Mon. Aug 8th, 2022

Three major challenges facing African finance in 2021

KIGALI, March 22, 2018 (Xinhua) — Chairman of the African Union (AU) and Rwandan President Paul Kagame (L), President of Niger Mahamadou Issoufou (C) and Chairperson of AU Commission Moussa Faki Mahamat (R) unveils a plaque of the African Continental Free Trade Area (AfCFTA) in Kigali, Rwanda on 21 March 2018.

Like most economic sectors the world over, Africa’s financial industry took a beating in 2020.

Particularly vibrant prior to the pandemic, with banking income growing by 11% per year, the industry has since become a leading source of aid for businesses in difficulty, especially state-owned enterprises and SMEs.

As a result, Moody’s has warned that non-performing loans on the books of African banks could double from 2019 levels.

Despite this negative outlook, the financial industry will not be the biggest casualty of the ongoing crisis, even if the worst of the shock is yet to come. Banks have so far demonstrated unprecedented resilience, as their capital bases are stronger and their liquidity higher than during the last financial crisis. Their profitability remains well above the global average, while proactive steps taken by governments and central banks have shielded them somewhat from the global downturn in economic activity.

READ MORE Kenya must use debt-repayment delay to tackle public finances, experts say

Meanwhile, mobile-money operators and fintech firms have been reaping rewards as the adoption of digital tools becomes widespread. Countless African fintech firms, including Pineapple, Paystack, InTouch and Yoco, have persuaded investors and new customers alike that their services have a promising future.

Challenges for Africa’s financial industry

This unconventional past year presents a number of challenges for Africa’s financial industry, and I would like to highlight three of them in particular:

  1. African finance needs to speed up convergence between the industry’s various players to stimulate financial inclusion. This feat should be possible thanks to the innovativeness of African mobile-money operators and fintech firms operating on the continent. Converging the efforts of operators (which sometimes lack the technical experience bankers have), fintech firms (which lack capital) and traditional companies will pave the way for, at long last, a fully banked Africa. Regulatory authorities have a critical role to play in making this happen, as they must continue to promote innovation while keeping excesses in check (most notably to protect consumers), apply the right dose of regulatory pressure and spur the industry to work together.
  2. African finance should be a key contributor to the growth of the African Continental Free Trade Area (AfCFTA) by encouraging open and transparent public-private dialogues. As a financier of intra-African trade, the continent’s banking sector has a decisive role in the success of the AfCFTA, which just opened for business on 1 January. Several items should be on the agenda, such as standardised regulations and technology platforms within the continent; streamlining trade, money transfers and payments; ensuring currency convertibility; and prioritising the expansion of integrated regional or pan-African companies. Players like Ecobank, Attijariwafa Bank, Standard Bank and Interswitch are still too few and far between, even if a new wave of champions is coming on the scene, following in the footsteps of Kenya’s Equity Bank and KCB Bank.
  3. Lastly, African finance must show the continent the way to prosperity and sustainability. Africa’s bankers have mostly steered clear of the kind of speculative tendencies that have plagued their international counterparts. More than ever before, their impact and the responsibility that comes with it gives them a pivotal role in ensuring Africa’s strong economic recovery and making the decisive shift to clean energy.

The revolution is coming

But let’s not forget that the industry is currently undergoing a radical transformation. The global financial industry continues to digitise, transform and reinvent itself. Innovations such as blockchain technology and cryptoassets, the ability to collect and process an almost infinite amount of data and the use of artificial intelligence are leading us towards ever more decentralised finance (DeFi).

READ MORE Senegal’s Makhtar Diop to head International Finance Corporation

In Africa, as elsewhere, this revolution is underway. A study jointly conducted by Deloitte and the Africa CEO Forum shows this: close to 70% of the continent’s financial institutions reported that launching or accelerating the digitisation of their business has become their top strategic priority since the pandemic hit. And that’s just the beginning.


Leave a Reply

Your email address will not be published. Required fields are marked *