Digitization in Sub-Saharan AfricaThe COVID-19 pandemic has shoved decades of progress in mitigating poverty at risk and has already led to a great loss of life and long-term socio-economic damage in sub-Saharan Africa. The U.N. Secretary-General states that the global poverty rate is predicted to increase for the first time in 30 years, which will thrust 500 million people back into poverty. Implementing further broad-based digitization in sub-Saharan Africa can jump-start its economy and fight back against the plunging poverty rate.

The Roots of Digitization in Africa

Kenya has effectively implemented mobile money solutions and established a digital finance ecosystem. This is due to ethnic-based violence that took place in 2008. This turbulence curbed many people’s ability to travel safely, forcing them to adapt to a new way of transferring money without cash: Safaricom’s M-PESA. Swahili for mobile money, M-PESA is a service that enables its users to store and exchange monetary values through a mobile phone. It is a convenient resource that allows users to pay bills. It also allows them to access merchant accounts and create savings and digital credit accounts.

By 2014, M-PESA had more than 120,000 agents who offered guidance for customers unfamiliar with the process. Over 25 million Kenyans weathered the financial uncertainties exacerbated by poverty. Ghana is another country that has successfully developed digitization in sub-Saharan Africa. The use of mobile accounts in Ghana increased access to formal financial services from 41% to 58% in just three years.

Ability to Decrease Poverty

Tavneet Suri is an Associate Professor at the MIT Sloan School of Management. William Jack is a Professor at Georgetown University. They both collected 1,600 surveys of Kenyan households between 2008 and 2014. The surveys examined the effect of increasing numbers of services. The study showed that an increase in the number of mobile services, or agents, incited a rise in consumption and market participation.

Interestingly, the study also noted that female-headed households are utilizing these agents in a more enthusiastic manner. These households experienced a 22% increase in savings and improved ability to manage finances. Furthermore, 3% of women were driven to choose occupations in business or retail rather than farming, which is not as complementary to mobile transfers. Mobile money services are estimated to have the potential to lift 194,000 Kenyan households out of extreme poverty. They are also estimated to initiate 185,000 into the workforce.

The Impact of Expanding Access to Mobile Money Networks

Mobile money networks have spurred a financial technology revolution. It has led to a more modernized financial system for those living in sub-Saharan nations.  This comes with the bona fides of many developed economies such as access to healthcare. Furthermore, digitization in sub-Saharan Africa has led to increased access to pension schemes such as the People’s Pension Trust.

However, even though nearly 46% of global mobile money accounts are based in Africa, only 10 percent of all payments and transactions are done using technology, leaving substantial room for growth. Furthermore, digital infrastructure is often weak in remote or rural areas. This is due to the insufficient returns on capital along with firm regulatory barriers and expensive deployment costs.

Mobile Money Networks Can Elicit Economic Recovery from COVID-19

Small and medium enterprises that were able to digitally diversify have comparatively been far more resilient during the COVID-19 crisis. Therefore, the disaster caused by the COVID-19 pandemic has severely limited the movement of people and cash. This can serve as a launch base for furthered digitization in sub-Saharan Africa. The Kenya Commercial Bank (KCB) has already slashed additional fees for mobile transactions and urged people to steer clear of using cash.  This is part of a plan to “accelerate migration” towards more widespread digital banking platforms. Sonatel, the main provider for telecommunication services in Senegal, is offering no fees for 30 days for digital payments. Meanwhile, MTN Zambia has generated a “no cash, no germs, go MoMo” campaign to encourage people to go cashless and transition to mobile money services.

According to the International Telecommunications Union, augmenting digitization in sub-Saharan Africa by 10% would cause a 2.5% increase in GDP per capita. The U.N. Broadband Commission for Sustainable Development approximates that a $109 billion investment is needed to achieve internet access in Africa by 2030. COVID-19 poses a threat to this estimate. The virus has provoked a $100 billion outflow from emerging markets. It is also important to avoid hastening the existing 34% gender gap in access to digitization in sub-Saharan Africa. Nonetheless, there are governments and companies that remain motivated. They are currently working to propel digital growth in sub-Saharan Africa in order to ensure equal access to connectivity and to mold more vivacious and thriving societies in those that are developing.

Natasha Nath
Photo: Flickr

In January of this year, USAID announced a new poverty reduction initiative in Kenya. In partnership with Kenya Commercial Bank (KCB) and General Electric (GE), USAID promotes investments in Kenya between the KCB and medical institutions that need financial assistance to offer appropriate medical care.

To provide this assistance, banks will grant loans to hospitals and other health centers. These investments in Kenya would have previously been considered unsafe and unlikely to be returned, but under the agreement with USAID, they are guaranteed reimbursement. If a full return cannot be made, USAID will pay back 50 percent of the loan.

The KCB, according to the deal, is obliged to divvy $1 million for medical equipment like MRIs, incubators and other standard-increasing machinery to be used in local health centers. GE has left $660,000 dollars for USAID to use as potential reimbursement funds, though only $500,000 (50 percent) should be used. In return, the Kenyan health services will purchase GE equipment, expanding GE’s global market.

There are some, however, such as Monica Onyango of Boston University, who are afraid this may lead to an overstated importance of imported goods, when in fact, locally manufactured equipment is better for local economic development.

Michael Metzler, director of Development Credit Authority (which is the tool used by USAID to promote loans, as in the initiative in Kenya,) reassures skeptics like Onyango that local business and manufacturing will still have the power Kenya needs it to have to grow. Quoted recently in a Global Post article, Metzler said that “we’d be very sensitive to a deal in which that was the case.”

Aside from the deal’s economic influence, clearer effects of the enhanced medical treatment new loans insure will be seen in public health. This expedites poverty reduction in Kenya by reducing the number of deaths caused by preventable diseases thriving in impoverished communities. These include diseases such as HIV, diarrhea, tuberculosis and malaria.

Illness and poverty go hand in hand, and until one is dealt with, the other is likely to expand. This new USAID initiative incorporates this idea and acts accordingly.

Adam Kaminski

Sources: Health Poverty Action, Global Post, Federal News Radio
Photo: USAID