The Next Wave

The Next Wave: Regulatory mixed bags

Victor Ekwealor 3rd August 2020

See, we all know how African governments are always trying to regulate one aspect of digital innovation or the other.

Sometimes, these moves start out with good intentions. But observers of government-innovator relationships across Africa know that regulating innovation in Africa is a mixed bag with more nonsense than good. Even the seemingly good end up stifling innovations they were meant to protect in the first place, choking them to death, ironically.

Today, we are examining instances from the last two weeks, across two African nations; Kenya and Nigeria, where governments are currently meddling with financial technology in a somewhat confusing manner.

Before we proceed, you can still catch up with previous editions of The Coronavirus Weekly Newsletter and the two editions of its iteration; The Next Wave.

Let’s dive in.

Regulation vs innovation realities
In Lagos State Nigeria, mobile money agents in Agbado/Oke-Odo Local Council
Development Area (LCDA) woke up on the 11th of July to receive notice of a ₦600 ($1.56) weekly levy by the local government.

According to TechCabal’s findings, there had been no prior discussions between both parties, so naturally, the agents ignored the notice, thinking it an aberration that will go away soon. They were wrong.

Two weeks later, government officials came back and resorted to forcefully collecting this money.

[READ: This grassroots govt in Lagos is threatening Nigeria’s vision for financial inclusion]

Standalone, this episode does not make any sense, so it’s useful to backpedal a few months.

In January, a long spell of tax-related backandforthings between authorities in Lagos and operators of motorcycle hailing startups in the state came to a stalemate. The government wanted a piece of the pie, and the startups literally could not afford to give it. Okadas were banned in the state, setting off a chain reaction of events that have had dire consequences.

This was the beginning of something of a crackdown on startups and tech solutions.

After Okadas, it came for video-on-demand platforms, and the logistics sector soon followed.

What is next?

At first glance, all of it looks like plain old sector regulations. But a closer look at the pattern and vigour tells a different story; the economy is in distress and the government is looking to squeeze the tech and innovation industry.

It is totally lawful and necessary to tax businesses as deemed appropriate, but this should be done in a creative way that does not end up choking the golden-egg-laying geese. It is already incredibly hard to do business in Nigeria, what is the sense in doubling down on making it harder?

According to a Techpoint report, Nigerian startups raised $55.37 million in Q1 2020. And it is very easy to see how figures like this will excite the uninitiated to believe that these startups have $55.37 million sitting in a bank somewhere to spend however they please. Hint: it does not work like that.

Even though it has been assaulted by government “interests”, Nigeria’s innovation ecosystem is not
alone in this meddling, Kenya is about to get a bittersweet deal.

Hot, but still cold

In Africa, the rise of payday lenders and quick access to credit has also created another monster; predatory lending practices among these loan apps.

From annual interest rates as high as 500%, dubious repayment terms, privacy invasion, to switching up terms, most of these practices are not news.

They became so bad that in January, Google took a step to cut off some of these apps from its store.

Now, the Central Bank of Kenya (CBK) is taking laudable steps to check this trend. According to Business Daily Africa, this change is dependent on The Central Bank of Kenya (Amendment) Bill, 2020 [pdf]:

“The principal objective of this Bill
is to amend the Central Bank of Kenya Act to regulate the conduct of providers of digital financial products and services. The Central Bank of Kenya will have an obligation of ensuring that there is fair and non-discriminatory marketplace access to credit.”

This bill will check all the predatory lending practices that have become the order of the day, and this is good news for Kenyans.

However, there is a small provision according to the report:

“The digital lenders will play under the same rules as commercial banks, including having to seek the CBK’s nod for new products and pricings if the Bill becomes law.”

This provision, and many other well placed landmines in the Bill, feels like the Greeks inside the Trojan Horse of a well regulated payday lending industry; the CBK wants to become the Big Brother for fintech innovations in the country.

Legally, this is harmless and even expected. But with context, there is a lot to worry about.

At first, users do not have to fear these predatory practices. But there is a reason why markets across Africa have suddenly become overflooded with loan apps and payday lenders; banks do not give the people access to credit. In this vein, having payday lenders ‘play under the same rules as commercial banks’ will force a retrogression.

While this Bill looks good, it should be approached with cautious optimism, and even some skepticism. Because like most government ‘interventions’, it is a mixed bag.

On a deeper level, most of these “regulations” point to a gulf between the government and innovative realities.

In the end, African governments need to better understand the realities on ground. But most importantly, this process has to be engineered by the innovation ecosystem that has more to lose from these ill-thought “regulations.”

The allure and trajectory of the Egyptian tech ecosystem.
Egypt stands out in the remarkable acceleration of its technology industry in the last nine years. Prior to the 2011 revolutions that swept across much of the region, there were not a lot of players in the space.

Now, there are new funds, accelerators, seed investors, angel networks, and a few Series A investors. In a conversation with Tamer Azer, principal at Sawari Ventures, Kay Ugwuede brings Egypt to us.

Nudges and shoves: Tackling venture capital bias in Africa. Last week’s edition of The Next Wave examined the topic of investor bias in Africa from a different lens.

[READ:
The Next Wave: The color of investment]

But the conversation never stops, and in
another piece, Alexander Onukwue takes a deeper dive into the topic, expounding on questions around compatibility, pattern matching, and solutions.

Every week, we will ask our readers, stakeholders, and operators in Africa’s tech ecosystem what they think the new normal will look like, and will share their thoughts here. You can share yours with victor@bigcabal.com with ‘The Crystal Ball’ in the subject line.

“The future will most certainly be more distributed and tech will play a huge role in this transition. The first wave of adjustment will be around wider, more elaborate remote working arrangements and all the
attendant technologies like team collaboration software. Other waves will most certainly come, and many things will change and evolve. Transportation and mobility will change; education is already undergoing a seismic shift. The financial services industry will make major leaps into a future that will almost entirely be built fully on technology. Even healthcare and the conventional visit to the doctor will be uprooted and replaced by tech. Change is coming and we would all be better served by embracing it rather than fighting it.”

– Tamer Azer, Principal, Sawari Ventures.

Two years later, while the world dealt with the coronavirus pandemic, I discovered the link to a COVID-19 triage tool by Wellvis on my Twitter timeline; it was the same startup whose founder, Dr Wale Adeosun, I had spoken with two years ago. The crisis had presented a perfect opportunity for the startup to scale its telemedicine solution and partner with organizations such as the Nigerian Center for Disease
Control (NCDC). By mid-July, the COVID-19 triage tool had been used by 380,000 people.

Adeosun is one of many entrepreneurs and innovators on the continent working on solutions to deal with the impact and spread of the virus. A new COVID-19 innovation report created by UNAIDS in partnership with Startup Blink and the Moscow Agency of Innovation has quantified the scale of such
innovation across the continent.

The report took a look at more than 1,000 projects and it ranked countries and cities based on the number and type of innovations with extra points given for selected outstanding initiatives. For country rankings, Kenya ranked 23rd out of 32 countries, ranking higher than the Netherlands and India. For cities, Nairobi ranked 22nd out of 80 cities while Lagos ranked 48th.

It’s crucial to note that most of the projects considered appear to be health-related. While the coronavirus has
overwhelmed health systems across the world, nations with advanced health infrastructure do not have as much reason to innovate as those with fragile systems. African entrepreneurs have had to innovate in the absence of crucial infrastructure and little or no government support.

If you are a founder in Africa, please fill our investor list here to let us know who gave you your first check. Get TechCabal’s reports and send us your custom research requests here.

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