By RICHARD QUEST
Ironically, one of the reasons I came to Nairobi in the first place is the way I will be leaving it: Kenya Airways and its inaugural flight to New York this weekend.
Today, I wanted to pay my first visit to the national airline’s headquarters and get a true sense of what makes this slowly rejuvenating legacy carrier tick.
The cargo hangars at KQ headquarters in Nairobi illustrate the complex challenges any airline chief executive faces.
We got a look inside the perishable goods hangar and an insight into the sheer scale of Kenya’s flower export industry.
You may buy your tulips in Amsterdam, but don’t be surprised if they passed through this building at some point.
Gaining access to the hangar involved three separate security checks. This was reassuring, but also frustrating.
We were searched on our entrance to the car park, walked across to the other side, and then searched again, by the same security guard.
Quite how we were supposed to have picked up anything untoward on our way is anyone’s guess, but it showed how security processes can load inefficiency into an operation.
Regulations are regulations, and such things make life hard for airline CEOs. Inside the hangar is perhaps the ultimate expression of this: A separate pen has been constructed solely for cargo bound for New York. America’s TSA has very specific requirements, and Kenya Airways must now abide by them.
From the cargo hangars we moved on to Kenya Airways’ training facility and maintenance hangar.
Under new CEO Sebastian Mikosz, the airline has been modernising. It has a new cost-efficient fleet and a lower cost of operations, essential to the airline’s future.
We also met a living symbol of the airline’ modern outlook, Captain Irene Mutungi, the first African female airline captain.
She pilots Kenya Airways Boeing 787 Dreamliner and will be among those tasked with the Nairobi-New York route.
At a time when South African Airways is about to get another dollop of government money, it is refreshing to see an African carrier with a mandate to make a profit. Aviation in Africa is littered with the wreckage of airlines born in grandiosity or only flying because of government largesse.
KQ is undergoing root and branch reforms, to make the airline economically fit to fly in the global market.
If government stays out of the way and the reforms take place, then KQ will truly be the Pride of Africa.
Source – Daily Nation
In August 2018, Alibaba’s founder Jack Ma, who founded one of the biggest e-commerce platforms in the world, launched a $10m prize for African information and communication technology (ICT) innovators in Africa. Ma received a rapturous reception in the auditorium at the University of the Witwatersrand in Johannesburg, South Africa. The excitement in the tech community had not been this feverish since Facebook supremo Mark Zuckerberg received a similar welcome during his tour of Lagos, Nigeria. While Zuckerberg’s visit had aspiring tech entrepreneurs swooning, it could be argued that African technologists felt a closer affinity to Ma because of the parallels between Africa and China. China’s richest man – who announced his retirement in September – spoke about the challenges, which many African entrepreneurs could relate to, when he set up Alibaba in 1999, such as slow broadband and unnecessary bureaucratic hurdles.
Since the late nineties, however, China’s tech sector has rapidly transformed itself to a point where some commentators are claiming it could challenge the global leader in the field, Silicon Valley, according to Kai-Fu Lee, CEO of venture capital firm Sinovation Ventures. “The US has always been the singular tech power in the internet, mobile and AI software space, but out of nowhere an equal partner has emerged in China, so the world order is different from that perspective,” says Lee during a webinar on technology.
China’s emergence as a tech superpower has been astonishing. The world’s second-largest economy is home to nine of the 20 biggest tech companies, with the market capitalisations of Alibaba and Tencent doubling in 2017 and now comparable with those of Facebook and Alphabet, Google’s parent company. One of the most significant drivers of China’s tech boom is its large population. At 55.6%, smartphone penetration is below the global average of 66%, but at 775m it already exceeds the total population of Europe.
Even in the area of hardware, Chinese tech firms are challenging the hegemony of traditional technology giants, especially Apple and Samsung. While the latter is still the market leader, China’s Huawei surpassed Apple to become the second biggest smartphone seller this year.
Many of China’s tech companies started out as copycats of US companies, but have now blossomed into juggernauts. Mobile phone companies such as Huawei and Xiaomi have succeeded in new markets, including many African countries. Chinese firms have produced cheaper smartphones with similar functionality to more expensive counterparts in mature markets. China’s Transsion Holdings is Africa’s biggest seller of smartphones, with sales of 50m sets on the continent in the first six months of 2018 alone.
