What does Facebook's Libra currency mean for Africa?



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BY QUARTZAFRICA

The world's largest social media platform is taking on a giant-sized project.

Facebook has declared its plans for the Libra, a digital currency backed by a reserve of currencies and real assets, which it hopes will grow and be globally accepted and adopted. In other words, Facebook wants to create a global financial network based on a digital currency that is about to reveal.

The currency, due to be launched in the first half of next year, already has partnerships ranging from Uber, Spotify and Mastercard to Naspers – Africa's most valuable company. Facebook expects 100 partners to join before launching the currency, strengthening its credibility and reach.

The overall goal, says Facebook, is to "empower" non-bank people around the world, providing access to the global financial system. This is an ambitious goal, considering the size of this population at about 1.7 billion people – a large part of them in Africa. But again, Facebook has 2 billion users across its application network and its fastest growing regions include Africa and Asia.

Disturb the consignments

While it is unclear how the adoption of Libra for daily use in trade and payments will occur, there is an obvious opportunity for an immediate impact on Africa: remittances.

Significant populations of the African diaspora in Europe and North America who regularly send money to their relatives and friends represent an important source of remittances to the continent. Shipments to sub-Saharan Africa have grown to $ 37 billion by 2017 and are projected to reach nearly $ 40 billion this year, according to the World Bank. As these figures only accompany funds sent through formal channels and exclude remittances to North African countries, the total for the whole continent is likely to be much higher.

For some countries, these remittances became economic pillars and a major contributor to national GDP – 27% in the case of Liberia. But in general, remittances also burn a whole in pockets of senders, since it costs more to send money to Africa than anywhere else. By extension, remittance recipients also end up receiving less money because of the high costs.

That's where Libra comes in. At least, this is what Facebook expects.

Here's how Facebook puts it: "Success will mean that a person working abroad has a quick and simple way to send money to the family at home." In the best case scenario, Libra will serve as a more effective cross-border cash transfer. service based on the promise of speed, lower costs and greater convenience for senders and receivers.

And that poses an existential threat to shipping companies, some of them younger application-based players such as Azimo and WorldRemit, and may even harm traditional monsters such as Western Union and Moneygram.

"Libra will cannibalize the business of traditional shipping companies, but it will not replace them immediately," said Laolu Samuel-Biyi, director of SureRemit, an encryption-based shipping service that allows users to send money for specific purposes via vouchers at closed circuit. "The risk comes when Libra gets saturated enough that people are comfortable accepting and accepting it, that they do not have to buy fiat or sell in their local currency.

They can simply spend it. This will be truly disturbing, not just for remittance companies. "However, for Michael Kent, CEO of Azimo, a delivery service backed by more than 190 countries, there is reason to doubt the actual application of Libra, as his company experimented with cryptomoedas for shipping. "It's too early and hard to say what it really means," he says. "[Azimo] has experimented with criptomoeda and blockchain technology and, for us, the use case is not yet proven. "

However, if that happens, Kent says traditional non-technology-based shipping companies will be the first to suffer. He argues that existing technology-based remittance services, such as Azimo, which are connected to global financial networks, will find opportunities to adapt.

Bureaucracy and rivalries

The economy of targeting African and developing markets with Libra makes a lot of sense for Facebook. Given the much smaller advertising companies in developing markets, including Africa compared to North America and Europe, the social media giant earns significantly lower average revenue per user in developing markets.

The prospect of an adopted digital currency means that Facebook can still monetize the vast user bases it has conquered in African markets, in part thanks to its controversial Free Basics internet initiative.

But before that happens, Facebook will face some obstacles from the confrontation with existing social behavior. Despite the rise of technology and ecosystem startups across the continent, there is still some skepticism – in some cases total mistrust – of digital payments and a permanent preference for money.

"For an African regulator, Libra is a bit terrifying."

Fortunately for Facebook, there are two things going for it in African markets: there is widespread use of its apps, especially WhatsApp, and a strong culture of mobile money. "We've seen people willing to put money into a mobile account and use it because [companies like] MPesa (the world leader in mobile money) has confidence and credibility. Facebook can take advantage of some of these lessons, "says Vikas Raj, managing director of Accion Venture Lab, an early-stage investment initiative focused on fintech in needy markets.

But the culture of existing money also raises the question of whether the Pound will compete or complement established services such as the MPesa, which are optimized for local problems, are already embedded in regulatory frameworks and enjoy strong patronage. Ultimately, Raj predicts, the acceptance of Libra among users in markets with more evolved mobile money services may be limited to international payments and remittances.

Libra can also be hampered by government regulation. As Quartz Africa reported, Africa is mostly a blank canvas when it comes to regulation, with governments playing a waiting game. However, the trend toward tight currency controls suggests that governments are unlikely to be receptive to a powerful digital currency that circumvents their systems.

"It is hard to imagine that African governments are friendly with the initiative because, at best, that takes a lot of power from them," says Samuel-Biyi. Zimbabwe has already played and banned bitcoin last year.

"For a regulator, [Libra] it's a bit scary, "says Kent." Still, regulation remains a thorny issue that Facebook will have to face in a number of markets, which is likely to be a meticulous process. "Regulators are not known to move quickly and are not known for adopting something new, "adds Kent.

In the event that Facebook's Pound discovers the regulation, it will also always face the ever-increasing threat of intermittent Internet disruptions by which African governments, particularly dictators, have become notorious.

Change of mindset

While it is about making Libra a long-term success, there is a crucial "short-term implication" of digital currency innovation that can not be ignored, argues Samuel-Biyi. "Facebook is an important voice that challenges the basic definition of money and what it takes to be a money issuer. It is a mental barrier that many found difficult to cross. "The interest of the company alone will likely result in" a new wave of believers in the cryptomoeda space, "he argues.

"What matters is the user experience. If it works for the Nigerian with all its limitations – power, data, language and culture – people will use it. "

"Facebook that is behind a new technology will definitely reach consumers faster," says Kent, according.

There is already some evidence of what is possible in relation to the adoption of crypto-coins throughout the continent. Before being banished there, at one point, Zimbabwe had the highest bitcoin prices in the world, with the country's unstable economy and depleted foreign exchange markets seeing locals resorting to cryptocurrency as a storehouse of value. And despite the government's stance on strict currency regulation and control, the blockchain is generating a new wave of startups in Nigeria.

The most important tool to increase local acceptance and adoption of Libra, just like anywhere else in the world, is simply to prove it works. Timi Ajiboye, co-founder of BuyCoins Africa, a Lagos-based cryptomoeda scholarship, has firsthand experience of how Nigerians have adapted to digital currency technologies.

"The truth is that if it's really useful in the sense that it applies to our specific local use case, Nigerians will use it," he says. "What matters is the user experience. If it works for the Nigerian with all its limitations – power, data, language and culture – people will use it. "

Given his experience with facilitating remittances to 49 African countries, Kent admits that skepticism will yield to efficacy. "Customers just want financial services to be fast, simple and secure. So if that money is flowing through a crypto-crash or tied to the leg of a pigeon, as long as it gets there safely, that's what people worry about. "

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