Financial technology key for sustained economic growth in Kenya – ICAEW

Most African countries have a positive economic outlook, largely due to the positive performance of traditional sectors, according to the Institute of Chartered in England and Wales (ICAEW) latest report, Economic Insight: Africa Q1 2019.

The accountancy body provides GDP growth forecasts for various regions including East Africa which is set to grow by 6.3%, West and Central Africa at 4.4%, Franc Zone at 4.9%, and Southern Africa at 1.5%. The report, commissioned by ICAEW and produced by partner and forecaster Oxford Economics, underscores the potential of fintech in leapfrogging other traditional economic drivers.

(TOP: A snapshot of Kenya’s fintech landscape. Image: Irrational Innovations). 

It continues to state that East Africa’s growth has been reinforced by the development of Kenya’s Financial Technology (FinTech) scene, providing fintech an opportunity to leapfrog other traditional drivers such as agriculture which has recently been affected by the delayed onset of the long rains season in Kenya.

Michael Armstrong, ICAEW’s Regional Director for the Middle East, Africa and South Asia, said that Kenya’s economy is ripe for diversification. “Growth in Kenya is currently driven mostly by traditional sectors, however, its strong FinTech scene provides an opportunity to diversify and increase growth avenues for the economy in general,” said Mr. Armstrong. “This can foster inclusive development, but it can only happen if it is managed properly,” he added.

East Africa has already established itself as the global leader in mobile money transfer services. Kenya in particular has been at the forefront of this growing sector, with the value of mobile money transactions in Kenya now being equivalent to 47% of GDP.

The report goes on to highlight how the development and proliferation of new innovations in mobile technology have allowed Kenya to increase financial penetration beyond what would have traditionally been possible at this stage of the country’s development. The Kenyan Information Technology sector as a whole now accounts for 5% of the GDP and this is further reinforced by the presence of global tech firms Google, Microsoft, IBM and Samsung. “Widespread mobile money usage has helped to smooth consumption, reduce poverty and boost economic growth in Kenya,” said Mr. Armstrong.

Mobile money accounts for neighbours have risen to nearly 1,250 per 1,000 adults in Rwanda and just over 1,000 per 1,000 adults in Uganda. Other countries seeing a similar proliferation of mobile money accounts include Ivory Coast (1,700 accounts per 1,000 adults) and Ghana (1,350 accounts per 1,000 adults).

Kenya’s leadership in mobile money is attributed to the growth of M-Pesa which has institutionalised mobile banking in the country; the value of mobile commerce transactions reached Kshs 1.5 trillion (around $14.9 billion) in the third quarter of 2018, while person-to-person transfers amounted to Kshs 718 billion ($7.1 billion) during the same quarter.

The number of active mobile money transfer agents and subscriptions stood at 218,495 and 29.7 million by the end of September last year respectively. This implies that 64 out of 100 inhabitants had access to and used mobile money transfer services during Q3 2018. Some estimates suggest that M-Pesa accounts for over two-thirds of total national payments throughput in terms of volume.

In terms of East Africa’s economic performance, Ethiopia, Rwanda and Uganda are all expected to record a real GDP growth of 6% as infrastructure investment and the expansion of financial services and telecoms services continue to support growth in these countries according to the ICAEW report.

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