But the key to the industry’s growth was the fact that many US companies were initially locked out of China, according to Steve Tsang, director of the SOAS China Institute. “The Chinese tech firms have made the most of the domestic market size,” Tsang says. “The blocking of foreign tech companies was vital in allowing the Chinese tech companies to build up capacity at home and then use this platform to improve products. Today they produce a full range of products available globally both at the low- and high-end.”
The boom has led to some commentators predicting that China could reach tech parity with the US in terms of innovation in 10-15 years. Such a statement would have been laughable in Silicon Valley 20 years ago. “Many people in Silicon Valley believed that China’s tech industry would never be innovative,” Lee says. “But that proved to be completely wrong because as China’s market exploded, capital began to flow in and a virtuous cycle was created where smart venture capitalists would help develop entrepreneurs who would in turn create great companies and products which drew in more consumers.”
“The industry in China is really tough and it’s almost like a colosseum where only one winner emerges. Comparatively, in the US, competition is fairly gentlemanly where the firms tend to avoid stepping on each other’s toes,” Lee adds. Despite its rapid rise, China’s industry is still some way off challenging Silicon Valley in terms of investment budgets and the number of mid-sized firms worth $50bn to $400bn. There are also doubts about China’s ability to come up with the next big product, according to Tsang.
“China is catching up very fast in terms of some of the existing products, so you are seeing some impressive high-end products being produced, but there remain questions about their ability to develop the next product that has a revolutionary impact on our lives like the iPhone,” he says.
Rise of AI
One area in which China could develop the next big thing is in artificial intelligence (AI). This year, the Chinese government decreed that the country will lead globally in artificial intelligence by 2030. AI startups in the country have received more than $4.8bn in funding in the last three years, with Beijing-based SenseTime securing $600m funding in April and facial recognition company Megvii receiving $360m last year. The Chinese security services and military have also taken a keen interest in AI, especially in the areas of autonomous biometric identification and weaponry. The Communist Party of China has tasked some of the country’s biggest tech firms – including Baidu, Alibaba and Tencent – with developing the AI industry, and it has also promised financial backing, including constructing a $2.1bn AI industrial park in Beijing.
China may very well succeed in achieving this goal because it can implement policies which would not be possible in Western countries, according to Tsang. “The Chinese are doing very well because they have a different environment in terms of research ethics,” he says. “They have less issues related to privacy and personal rights so they can use facial recognition, for example, as part of their technological development. This would be inconceivable for Western companies because of legislative constraints.”
The effects of China’s AI drive are already being felt in Africa. The Zimbabwean government, which has had a poor human rights record, has already partnered with the Chinese startup CloudWalk Technology to implement a country-wide facial recognition programme, which will be used by security and police services. The agreement is part of China’s Belt and Road initiative. While many Africans are yet to grapple with the effects AI might have on them, it seems that African countries will continue to adopt China’s technological advancements for better or worse.
Innovation from within is the most important prerequisite to drive structural change and tackle those challenges. For this to take place, everyone must shift their mindset and apply an innovative approach to addressing challenges. Taking advantage of a youthful workforce requires investment in education and skills development to future-proof our workforce. The innovators are plentiful and their challenges real.
The Africa Innovation Summit (AIS) is a robust and dynamic platform for multi-stakeholder dialogue and a catalyst for “Made in Africa” innovations that are already addressing the continent’s challenges but need to scale. The AIS brings together people with the power to act, from all parts of the continent, including heads of states, ministers, innovators, investors, policymakers, academics and science and technology experts, to practically navigate these challenges.
The second edition of the AIS, which took place in Kigali in June, spotlighted 50 top African innovators who are solving Africa’s challenges. Take, for example, Clement Mokoenene, a civil engineer who is innovating in the energy sector. While most bemoan the increase in urban traffic, Clement sees the opportunity to generate electricity and create jobs. His energy solution applies a uniquely designed overlay to a road’s surface, harvesting the traffic pressure by driving a turbine to generate electricity. Assembly and installation can be done locally, increasing employment and greater access to electricity.
