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What Kenya’s mobile money success could mean for the Arab world

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Authors: François de Soyres, Mohamed Abdel Jelil, Caroline Cerruti and Leah Kiwara

Embracing the new technologies that are rapidly transforming the world would be a way for the countries of the Middle East and North Africa to unleash the potential of their large and tech-savvy youth populations. For this to happen, the region will need to create the key ‘digital public goods,’ with mobile money one of the most important.

In the modern digital age, broadband internet and online payment systems are the bridges and roads of the traditional, physical economy. They connect businesses with customers and create markets. For this digital market to function, it is vital that businesses and their customers have a means for transferring money electronically.

For a successful model, the Arab World can look to Kenya’s development of mobile money or “M-Pesa”. In many ways, the elements that lead to M-Pesa’s success in Kenya are already present in the Arab World. Young people in MENA are digitally savvy, are active on social media and are some of the heaviest users of mobile phones in the world.

The successful adoption of M-Pesa in Kenya reverberated across the African startup scene. It acted as a catalyzer and a signal for young entrepreneurs in Kenya and Africa as a whole: revolutionary ideas could be successfully implemented in Africa and generate both business opportunities and a development path for local communities.

If this was true in Africa, can it also be true for the Middle East?

What is M-Pesa?

In March 2007, Safaricom, Kenya’s leading mobile operator, revolutionized the way Kenyans manage money by introducing M-Pesa.

Money transfer via SMS texting was the first service offered. Using a basic mobile phone, users could electronically send and withdraw funds. The actual exchange of money–the deposit and withdrawal–occurs through a network of agents that essentially act as ATMs. M-Pesa agents include small shops, gas stations, post offices, and even traditional bank branches. Today, there are more than 110,000 M-Pesa agents, 40 times the number of bank ATMS in Kenya.

The service is priced in a way to attract as many network agents as possible. A cash deposit is free, but a sliding commission is charged either when e-money is sent or withdrawn as cash.  Agents earn a fraction of the value of transaction volume they generate (both cash deposits and withdrawals). Everyone can use M-Pesa, however, non-registered users pay a substantially higher fee than those registered with accounts. This is to encourage more people to register in the platform.

Since 2007, M-Pesa’s services have continued to expand. At first, it was limited to buying airtime for mobile calls or paying utility bills and schools fees. In 2012, M-Pesa launched a service enabling users to open interest-paying saving accounts and to obtain short-term loans. In 2017, Safaricom launched a platform that enabled small-holder farmers to use mobile phones to connect with suppliers (for such things as fertilizers, seeds, animal feeds), agronomists, information services and even outlets to sell their harvest.

M-Pesa’s effects

On its tenth anniversary, M-Pesa was serving 30 million customers across 10 countries. Today, 96% of households outside the Kenyan capital of Nairobi have at least one M-Pesa account.

Studies have found that households using M-Pesa are better able to withstand sudden declines in income because they can more easily receive remittances and are saving more money. Moreover, M-Pesa lead to financial empowerment of women and helped them gain control over their income. This translated into some women graduating from agriculture into more productive jobs.

The adoption of M-Pesa has had a tremendous effect on Nairobi’s startup scene. Over the past few years, the startup ecosystem in Nairobi grew very actively with business models building on M-PESA’s foundations. Kenyan startups raised a total of US$32.8 million in 2017, according to the most recent African Tech Startups Funding Report, the third largest amount raised by any one country on the continent. There are now 38 fintech start-ups  active in Kenya.

Why M-Pesa grew

The growth of M-Pesa is the result of many factors, including the ease of setting up an account (which is free and only requires an official ID), its simplicity of use, its affordability, the high literacy rate of the population, and the high penetration of mobile phones.

Another key element to M-Pesa’s growth worth emphasizing is the regulatory stance adopted by the Central Bank of Kenya (CBK). It decided not to oppose the entry of the telecom operator into the financial sector as long as it offered sufficient guarantees. CBK adopted an “above the fray” position as a regulator and allowed for experimentation in order to foster innovation.

