Last year, while looking ahead to the future of international relations, several global leaders wondered if “winter is coming”. Well, it has come. It’s the winter of coronavirus. At a time where regional and global solidarity should be the norm, it is the exception. This crisis calls for more (and better) multilateralism; not less. The crucial issue at stake is the state of our global health system.
In Africa, Chinese competitors will hurt Facebook’s Libra
Libra will have to contend with a hardware advantage for Chinese telecoms companies => an advantage that could bind African consumers into Chinese walled gardens much like iPhone consumers are locked into the Apple ecosystem
Facebook’s envisioned digital currency Libra continues to make headlines.
- In August, EU regulators announced that it would launch an antitrust probe into the cryptocurrency
- A US congressman said Libra was more of a threat to the US than the September 11 terrorist attacks.
Although Libra faces a clouded future, not helped by a mounting “techlash”, Facebook has not let go of its ambitious vision for its digital currency: to bank the world’s hundreds of millions of people who lack access to financial services.
As Facebook looks to launch Libra, it will no doubt turn to emerging markets, and in particular to Africa.
- Bearer of the largest young population, and the most rapidly urbanizing, a decade from today its working age population will exceed one billion.
- Two-thirds of Africans are unbanked, excluded from the current financial system.
Facebook already has access to a large potential user base for Libra; it counts 139 million users per month, making it the most popular social network on the continent.
- Unlike in the US and Europe, where its popularity is waning, Facebook commands a trust premium among African users who use it to communicate, buy, and sell goods and services.
Despite its strengths, Facebook’s Libra will likely face stiff competition.
Competitors from China
Chinese companies have emerged as commercially astute operators in Africa and have succeeded in overcoming the region’s connectivity difficulties to access hard-to-reach consumers.
They are building the platforms to offer financial services and could branch eventually into digital currencies.
To ensure Libra’s long-term success in African markets, Facebook needs to watch out for Chinese companies — unencumbered by regulation — which are expanding aggressively on the continent.
- Facebook’s attractive number of accounts in Africa may not translate into strong user engagement, reflecting constraints to internet access.
While smartphone penetration is soaring across the continent – number of devices stood at 250 million by 2017 and is expected to grow 43% to 440 million by 2025 — Africans are still not consistently online.
High costs are largely to blame.
- Prepaid mobile data plans in African markets represent some of the world’s most expensive internet plans; consumers spend on average 8.76% of monthly income, making regular usage affordable.
Recognizing that high internet costs impede its user growth and engagement, Facebook has invested in services and telecoms infrastructure to increase internet access.
- In 2016, the social network offered free internet (its Free Basics program which fizzled out in 2016) and this year word leaked that it is looking to lay an undersea data cable fiber optic around the continent.
- Spotty online access among African users could crimp Libra’s widespread adoption on the continent.
Mobile is key
When Africans get online, it is largely via mobile phones. Chinese companies are supplying the lion’s share of devices (both smart and feature phones).
In controlling the handset market, Chinese companies act as a gatekeeper in getting Africans online and use devices as a distribution and marketing channel for new services.
Transsion, the largest handset manufacturer in Africa dominating 33% of the smartphone and 60% of the feature phone market, supplies its phones with its own pre-installed apps.
- For example, it has diversified into music streaming with its app Boomplay attracting 50 million users in three years.
In a sign of its future ambitions in financial services, Transsion recently partnered with Kenyan fintech Wapi Capital to identify and back early-stage fintechs on the continent.
With its dominant position in hardware, Transsion can charge other developers to host apps and can ultimately choose the content on its handsets.
Such a strategy — using a hardware “moat” to double down on services — is reminiscent of Apple, which uses the iPhone’s dominant 39% market share in the US to pivot to services via its App Store.
- If Transsion were to follow what Apple’s competitors allege is monopolistic behavior, Libra could face difficulties in accessing African consumers.
Chinese companies also bring a wealth of experience in cashless payments that would serve as a competitive advantage should they ever launch a digital currency in sub-Saharan Africa.
- In China, Tencent’s “super app” WeChat and AliPay – owned by Alibaba – dominate the economic landscape so completely that cashless payments in Yuan are the default means of exchange, fifty times larger than the comparable market in the US.
Moreover, partnerships between African mobile money providers and Chinese payments platforms, reflecting large African-Chinese trade flows, serves as a potential on-ramp to secure future African users of a Chinese digital currency.
- M-Pesa teamed up with WeChat to permit purchases between users of the two systems, allowing purchases by M-Pesa users from China without middlemen.
Given the proliferation of Chinese software and hardware in Africa –through companies like Transsion and TenCent – and the social norm of using mobile money, it isn’t hard to imagine sub-Saharan Africa being among the first places to use a Chinese virtual currency.
- Facebook, which was inspired by WeChat with its push into payments, can also look to it, and other Chinese players, in driving adoption of Libra in Africa.
Facebook’s digital currency Libra could upend global financial services, in particular bringing the world’s unbanked population into formal markets.
- But, in African markets, which needs to boost financial inclusion, Libra risks being eclipsed by Chinese companies which have captured strong market share and built effective distribution channels.
- To stave off future Chinese competitors and gain control of its African user base, Facebook might have to explore making its own handsets.
Watch out for: Libra could yet die a premature death if a harsher US regulatory environment takes hold, making a showdown between it and a Chinese competitor in Africa a moot point.