Temie Giwa-Tubosun, the founder of LifeBank, says, “many people die because essential medical supplies could not be found on time and in the right condition”. LifeBank uses data, smart logistics and a combination of low technology (feature phones and motorcycles) and high technology (AI and blockchain) to deliver essential medical products, saving lives in hospitals. Its blockchain-powered SmartBag records and preserves the integrity of information about the processes involved in blood supply for transfusions.
These young innovators need to be seen and heard, and this is where the AIS stands out. Placing the innovators centre stage allows them to point out where policies are failing, why financing is not accessible and the need to enable the consumer as much as the innovator. If the consumer cannot access the product designed for that market, the intended benefits of the innovation cannot be actioned.
The AIS puts the spotlight on these change agents who are leading the continent forward. It forces leadership at every level to listen and realise that without the innovators at the table our legislation, regulations, policies and risk profiling lack relevance and will continue to hinder the progress of Africa. The development of the AIS marketplace platform will not only match demand and supply, but also serve as a centralised information gathering and dissemination platform for all stakeholders, thus informing policy briefings, and in turn future-proofing our continent.
Cryptocurrencies, also known as virtual currencies, are a digital medium of exchange, which is unlike our normal fiat currency that exists in the form of physical bank notes or coins, or commodity money, backed by gold or other precious stones. The blockchain digital technology is as vital to cryptocurrencies as the central nervous system is to humans. Blockchain uses cryptography to create (mine) and store units, secure transactions, transfer tokens and effect payments. These processes metamorphose a crypto from being a mere digital token into a digitised asset with an economic value. That is to say, users can earn it, store it, trade it, transfer it, and sell it.
African central banks by and large do not recognise cryptocurrencies as money, mediums of exchange or legal tender. But this is not only unique to Africa as similar patterns are being experienced in other parts of the world, especially developing countries. In Europe and the US, central banks have generally cautioned, but not banned, the use of or trading in cryptocurrencies. Although trading in cryptocurrencies in Africa has not spread widely to people at the bottom of the pyramid, their use is spiralling upward like a whirlwind in tandem with ICT technological advancements, high mobile penetration, growth in literacy, and financial inclusion and consumer sophistication.
African central banks link cryptocurrencies to price volatility, fraud, money laundering, tax evasion, exchange control circumventions, terrorism financing and other criminal activities fuelling illicit financial transactions. While some of these concerns are genuine, others tend to be rhetorical and hyperbolic, as traditional financial systems are also fraught with similar risks.
Gripped by crypto-phobia, African central banks have convulsed, issuing a plethora of warnings against the use of cryptocurrencies while others have gone to extremes, outright banning trading in them – an easier way out of what they perceive as the ‘crypto-quagmire’. According to a 31 March 2018 public notice issued by Adikwu Igoche, Manager, Research Development at Nigeria Deposit Insurance Corporation (NDIC), cryptocurrencies are not recognised as currency in Nigeria as they do not belong to the category of currencies or coins issued by the Central Bank of Nigeria (CBN).
Similar notices were issued by the Kenyan Central Bank (KCB) as far back as December, 2015. Other African countries such as Morocco (2017) and Algeria (2018) have promulgated laws banning the usage and ownership of virtual currencies. The Reserve Bank of Zimbabwe (RBZ) on 11 May 2018 issued a notice warning the public against the use of cryptocurrencies and directing all banking institutions in the country not to provide banking services to facilitate any person or entity in dealing with or setting up cryptocurrencies.
RBZ announced in the same notice that Bitfinance (trading as Golix) and Styx24, leading local cryptocurrency exchanges, were not licensed by it and any person buying, selling or otherwise transacting in cryptocurrencies, did so at their own risk and will not have recourse to the central bank. On 15 May 2018, Golix was directed by RBZ to cease all cryptocurrency exchange operations in Zimbabwe. Golix was in the process of rolling out its initial coin offering (ICO) which sought to raise $32m through a token sale. Golix was stopped right in its tracks by the RBZ, but didn’t take this threat lying down.