The leading position of Safaricom allowed for significant investment in agents and the mobile network. Due to push back from its competitors, in 2016, the Competition Authority of Kenya ordered Safaricom to open its network of M-Pesa agents to the other telecom companies offering mobile money services. A year later, telecom operators reached an agreement that allows users to exchange money regardless of whether both parties to the transaction have the same provider.

A MENA perspective

MENA could easily follow in Kenya’s footsteps, and reap immense benefits. The adoption of mobile payment systems makes transactions cheaper, easier and safer. By simplifying how clients can pay for goods and services, it helps firms reach out to new customers and foster private sector development across the economy. Moreover, as is often the case with innovations, it has the potential to be built upon and used by other new technologies and to create a positive momentum in fintech as a whole.

Governments in the Middle East and North Africa should enable digital innovation with conducive regulations and the development of a regulatory ‘sandbox’, which guarantees the security of transactions but allows for experimentation, that would stimulate the development and adoption of disruptive innovations.

Today, economic connectivity is achieved by the development and harmonization of optic fibers, IT equipment, online payment systems, information transmission and data protection policies. If the MENA region puts sufficient efforts in this direction, it could propose a new path to its citizens, in particular the youth, and bring about a new development strategy adapted to the modern age.

World Bank

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Economy

Russian-Nigerian Business Council Reviews Performance

Kester Kenn Klomegah

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The Russian-Nigerian Business Council, with participation of a delegation from Abuja Chamber of Commerce and Industry and the Nigerians in the Diaspora in Europe (NIDOE), held its annual meeting, pledged to strengthen cooperation in various economic sectors after reviewing the performance for the year 2018.

The Russian-Nigerian Business Council was established to facilitate a constructive dialogue between Russian and Nigerian entrepreneurs interested in developing business cooperation between the two countries, and to enhance the role of the Russian business community in implementing state policy concerning the Russian-Nigerian economic ties.

The primary objective of the organization is to establish contacts and cooperation with non-governmental associations of Russia and Nigeria that have an active position on trade and economic cooperation between the two countries, and to provide information services and consulting support to Russian and Nigerian businesses. At present, the Business Council unites more than 30 Russian companies from various sectors of industry and trade.

The Vice-President of the Russian Chamber of Commerce and Industry, Vladimir Padalko, noted in his welcoming speech, that Nigeria is one of the three largest trade partners of Russia among sub-Saharan African countries and the positive trends emerging in Russian-Nigerian relations need to be developed.

And for developing this, it is necessary to give the domestic business a factual information, especially on business safety and profitability in Nigeria. By the end of 2018, trade with Nigeria reached almost US$600 million, but still seen as far below the full potential of trade and economic cooperation between the two countries.

Padalko, however, pointed to prospective areas including the exploration and production of hydrocarbons and solid minerals, the supply of engineering and chemical products, aircraft technology, cooperation in the nuclear industry, energy, and others.

Dmitry Osipov, Chairman of the Russian-Nigerian Business Council, General Director of PJSC Uralkali (this company is one of the world’s largest producers of potash fertilizers) stressed that the Council regards Africa in general and Nigeria in particular as a promising market.

“The Business Council provides the companies from both countries, regardless of their form of incorporation, with an additional opportunity to expand and diversify business cooperation, including joint investment and business projects. Uralkali is no exception. We see Africa as a whole and Nigeria in particular as a very promising market where we could implement several projects within the framework of ensuring global food security,” he said.

In this case, the interests of the Russian business and the Nigerian leadership coincided as both chose agriculture as one of the pivotal points of growth of the country’s economy.

Dmitry Osipov further informed the meeting that the Business Council includes representatives made of thirty-four Russian companies and practically each of them has its own business interests in Nigeria.

