Policymakers are no exception, for whom the pandemics' uncontrollable nature has placed them in a difficult situation; the choice between the health of the nation and the economy. The impact of the lockdown has affected the supply and demand on a global scale not seen in our lifetime resulting in our first global depression. The effect will inevitably lead to an increase in inequalities and poverty, and the world may record its first increase in poverty since 1998.
Facebook’s Libra risks tough Chinese competition 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.
Facebook’s envisioned digital currency Libra continues to shake the establishment. In August, European Union regulators announced they would launch an antitrust probe into the cryptocurrency while a US congressman said Libra was more of a threat to the country than the “9/11” terrorist attacks of 2001. 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.
With both the world’s largest youth population, and the most rapid urbanisation, Africa will have more than a billion working-age adults a decade from today.
World Bank data shows that 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 in Africa, 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 Africans, who use it to communicate, buy and sell goods and services.
Despite its strengths, Facebook’s Libra will likely face stiff competition.
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 eventually branch out 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.
African consumers spend on average 8.76% of monthly income on data plans
Facebook’s attractive number of accounts in Africa may not translate into strong user engagement, reflecting constraints on internet access. While smartphone penetration is soaring across the continent – the GSM Association records 250 million devices in 2017, which are 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 unaffordable.
Recognising 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 programme which fizzled out soon afterwards) and this year word leaked that it is looking to lay an undersea fibre-optic data cable around the continent. Spotty online access among African users could crimp Libra’s widespread adoption on the continent.
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. For example, Transsion, the largest handset manufacturer in Africa, which dominates 33% of the smartphone and 60% of the feature phone market, supplies its phones with its own pre-installed apps.
With its dominant position in hardware, Transsion can ultimately chose the content on its handsets
Transsion 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 behaviour, 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. This represents a market 50 times larger than the comparable market in the US.
M-Pesa has teamed up with WeChat to allow purchases without middlemen
Moreover, partnerships between African mobile-money providers and Chinese payment platforms, reflecting large African-Chinese trade flows, serve as a potential on-ramp to secure future African users of a Chinese digital currency. M-Pesa has 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.
To stave off future Chinese competitors and gain control of its African user base, Facebook might have to explore making its own handsets. But if a harsher US regulatory trend takes hold Libra could die a premature death, making a showdown between it and a Chinese competitor in Africa a moot point.