Golix filed an urgent chamber application with the High Court in Zimbabwe challenging the legality of RBZ’s ban on the basis that the central bank acted illegally, irrationally and unconstitutionally and outside the ambits of administrative law in closing its virtual currency exchange. The High Court, on 24 May 2018 issued a default judgement against RBZ and ruled, inter alia, that “The ban issued by the respondents [RBZ] through letter dated May 15, 2018 against the applicant [Golix], directing it to cease its operations, shut down its cryptocurrencies exchange business and ordering the closure of its bank accounts with its bankers, be and is hereby suspended…”
It seems central bank challenges in dealing with virtual currencies are not only restricted to Africa. India seems to be faced with similar challenges on how to deal with virtual currencies, just as Africa is. The Reserve Bank of India (RBI) on 5 April 2018 issued an official statement banning financial institutions and consumers from the use of virtual currencies. The RBI notice read as follows: “Reserve Bank of India has repeatedly cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies. In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal or provide services to any individual or business entities dealing with or settling virtual currencies… ”
The Internet and Mobile Association of India (IAMAI) filed a petition with the Indian Supreme Court challenging the RBI ban on virtual currencies and seeking court relief to set it aside. The court provisionally upheld the RBI ban on virtual currencies in May 2018 until a date was set for the hearing of the petition. The court heard the petition on 20 July 2018 but could only listen to limited arguments, postponing the matter to 11 September 2018 for a full hearing.
The legal position
The legal challenge for African central banks is that their cases may not hold water in courts as there is limited legal precedence and in many countries there are no laws that address issues of virtual currencies. Legal cases, triggered by central bank prohibitions involving virtual currencies, have only now started to appear before the courts. The banning of trading in cryptocurrencies from mainstream financial systems does not seem to be practical and effective. Such prohibitions force consumers to use black market trading avenues or simply resort to peer-to-peer (P2P) digital trading platforms.
The South African Reserve Bank (SARB) has taken a very pragmatic approach. While the SARB does not officially recognise cryptocurrencies as ‘money’ but as ‘cyber-tokens’, it is considered as one of the pioneers in Africa over the use of cryptocurrencies. SARB has preferred to adopt a more cautious but pragmatic approach to ensure that the use of cryptocurrencies complies with relevant financial surveillance and exchange-control regulations. Already a sizeable number of merchants in South Africa have embraced cryptocurrencies and accept Bitcoin for payments. François Groepe, Deputy Governor of SARB, was quoted by the online Cryptonews on 25 May as saying the central bank has set up a special unit to review the possibility of putting in place crypto-specific policies and regulations.
More stable alternative
Africans are becoming attracted to cryptocurrencies not only as speculative investments, but as alternative and cheaper payment and settlement methods, conduits for capital investments and options for savings and storing value as most African fiat currencies are very volatile and unstable and do not hold value against major currencies such as the US dollar. Technological innovations underlying cryptocurrencies such as blockchain should be embraced by central banks as they have the potential to improve efficiency in financial services.
Instead of throwing tantrums at technological innovations, African central banks should be pragmatic and set up specialised units dedicated to researching cryptocurrencies and emerging blockchain and other digital and artificial intelligence technologies to enable them to come up with informed and guided practical policy and regulatory interventions that work for Africa.
by Tom Collins
Africa’s micro, small and medium enterprises (MSMEs) have traditionally found it hard to acquire bank credit, but the fintech revolution is now helping to make lending to them a viable business. Tom Collins reports.
The International Finance Corporation (IFC) recently estimated that Africa’s finance gap for small and medium enterprises (SMEs) stands at $331bn. Micro, small and medium enterprises (MSMEs) form the backbone of most African economies and investment in this sector will significantly enhance job creation and wealth development. The informal sector contributes 38% of sub-Saharan Africa GDP yet 51% of the continent’s 44m formal MSMEs lack the finance necessary to grow. The true scale of the shortfall is almost certainly even greater given the lack of data.
Governments across the continent have identified poor liquidity as a bottleneck in the sector and private enterprise is beginning to plug the gap through innovative financial services. Digital solutions and tech-enabled finance are gaining traction and the MSME sector is no different. Speaking at the recent IFC-backed SME Finance Forum in Kenya, the IFC’s Karin Finkelston said: “We are seeing significant improvements in access to finance in Africa, creating opportunities for small and medium enterprises that create jobs and reduce poverty. We should celebrate the gains while recognising we have much more to do. Digital finance is the future so we must expand and tailor products and services to meet the growing needs of a dynamic continent.”