RUSAL is the largest Russian investor in this African country. LUKOIL investments in Nigeria now exceed US$450 million, and the company plans to bring them up to US$6 billion. Other well-known companies work in this market, including the largest Russian producer of agricultural machinery, Rostselmash.

However, the range of economic spheres can be extended. And here, the Russian-Nigerian Business Council should play its role, among them identifying the most important tasks, analyzing the existing problems and the development of a consolidated position of domestic business in the areas of trade and economic cooperation between the two countries. It also sees as important the organization of business interaction with representatives of Nigerian authorities, the establishment and expansion of business contacts with Nigerian entrepreneurs.

Abuja Chamber of Commerce President, Adetokunbo Kayode, traced the history of Russian-Nigerian trade relations, and objectively noted that much has changed. He said that the Federal Government of Nigeria has created a favorable business climate to attract foreign investors to Nigeria. Nigeria is developing rapidly. Now it is the largest market of the continent. The population growth presents a large market for consumer products. Therefore, the presence of Russian business in the heart of Africa is welcomed.

Mercy Haruna, Minister-Counsellor of the Nigerian Embassy in Russia; Rex Essenowo, Chairman of the Russian Branch of Nigerians in the Diaspora in Europe (NIDOE); Kirill Aleshin from the Institute of African Studies; Oleg Svistonov from Rusal Company in Nigeria and other speakers noted the importance of intensifying development of trade and economic relations between Russia and Nigeria.

The NIDOE-Russia was established as a forum for Nigerian professionals residing in Russian Federation to participate in the development of Nigeria. It works closely with the Presidency, the Federal Ministry of Foreign Affairs, the Senate’s Committee on Diaspora Affairs and the Embassy of the Federal Republic of Nigeria in Moscow.

The meeting finally made specific proposals on the work of the Business Council. An agreement on cooperation (that aimed at expanding and developing business cooperation between Russian and Nigerian entrepreneurs) was signed between the Russian Chamber of Commerce and Industry and the Abuja Chamber of Commerce and Industry.

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Economy

E-commerce: Helping Djiboutian Women Entrepreneurs Reach the World

MD Staff

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Djiboutian women entrepreneurs attended the launch of We-Fi MENA e-commerce, November 13, 2018. Photo: World Bank

Look around any café, bus, doctor’s waiting room or university campus and you will see heads down, fingers tapping as people immerse themselves into their screens. Increasingly, people are using their devices for shopping, with retail sales via e-commerce set to triple between 2004-2021.

Although significant gender gaps exist with internet use, and although online sales are currently dominated by US-based tech giants, this growing e-commerce trend presents an interesting opportunity for small businesses, and more specifically women’s businesses in the Middle East and North Africa (MENA).

This is a region where women’s economic empowerment is a significant challenge. With a female labor force participation rate of 19 percent, women’s participation in firm ownership at only 23 percent, and a rate of only 5 percent women top managers of firms across MENA’s non-high-income countries, there is significant scope for improving women’s participation in business and employment.

Access to finance also remains a problem, where 53 percent of women-led small and medium enterprises (SMEs) do not have access to credit and 70 percent of surveyed MENA female entrepreneurs agree that lending conditions in their economy are too restrictive and do not allow them to secure the financing needed for growth.

Several obstacles stand in the way of women’s entrepreneurship and access to markets, such as social norms, family care duties, and transportation issues. Not being able to physically access markets to sell their goods or to participate in international trade fairs to market their products is also a challenge.

This is where e-commerce can play a role, allowing women to circumvent these obstacles and sell their products online. For this, they need to rely on e-commerce platforms connecting them to clients around the world, on performant and affordable logistics, and on reliable payment systems. Building the e-commerce ecosystem will be key to allowing women entrepreneurs to access markets and grow their business, thereby employing more women, as data shows that firms run by women tend to employ more women.

