Africa arrived late to the digital world, yet today the continent has a competitive edge like no region before it entering the era of ecommerce. Adoption of digital technologies has been swift: in some African countries, more people now have access to a mobile phone than to clean water or electricity. This consumer revolution amounts to a new frontier for global expansion. Mobile technology is the catalyst: not only opening the door for outreach, but also enabling greater financial inclusion.
The African opportunity
I don’t come from a typical ‘payments background’, if indeed such a concept exits. I started life as a solicitor before jumping ship to a London-based investment bank’s Emerging Markets group. From that base, I’ve worked in EM in various roles for close to 30 years. I’m convinced the African opportunity for merchants, particularly in the digital space, is straightforward to comprehend. The complexity lies in executing a thorough, detailed expansion plan.
In 2018, we have seen a significant increase in interest from our merchants looking to access the continent, propelling us forward. They know doing business in Africa is not for the fainthearted. As with most emerging markets, the continent has its bureaucratic hurdles, risks, frustrations, set up costs, setbacks, and many other challenges to overcome. Only then do the rewarding breakthroughs materialise. In 2017, our learnings, observations, and experiences have been key to shaping our offering for our merchant clients.
Understanding the market complexities
One of the biggest mistakes that can be made in Africa is approaching the region as if it were a single market. The continent is made up of 54 countries with a wide range of consumer behaviour and payment preferences. The same is true of the legal, tax, and regulatory systems born from many diverse influences. Barely a single African country escaped colonisation to a greater or lesser extent by the English, French, Dutch, Portuguese, Germans, Italian, Belgians or Spanish. Each had their own cultures and starkly different legal systems, rules and ways to govern. Land mass has also been a major obstacle to development, particularly in countries already facing funding deficits (at best), or their own internal struggles. Every nuance and subtlety needs first to be understood, then navigated through, and finally resolved before commencing business.
Some key areas to consider are:
1. Foreign ownership restrictions
As an example, Ghana is one of the more open markets to foreign investment and business, but there are restrictions. Legislation primarily aimed at mining and energy companies exists which requires a foreign-owned business to part with a minimum capital injection of USD 500,000 in order to be established. This would deter many service-based industries from entering the market. However, we are not one of those.
2. Tax ambiguities
Many markets operate a reverse charge mechanism for VAT (i.e. the purchaser of the service must pay the VAT), but have not implemented a means for that tax to be paid by all types of consumers. Similar complexities exist with Withholding Tax. Ignore the rules at your peril, as several well-known real asset companies have done in the past. They’ve faced litigation, fines, reputational damage and, in some cases, witnessed their local operations being suspended. Apply the rules, approach, and discuss with the authorities, and accept the taxes as a cost of doing business when pricing a product.
3. Currency and Remittance
There are stark differences in how African Central Banks manage their currencies. From less restricted currencies, such as the Kenyan Shilling and Zambian Kwacha, to more tightly controlled currencies, such as the Moroccan Dirham or Nigerian Naira. Solutions in these areas may require stringent controls and volume checks to be adhered to. These controls and checks will likely vary depending on whether it is a larger or smaller enterprise remitting offshore or indeed an individual. It may even be necessary to seek prior approval from a Central Bank or other regulatory body to convert local currency and remit offshore, and these approvals may be specific to a particular use case.
4. Local presence
Many African countries restrict local payment service providers from contracting with offshore companies, hence a local legal presence and often an office may be required. Be mindful, however, that some local PSPs may be less focused on regulatory aspects or tax matters. This puts the onus on to the international company to have done its homework. Setting up companies in African countries can take months, as can onboarding with the local banks - again this is due to local regulatory requirements and bureaucratic procedures, which must be followed.
There’s only one way to do it
There is no alternative - a full assessment of each market must be undertaken. We have engaged KPMG across the globe to look at tax and regulation in each local market, supported by leading counsel in the respective countries to help guide us and become established. Meeting regulators where required, and if not required, choosing to meet them anyway; picking the best in-market PSPs to partner with; speaking to tax authorities for clarification where necessary; onboarding with trusted banking partners locally to help ensure liquidity and service levels. In short, looking at every single way in which to mitigate both financial and reputational ‘risk’ for our merchants, partners and, of course, ourselves.
What does Africa mean for Emergent?
Emergent Payments started the year with one employee in EMEA, it’s fair to say we had prioritised Latin America, Central America and Asia Pacific in previous years. 2018 has seen a rapid expansion for us in this region, and we are on target to hit over 100 employees in the corridor with companies and offices established in Nigeria, Turkey, Egypt, Morocco, Kenya, Ghana, and Benin (to access UEMOA countries including the Ivory Coast and Senegal). Additionally, we’ve formed partnerships in a good number of other markets including South Africa. This multi-million dollar investment by our company demonstrates our total commitment to Africa and our unwavering belief in its potential. It is our unequivocal goal to be number one in these complex, high growth African markets as they open up fuelled by consumer demand, merchants’ desire to participate and, of course, by the mobile phones.
About Tim Davis
Tim joined Emergent in February 2018 as Managing Director for the EMEA region. Prior to Emergent, Tim was with Credit Suisse First Boston’s Emerging Markets Group for 5 years followed by Ashmore Investment Management Limited for 10 years. Ashmore started more or less from scratch and grew to an USD 80 billion emerging markets fund, where Tim was General Counsel for 6 years before running Asia out of Beijing as well as Ashmore’s Commercial Real Estate Funds. More recently, prior to joining Emergent, Tim has pursued stand-alone investments, most with an emerging markets theme.
About Emergent Payments
Emergent Payments offers a total global and local payments solution for high-growth markets. They serve as a payment facilitator for digital merchants in Asia Pacific, Latin America, Africa, and the Middle East. With a single integration, clients access the most preferred local payment methods and a suite of advanced technical features, including smart FX and intelligent routing
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