Banks are beginning to adopt proactive SME strategies but traditional constraints have stifled the sector. Banks require large amounts of collateral along with stringent credit checks in order to lend and the SME sector, particularly micro enterprise, struggles to fit this bill. A study by the African Centre for Economic Transformation (ACET) found that while 95% of SMEs have bank accounts in Zambia, only 16% had loans or lines of credit.
Banks, therefore, regularly service the SME sector but have not typically financed it. The big multilateral financial institutions (MFIs) and development banks have identified the sector as a key area of growth and begun concessionary lending through commercial banks, but uptake has been slow. Many of the continent’s banks are still figuring out exactly how to lend to the sector.
Micro enterprises, generally defined as employing fewer than 10 people, are even further removed from formal financial structures. Micro enterprises require low amounts of capital and come with very little financial backing or history and therefore fall almost completely outside most banks’ lending habits. In this context the majority of micro enterprises look towards family or friends for working capital.
Fintech plugs the gap
Some promising solutions can be seen in the fintech revolution. Fintech is booming on the continent with African digital payment service provider Cellulant breaking the glass ceiling for the largest amount raised in a single round at $47.5m. Indeed, private investment into financial technology is flourishing as competitive returns combine with quantifiable impact. While fintech can be used to describe a varying range of businesses and ventures, one application is the use of technology to lend in the high risk and more remote MSME space.
4G Capital, a fintech lender, does exactly this and has been lending to the micro and small business space since setting up in Kenya in 2013. Kenya’s MSME finance gap is $19bn, making it the largest in East Africa. Wayne Hennessy-Barrett, 4G Capital’s founder and CEO, sees great opportunity in the market and provides innovative financial services while generating sustainable profit. “We provide unsecured working capital for these business on terms that work for them – almost immediately and without collateral requirements, but ‘right-sized’ for their individual business needs,” he says.
Unsecured capital may come as a shock to some but the company points to a 94% repayment rate. The key, argues Hennessy-Barrett, is being able to offer a complete package – one that blends rigorous Know Your Customer (KYC) checks with customer business training, clear lines of regular communication and prudent incremental disbursements. “Securitisation is not really the key to positive repayment behaviour,” he says. “The name of the game is product alignment – building a financial service that meets the customers’ needs.”
4G Capital lends anything between $20 and $500 to MSMEs through mobile technology. Its core product is UPIA, which stands for “Unsecured Private Immediate Affordable”. The combination of micro-loans and no collateral requirement means the company has had a strong impact on the MSME ecosystems in which it operates. Micro and small businesses are able to quickly access working capital which the company ensures, through its training, is reinvested into growing the business as opposed to reservicing other debt or paying bills.
“Ninety-six to ninety-seven percent of our clients use the capital for business purposes,” says Hennessy-Barrett. “They are not using it to refinance other loans, to pay other debt or to meet their living costs. They use our credit to increase their take home wealth and provide a better future for their families.”
The firm claims that it provides a sustainable model both for the client and the lender, which, as a result, can quantifiably invigorate local markets by increasing liquidity and purchasing power. The average customer is able to grow their business by 82% within one year of accessing the company’s credit services. The company will lend within excess of $40m over the next year, is active in 70 markets across Kenya and recently began operations in Uganda. Core to Hennessy-Barrett’s vision is the role of inclusive fintech in helping informal businesses transition to the formal economy where they can both contribute to national development plans and access services currently out of reach.
Fintech companies like 4G Capital are able to lend where banks cannot due to their ability to meet customers’ needs through innovative approaches and solutions. Hennessy-Barrett argues that the potential in Africa for firms like his is “almost limitless” but cautions businesses must work with regulators to create the right conditions for fintechs to grow. Key to this is the encouragement of a vibrant and useable mobile money ecosystem such as that enjoyed in Kenya. This, together with clear frameworks for customer protection, will allow companies to provide liquidity in markets not serviced by traditional lenders, and better support the micro and small businesses which are the backbone of many African economies.
Source – Africa Business Magazine