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Size really does count

As soon as financial inclusion in Africa is measured and quantified, progress can be gauged.

Nnamdi Oranye
By Nnamdi Oranye, Telecommunications, financial and technology consultant.
Johannesburg, 14 Aug 2014

It's clear that large corporates and leading nations are committed to investing in Africa. US president Barack Obama has just announced the first US-Africa Leaders Summit generated about $37 billion in deals, investment and financial support. The BRICS nations have launched a $100 billion development bank and a currency reserve pool aimed at funding infrastructure projects in developing nations. And these are just some of the initiatives that will support growth and trade in the region.

However, there is also a pressing concern that, while all this foreign direct investment is a good thing for Africa, in many instances it serves only to preserve the status quo of benefiting those with government or industry connections and keeping the rich, rich.

Obama himself, speaking in a town hall meeting with the Washington Fellowship for Young African Leaders, had the following to say about the approaches being taken: "How do we make sure that the financing does not just go to those who are already at the top; how do we make sure that it filters down? You shouldn't have to be the son of somebody or the daughter of somebody."

Power to the people

The concept he's alluding to is that of financial inclusion. Massive infrastructure projects and huge amounts of foreign direct investment shouldn't be being targeted at the high end of industry and individuals; it should be an empowering force, bringing up those who exist at the bottom of the formal economy - those who have so much to gain and so much to contribute through the process of inclusion.

But financial inclusion is a funny thing. It's hard to pinpoint its growth or use it as a measure of economic success within a nation, so it's largely neglected by policymakers. For instance, the calculation of gross domestic product (GDP) actively excludes financial transactions from the total. Essentially, this means the total value of all goods and services produced within any given country in any given year does not take into account the value generated by financial transactions.

Because there is no focus on this significant profit generator and enabler, I believe there is very little 'trickle-down' encouragement for financial inclusion in African nations. Countries can continue to grow and develop, in line with international tools for measurement, without ensuring the entirety of their population is brought on the journey.

Different dimensions

However, a recent report from the McKinsey Global Institute: "Lions go digital: The Internet's transformative potential in Africa" has suggested a new metric for measurement that incorporates six key factors, one of which is financial services. The report states: "The Internet will reduce transaction costs and bring financial services to people who may live far from the nearest bank branch or ATM. With digital technology, more than 60% of Africans could have access to banking services by 2015, with more than 90% using mobile wallets for daily transactions and remittances."

McKinsey's proposed metric is iGDP, a way to measure the Internet's contribution to the overall economy as a share of total GDP. The report says: "It totals all the activities linked to the creation and use of Internet networks and services... This iGDP approach allows us to make comparisons across countries using national accounts data and the directly measurable parts of economies."

There is very little 'trickle-down' encouragement for financial inclusion in African nations.

This is a hugely beneficial view, not simply because it gives us an understanding of one of the biggest contributors to and supporters of modern economies, and not even because Internet access will drive unprecedented growth and development in Africa. No, I believe the greatest benefit of incorporating financial services into a GDP measurement like the iGDP is that observation has the power to effect change.

In this case, as soon as the impact of the Internet, which will incorporate mobile financial transactions, is measured, governments and industries will begin to throw their weight behind it. And remember, many of these mobile financial transactions represent African citizens dipping their toes into the pool of financial inclusion for the first time.

As soon as this is measured and quantified, progress can be gauged. If a portion of iGDP growth is as a direct result of mobile financial transactions, this will become an area that's encouraged and supported. And where better to bring about growth than in an untapped market?

So, when Obama asks how to make sure financing does not just go to those who are already at the top, this is how - by directly measuring the impact of mobile financial services on the overall performance or success of a country.

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