The situation for women in Djibouti is no different. Gender inequality in the labor market remains substantial, with less than a third of women between the ages of 15 to 64 active in the labor market. Unemployment among both genders is high, with a rate of 34 percent for men but it is considerably higher for women at close to 50 percent.

Djiboutian women are also at a disadvantage in terms of education and skills to access economic opportunities. Women in Djibouti typically run small and informal firms in lower value-added sectors, which are less attractive to creditors, thus impeding their access to finance. Women entrepreneurs face difficulties accessing finance and launching formal enterprises.

There are, however, opportunities to increase women’s economic empowerment. Over 57 percent of inactive women in Djibouti say that they do not work because of family and household responsibilities. However, they also indicated they are generally not discouraged or prevented from accessing training or work opportunities by male family members, and there are no legal barriers against women’s entrepreneurship.

Years of research have shown, that when women do well, everyone benefits. Research has found women tend to spend more of the income they earn on child welfare, school fees, health care, and food for their families. Empowering women is an important path to ending poverty.

It’s vital to enable women to participate constructively in economic activities in Djibouti. More entrepreneurship will allow Djibouti to benefit from the talents, energy, and ideas that women bring to the labor market.

To help address this issue, on November 13, 2018, the World Bank launched a $3.82 million regional project called “E-commerce for Women-led SMEs.”  The project targets small and medium enterprises run or managed by women that produce goods marketable via e-commerce.

This project is at the crossroads of women’s entrepreneurship and the digital economy, which are two levers for the economic transformation of the region, and that it was very opportune to be able to launch it at the digital economy days of Djibouti.

The launch event took place with the participation of the Minister of Women and Family, the Minister of Economy, the Minister of Communication, the Head of the Women Business Association, and several Djiboutian women entrepreneurs.

The project will contribute to development of women’s entrepreneurship, digital commerce, and the economy in Djibouti and across the region. It will facilitate access for women-led SMEs to domestic and export markets through better access to e-commerce platforms. This will be done by training e-commerce consultants who, in turn, will train and help women-led SME’s access e-commerce platforms.

The project will also aim to ease access to finance for these SMEs by connecting them to financial institutions lending to women, particularly the IFC’s Banking on Women network. It will also work to create an ecosystem conducive to e-commerce by diagnosing regulatory, logistical, and e-payment constraints and supporting governments to lift them.

This launch comes following a successful pilot program in Tunisia, Morocco, and Jordan where women entrepreneurs were enabled to export handicrafts, organic cosmetics, and garments to several overseas destinations including Australia, Europe, and the United States.

The development of women’s entrepreneurship and the digital economy—including better access to domestic markets and exports—are essential levers for the development and economic diversification of the MENA region that the Women Entrepreneurs and Finance Initiative (We-Fi) e-commerce project strives to support. The Women Entrepreneurs Finance Initiative (We-Fi) is a collaborative partnership launched in October 2017 that seeks to unlock billions of dollars in financing to tackle the full range of barriers facing women entrepreneurs.

World Bank

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Getting around sanctions with crypto-rial

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In April 2018, the Central Bank of Iran banned domestic banks and people from dealing in foreign cryptocurrency because of money laundering and financing risks.

However, the CBI decided to take a more moderate stance toward the digital money and blockchain technology following the imposition of a new round of U.S. sanctions, hoping that the digital technology would facilitate Iran’s international money transfers and let the country evade the sanctions.

Meanwhile, as an oil producer with an oil-reliant economy dominated by petrodollars, Iran settled on the plan to utilize cryptocurrencies and blockchain technology to make up for any drop in oil revenues due to the economic sanctions designed to cut its oil sales.

Moving on the same track as China, Russia and Venezuela, Iran also hopes that blockchainization of state-backed fiats would lead to the demise of the dollar and put an end to the tyrant U.S. policies.

