Africa Leapfrogs Landlines, and Takes a Shortcut to the Bank | Capital Group

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Investment Insights: The Long View

August 2015

Africa Leapfrogs Landlines, and Takes a Shortcut to the Bank

“Growth is happening with the help of the Internet and smartphones, or just cellphones. It’s happening around the world — in Vietnam, the western part of China, or Africa.”

— Gregg Ireland

Gregg E. Ireland Portfolio Manager Washington, D.C. office 44 years of experience (as of 12/31/15)
Technological advances can allow countries to skip building out traditional infrastructure

Sources: 2014 State of the Industry: Mobile Financial Services for the Unbanked, March 2015, Groupe Speciale Mobile Association (GSMA); “Banks Vie for a Piece of Africa’s Mobile Banking Market,” August 15, 2014, The Wall Street Journal; Safaricom Limited FY15 Presentation. The GSMA Mobile Money report is available at http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2015/03/SOTIR_2014. The data for mobile financial accounts per 100,000 adults are as of June 2013. The total M-Pesa transactional value of $45 billion is for the fiscal year ended March 31, 2015.

Africa provides one of the classic examples of technology trumping traditional infrastructure. The introduction of mobile phones has allowed millions of Africans to receive the social and economic benefits of telephone networks without the sunk cost of massive landline infrastructure. They have effectively “leapfrogged” an entire stage of development, going directly from little or no telephone service to the same, efficient technology used in developed countries. That’s changing lives around the world.

Since 2011, due largely to rapid adoption of mobile phones in developing countries, about 700 million people have become account holders at banks, other financial institutions or mobile money service providers, the World Bank reports. Mobile money, or using a phone to transfer money and make payments, has been perhaps the most powerful tool for bringing the unbanked into more formal financial activities. One of the most dramatic examples has occurred in sub-Saharan Africa.

While fewer than a quarter of Africans have bank accounts, 40% have a mobile phone. That’s made the continent attractive to mobile-payments businesses, such as M-Pesa, which handled $45 billion in transactions for the year ended March 31, 2015. M-Pesa is owned by Safaricom, the Kenyan subsidiary of Vodafone Group PLC, the global telecom company. Indeed, in sub-Saharan Africa, there are about 25,000 mobile financial accounts per 100,000 adults, about six times the global average.


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