Markets
Africa has witnessed a remarkable surge in mobile phone adoption over the past decade. According to the GSMA, over 45% of the population in Sub-Saharan Africa subscribes to mobile services, with more than 500 million unique mobile subscribers across the continent. This widespread mobile penetration has laid a robust foundation for the proliferation of mobile financial services.
According to the World Bank, Mobile financial services have significantly enhanced financial inclusion across Africa. Traditional banking infrastructure is often limited, especially in rural areas, but mobile money platforms have bridged this gap by providing financial services to the unbanked population. Services like M-PESA Africa in Kenya, MoMo from MTN in Ghana, and Orange Money in West Africa have transformed the financial landscape, enabling millions to access banking services without needing a traditional bank account.
As noted by the World Bank, “mobile money services have brought financial services to millions of previously unbanked individuals, fostering economic participation and inclusion.” SMEs are the backbone of African economies, contributing significantly to employment and GDP. However, these enterprises often face challenges related to
accessing finance, managing transactions, and expanding their market reach. Mobile financial services offer a solution by providing secure, efficient, and accessible financial tools. With mobile money, SMEs can manage their finances, receive payments, and pay suppliers with ease, thereby streamlining their operations and reducing transaction costs.
Driving Mobile Interoperability for Intra-African Trade
Harmonizing Regulatory Frameworks: To accelerate mobile interoperability and foster intra-African trade, harmonizing regulatory frameworks across the continent is crucial. This involves standardizing regulations related to mobile financial services, ensuring cross-border compatibility, and fostering collaboration between central banks and financial regulators.
The African Union’s Digital Transformation Strategy emphasizes the need for “a harmonized regulatory environment that promotes cross-border mobile financial services and facilitates seamless digital transactions.”
Interoperable Mobile Money Platforms: Developing interoperable mobile money platforms is a key step towards facilitating seamless transactions across African borders. Interoperability allows users of different mobile money services to transact with each other, breaking down barriers and fostering a more integrated market. Successful examples include the East African Community (EAC), where mobile money interoperability has been implemented, allowing cross-border transactions between Kenya, Tanzania, Rwanda, and Uganda.
Infrastructure Development: Robust digital infrastructure is essential for the effective functioning of mobile financial services. This includes reliable internet connectivity, secure data storage, and efficient payment gateways. Investing in digital infrastructure will not only support mobile financial services but also enhance the overall digital economy, creating a conducive environment for intra-African trade.
The IFC – International Finance Corporation highlights in its Digital Opportunities for African Businesses Report that “investments in digital infrastructure are critical for leveraging mobile financial services and driving economic growth.”
The Author is Foster Awintiti Akugri expert in Change Management | Market Development & Expansions | Agile | Process Engineering | CSSBB | MBA 2x | Sustainable Management | Business Development | Sales Leadership.
Stay tuned to this space for the continuation on this.