Under the toughest U.S. sanctions ever and blacklisting of Iran from the Belgium-based international financial messaging system (SWIFT), the country’s plan to create an indigenous cryptocurrency is improving incrementally and thanks to highly dynamic nature of the cryptocurrency, it can act as a good means for Iran to skirt certain sanctions through untraceable banking operations.

The CBI has been working with domestic knowledge-based companies to develop a digital currency, called crypto-rial, supported by HyperLedger Fabric technology.

As reported, the Informatics Services Corporation, affiliated to the CBI but run by the private sector, has accomplished development of rial-based national cryptocurrency and when the CBI approves the uses of national cryptocurrency, it will be issued to financial institutions such as banks to test payments and internal and interbank settlements.

Transactions at the state-backed virtual currency are carried out on an online ledger called a blockchain, just the same as Bitcoin, but since the infrastructure is privately-owned it will not be possible for people to mine it.

In fact, Iran is mainly aimed at testing the potentials of blockchain and crypto technology in running its financial system, making banks able to use the tokens as a payment instrument in transactions and banking settlement at the first phase of the blockchain banking infrastructure. The country seems inclined to enjoy the new virtual currency businesses which includes little notice or footprint and has also prepared the required infrastructure for trading cryptocurrency in its stock exchange.

However, in spite of the CBI’s prohibition from trading cryptocurrencies, Iranians had commenced using cryptocurrency and Bitcoin mining for transactions with the rest of the world before its use was banned by the CBI in the country.

Individuals and businesses in Iran have had access to virtual currency platforms through “Iran-located, internet-based virtual currency exchanges; U.S. or other third country-based virtual currency exchanges; and peer-to-peer (P2P) exchangers,” according to reports.

But the U.S. embargo on a number of cryptocurrency exchange platforms, including Binance and Bittrex, restricted Iran from receiving services, however, no assets belonging to Iranians were blocked. U.S. sanctions have also ensnared Iranian bitcoin traders.

Furthermore, in December, the U.S. Financial Crimes Enforcement Network, known as Fincen, issued a warning in an advisory to assist U.S. banks and other financial actors such as cryptocurrency exchanges in identifying “potentially illicit transactions related to the Islamic Republic of Iran,” Bitcoin.com reported.

Fincen claimed that since 2013 Iran’s use of virtual currency includes at least $3.8 million worth of bitcoin-denominated transactions per year. The organization noted that “while the use of virtual currency in Iran is comparatively small, virtual currency is an emerging payment system that may provide potential avenues for individuals and entities to evade sanctions.”

Fincen believes that P2P cryptocurrency exchangers are a significant means through which Iran can dodge economic sanctions.
Following the Fincen’s announcement, the United States lawmakers introduced a bill (HR 7321) to impose more sanctions on Iranian financial institutions and the development and use of the national digital currency, Cointelegeraph reported.

The act prohibits transactions, financing or other dealings related to an Iranian digital currency, and introduces sanctions on foreign individuals engaged in the sale, supply, holding or transfer of the digital currency.

In the wake of the U.S. restrictions, thus, cryptocurrency trades are limited into Iran’s domestic market and not possible at the international level and Bitcoin is sold at a significant premium relative to the global average price in Iran.

Unfortunately, the basic and premier regulations of using cryptocurrencies have not been ratified in Iran and Iranians are obliged to refer to stock exchange shops abroad to do their crypto-transactions, most of which are American obedient to U.S. regulations and of course, sanctions.

To make using cryptocurrency and blockchain technology legal and official in the country, the Iranian government is drafting a policy framework by the help of the CBI and the Stock Exchange Organization which clarifies all its regulations and policies over cryptocurrency and mining.

Being legislated, it is believed that SWIFT can be replaced by the digital money, i.e. the rial-pegged national currency, and transactions would be done faster and at lower prices.

Due to a lack of required regulations, cargos of equipment for mining cryptocurrency are seized by the customs administration. They are said to be released as soon as the government legalizes cryptocurrency use in the country.

First published in our partner Tehran Times

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