A telecoms leg to stand on (in Kenya)
GDP growth of 5.9 per cent y/y in Kenya in Q1 2016 exceeded most expectations. The economy had been labouring under the challenges of El Nino for agriculture, of unhelpful travel advisories for the tourism industry and high interest rates for all sectors. The data for Nigeria compares unfavourably: the economy contracted by -0.4 per cent y/y in Q1 and the non-oil segment by -0.2 per cent as its Achilles heel, the dependence of both budget revenues and fx inflows on oil receipts, was brutally exposed. For the same reason as well as increased sabotage of oil industry infrastructure, the performance of Nigeria in Q2 is set to be worse. We see contraction of -2.9 per cent y/y.
We can bemoan the failure of successive Nigerian governments to diversify the economy but, more usefully, we can help to explain the very different country experiences in terms of the explosion of mobile money in Kenya. This explosion has created employment and wealth in communications, finance and beyond on a scale to which Nigeria can aspire. The best known product is, of course, M-Pesa (money in Swahili), a platform created by Safaricom (the largest listed company on the Nairobi bourse).
The information and communications sector in Kenya expanded by 9.7 per cent y/y in Q1 2016, compared with 4.1 per cent in Nigeria. Its growth has been above 5.5 per cent since Q3 2012. For finance and insurance, the figures are 8.0 per cent in Kenya and a contraction of -11.3 per cent in Nigeria.
The quarterly reports of the Communications Authority of Kenya (CAC), the rough equivalent of the Nigerian Communications Commission (NCC), provide additional colour. Mobile penetration reached 89.2 per cent in Q1 2016. By this vanilla measure, Nigeria compares reasonably well. NCC data show penetration of 82.7 per cent for active lines in May if we work with a population figure of 180 million. (The last census of 2006 came up with 140 million.) The figures for internet subscriptions per head of the population are also similar.
Once we move to the next stage of development of the technology, the paths diverge. Mobile money transactions in Kenya amounted to KES840bn (US$8.4bn) in Q1 2016, representing more than 50 per cent of GDP. Person to person transfers accounted for 47 per cent of such transactions in the quarter but the fastest growing segment was mobile commerce, which grew by 13.1 per cent q/q to KES318bn.
Mobile money has spawned numerous new businesses, of which we give two examples. M-Kopa is a Kenyan company supplying solar panels for off-grid customers, who pay for their usage on their mobiles. It also has a rapidly expanding presence in Uganda. In February it had 700,000 users and was adding 600 each day. Its staple product costs KES50 per day on top of a deposit of KES3,500 (US$35). When customers have established their creditworthiness, they can buy other products such as fuel efficient stoves and M-Kopa powered televisions. The company has secured investment from private equity, banks, non-profit foundations and philanthropists. (One meaning of Kopa in Swahili is borrow).
InVenture is a US start-up, operating in Kenya. An app collects data to create, in the words of the company’s founder, a “financial identity” for the user of the mobile. The identity would typically include mobile money transactions, travel patterns and the full name of the user. The company provides small loans without collateral on the basis of the identity, and since early 2014 has disbursed US$10m equivalent. Its average loan size is KES10,000 (US$100). Critically, two large Kenyan banks have launched similar products, and the total for such uncollateralised loans in Kenya now stands at US$200m. The business model has great potential when we consider that an estimated one billion people globally have smartphones but no access to formal credit.
We struggle to draw the necessary parallels with Nigeria because the detail of recent data such as that released by the CAC is not available. We can point to the e-wallet experiment, and recall Goodluck Jonathan telling a public gathering in London last month that the provision of fertiliser and other input subsidies via this mechanism had reached 94 per cent of all farmers during his presidency, compared with just 11 per cent previously. These are isolated achievements which we gather on a piecemeal basis.
We add a broader point. The industry does not trumpet its own successes, and misses countless opportunities to tell the world a good story. (Achievements can be shared with little or no spin: if they were, the FGN might enjoy more positive coverage of its efforts in the international media). The story of mobile money and its many spin-offs has not really been told in Nigeria. We can say, however, that Kenya is far ahead in this field and that the rapid development of the industry over little more than a decade has created a very strong pillar to its economy at a time when political and climatic challenges have tested its traditional sectors.
Gregory Kronsten