Tech has taken center stage in the foreign investment landscape in Africa. Total venture capital for African tech startups, mainly FinTech and mainly in mobile money, grew to $1.31 billion in 2020, up from $1.27 billion in 2019, according to the think tank Briter Bridges. With more than half the world’s mobile money users, the continent has an exploding FinTech scene that is serving to pioneer space for commercial innovation (and invasion).
FinTech start-ups focus on computer programs and other technology used to support or enable banking and financial services. They can help empower the unbanked, by facilitating financial inclusion, and bring fresh funds to the continent’s millions of micro-businesses. But they also introduce new imbalances and risks in African economies.
According to development “experts”, Africa is punching below its weight in the international race to develop technology. But at the same time the continent is hailed for its potential to become a startup superpower in the tech sector.
The problem is that tech is basically limited to FinTech and other -Techs and telecommunications. FinTech is an abbreviation for financial technology, and refers to the use of Information and Communication Technologies (ICT) by financial services companies in order to improve their use and delivery to consumers. E-tech, for example, refers to using ICT to improve access to education and its delivery.
Both provide more, better, cheaper and more accessible opportunities for low-income clients than traditional educational institutions or banks and thereby contribute to improving economic inclusion and independence by empowering the average citizen. By providing more seamless transactions, FinTech also allows more efficient government-run operations at an affordable cost, internally and externally, thus enhancing access to crucial social areas such as healthcare and education.
But there are equally strong arguments against e-tech and fintech, namely that they are modern tools being used to recolonize Africa. Both e-tech and fintech shape patterns of inequality, culture and social change in the broader society.
History tells us that technology has always been used as a tool for imperial conquest and expansion. But it’s not the technology itself that is the problem. It’s how it is used to achieve specific aims.
For example, E-tech is fast becoming a source and soft power tool to reproduce hegemonic structures and ideology. Foreign aid and international financing for education are being used to shape future leadership generations in Africa in line with foreign interests and as a carrier of certain values that are foreign to African culture. This is a part of what Joseph Nye in 2004 coined as soft power: the “ability to get what you want through attraction rather than coercion or payments”.
In reality, it’s nothing new in the history of international relations and empire building. It’s no secret, for example, that France used education as a tool for domination through cooptation during colonial times, and the U.S. uses education to win over the hearts and minds of the younger African generation that will lead tomorrow. There’s no better example than the Young African Leaders Initiative (YALI) launched by former President Obama in 2010 to educate African youths on how to effect change around important issues in their communities (defined on the basis of American criteria) and improve their leadership skills through American tailor-made content.
Whom does FinTech's financialization of Africa benefit?
FinTech, on its part, is financializing African economies by increasing the importance of finance, financial markets, and financial institutions over the workings of the real bread-and-butter economy. This can lead to downward pressure on wages, a short-termism rather than long-term investment and the perversion of the whole concept of debt. As Rana Foroohar argues in her book Makers and Takers (Crown Publishing Group, 2016) it also creates a dysfunctional market system that distorts economic investment and reduces the mutual dependence of capital and labor.
This, of course, matters little to those interested in penetrating and capturing the African market. Total foreign investment in Africa between 2019 and 2020 declined by 16%. Yet tech start-up funding, mainly for a very narrowly defined concept of technology, has grown at a rate six times faster than the global average, more than tripling in 2021, while 9 times more has been invested in FinTech than what was raised 5 years ago,
At the same time, in the last year there has been a 62% decline in greenfield investments, which create brand new jobs and/or facilities from the ground up, and a 74% decline in international project finance for large infrastructure projects, which international finance and aid institutions unanimously argue is a critical enabler for productivity and sustainable economic growth. Yet in the year 2021, the amount raised for FinTech was double the amount raised in 2020. More and bigger deals were closed in Africa; tech startups across the continent raised close to $5 billion.
Don’t reproduce Western ills in Africa through one-eyed investments
International development and finance institutions argue that tech, in the limited sense (the use of Information and Communication Technologies), is the “best” tool for development. As we’ve seen, FinTech is the unequaled tech winner in terms of financing and investment: FinTech startups in Africa drew more than 60% of all venture funding that flowed into the continent during the third quarter of 2021.
According to UK-based Financial Sector Deepening Africa, a specialized development-finance organization that works to build and strengthen financial markets across sub-Saharan Africa, FinTech will contribute no less than $150 billion to Africa’s GDP by 2022. But GDP is a biased measurement of wealth that ignores the depletion of a nation’s physical, human and environmental wealth and only values transactions in the formal economy (Lorenzo Fioramonti, The World after GDP, Polity Press 2017). Indeed, those who are driving the financialization of Africa through FinTech are doing so to enrich themselves rather African society at large. In the process they are supporting the depletion of Africa's resources and eroding the social contract by which capitalism delivers profits to the owners of capital and a growing standard of living to citizens.
What’s more, financialization decreases the role of capital markets and the banking sector in funding new investment. Less is made available to fund new business ideas and projects, particularly in non-tech sectors, and more is spent buying and selling financial instruments and to securitize existing assets (like homes, stocks and bonds) (Faroohar) that benefit the haves in detriment of the have-nots.
Take the eye patch off!
Africa doesn’t need to reproduce America’s Main Street crisis or recreate American Wall Street “portfolio society”. They both became sick from financialization. What Africa needs is not virtual growth but real, sustainable growth.
So it’s time to take the tech eye-patch off. It’s time the investment drive in Africa focuses on what Africa really needs to jump to the next level: profitable investments with a positive impact on local development through shared value.