By Nshuti Lucy Mbabazi
This week Africa’s leaders of government, private sector and civil society descend on Kigali for the annual Transform Africa Summit. The theme, “Boosting Africa’s Digital Economy” is timely as the continent takes major strides toward Agenda2063 and signals the right time to push for Cashless Africa within that agenda.
In March 2018, Africa made history in Kigali by choosing to establish the Continent Free Trade Area (AfCFTA) and in April 2019 this feat was further validated when Gambia became the 22nd country to submit its ratification documents, enough to bring the agreement for the largest trade bloc in the world into force. No question the success of AfCFTA means solid foundation for Africa’s sustained economic development and that much desired financial independence.
Needless to say regional trade agreements have been an engine of growth in the Americas, Asia, Asia – Pacific, Gulf States and Europe. One of the leading factors for the success of regional trade arrangements such as Europe and Americas has been the digitalization of commerce as a critical path to better service. The trade blocks have deliberately decided to incentivize citizens within their spheres to embrace digital economies for sustainable and self-funded development.
Consider Estonia. Since joining the European Union in 2003, Estonia’s fortunes chanced from a failing state to one of the leading digital economy in the world and has catapulted itself from being a poor nation to among one of the successful economies in the world.
One might ask, but why must we digitize Africa’s Economy? A question I have personally encountered in both formal and information discussions myself. Well, here’s why.
Let’s begin with transparency. India’s Prime Minister Modi upon taking office in 2016, decided to reduce cash in circulation to bring greater transparency to fight corruption, grow revenues lost in tax leakages and reduce tax leakages, etc. The Indian government stick was demonetization but with a carrot of instant tax savings for both the consumer and trader who transacted digitally to push behavioral change cash to cashless. Within a year, those going cashless nearly tripled.
However, an even more important is reason is accelerating financial inclusion. In 2011, I had the rare privilege of being part of laying the foundation for Cashless Rwanda. As we begun the work to enable Rwandans and our visitors to transact digitally, I learned fundamentals that rocked my world and changed the course of my career, sparking my dreams and commitment achieving a Cashless Rwanda. I can identify at least four key lessons I learned from this experience.
One, people who are excluded from financial systems are disempowered and excluded from possibilities of being able to develop and grow. For Rwanda then, only 14% were banked.
Two, financial inclusion was not about having a bank account and not having a bank account, rather having financial tools that work. Cash was the ONLY “king” in Rwanda.
Three, people who don’t have access to financial services conduct their lives with cash. They pay in cash, they receive cash and they must manage this cash, which is fundamentally risky and inconvenient. After going nearly 13 years transacting digitally in North America, I certainly felt this way about dealing with cash. Our visitors coming to enjoy Gorilla Trekking had to carry cash to pay for their permits, hotels and everything in between. Imagine how uncomfortable it was for them.
Four, financial inclusion could lessen poverty and vulnerability, thus grow productivity. Yet here I was, most of our people excluded and basic financial tools like a debit card and services that go with were a preserve for a privileged few.
The good news is that technology could solve much of these challenges, particularly through the growing penetration of mobile phones, which allows us to bring real value to our people. Indeed, the ability of our people to access equal and affordable financial tools and services to transact easily and securely is of critical importance. In the struggle against poverty, it should be paramount that everyone has access to payment devices and financial services that are secure, convenient and reliable, and this shouldn’t be dependent upon where they live, how much they make or what they do.
Digital Africa – the benefits
Similarly, there’s much to gain at the continental level and I can think of at least six reasons that I enumerate below in no particular order of importance.
a. To simplify doing business for ALL across the continent.
b. To bring billions of dollars transacted in cash in informal trade to formal financial institutions.
-. Vast majority of consumer spending on the continent currently takes place in informal, roadside markets, even in countries with well-developed retail and distribution markets.
-. According to the Food Agriculture Organisation (FAO) informal trade accounts for about $920 bn which is about 42% of Africa’s GDP ($2.19 trillion) Important to note here is that money in the informal sector is number greater than the aid and loans the continent borrows.
c. To digitize growing consumer spend across Africa which stood at $1.4 trillion in 2015 and is expected to reach $2.1 trillion by 2025.
d. To grow tax revenues for governments to further investment in development of services delivery to people i.e. roads, sanitation, affordable housing, health, education and more.
e. To grow liquidity in our banks to all THE PEOPLE and governments to borrow locally and affordably. We have the highest interest rates in the world, with the average African borrows at 17 – 27%. But the more we go digital aka #CashlessAfrica, cash is out of circulation and in banks to lower those rates for all. Can you imagine a mortgage at 2.5% like in many developed countries? A dream now, which a digital economy can make reality.
f. To save monies spent printing and maintaining paper currency. It costs minimum $0.055 to print a new note.
All this is at stake in the next few days during the deliberations of the digitization of Africa’s economy by Africa’s leaders of government and technology giants. This is something I could never have dreamt. It is my hope that out of Transform Africa 2019, we will live with commitment to execute the swift delivery of a digital African economy, which the African Union Commission, SMART AFRICA Secretariat and ALL of us drive such that we realize the full benefits of AfCFTA and enjoy the promise of a financial and digitally included people, for a thriving and financially independent Africa by 2063. We can do it and do it we must.
As I conclude, let me draw a quote from someone who has I was inspired to make cashless Rwanda my mission and now has me dreaming of Cashless Africa: “The current generation in Rwanda and in Africa has a unique mission to turn around this continent, and it is a privilege to be a part of it.”
Nshuti Lucy Mbabazi is a passionate #CashlessAfrica advocate, now leading Push Payments and Acquiring across 33 African countries for Ecobank Group.