The development of digital finance or financial technology is a recent phenomenon in Ethiopia. Though it started practicing in limited way in the banking industry a few years ago, publicly, the sector was becoming popular during the past five years. Though it seems a recent development, the fine tech shows a significant development within this short period of time in Ethiopia.
Considering the sector’s role in developing the country’s economic development, three years ago, Ethiopia launched a national strategy with the goal of advancing and realizing digital Ethiopia in 2025. Following the implementation of Home-Grown Economic reform in 2019, Ethiopia gives priority for the development of the digital sector so as to accelerate the economic reforms and realize prosperity.
Then, in 2020, Ethiopia officially launched the Digital Ethiopia 2025 Strategy so as to transform the sector. Since then, digital technology shows a significant development in Ethiopia and started contributing its share in the country’s economic development. Especially, the digital sector plays a critical role in modernizing and transforming the finance industry in Ethiopia. Digital Finance or financial technology (fintech) shows a revolutionary development during the past three years.
A week ago, a panel discussion was organized to discuss the current status, prospects and challenges of digital technology in Ethiopia. The panel which was organized at the Adwa Memorial Museum which was attended by Prime Minister Abiy Ahmed (PhD), ministers, heads of regional governments, senior government officials and stakeholders and investors from the private sector.
During the discussion, Prime Minister Abiy stated that following the national reform in 2018, it was impossible to act with the usual system due to multifaceted challenges mainly in the economy sector. To overcome the challenges that the reformist government was received from the previous system, it demands new interventions. It requires new systems, introducing new technologies and reforming the policies and strategies. “During the early months of the reform, government was faced with challenges even to pay salary of civil servants. It was impossible to overcome the challenges with the traditional system,” he said.
Then, government introduced Home Grown Economic Reform agenda and realizing the economic reform demands new strategies. To accelerate and realize the economic reform, introducing technology was one means digital economy became one strategy. In short, building digital economy became one core pillar of the economic reform. As to him, the intention behind the necessity of Digital Technology was to solve the problem of the time. The situation during the early periods of the reform was very difficult. “In 2018, around 60 percent of the Ethiopian GDP was debt.”
As government decided to withdraw from the deep-rooted problems within short period of time and to realize prosperity, digital technology became a core pillar in the economy. Technology became among the five critical sectors. After giving due focus on the issues, the sector showed a dramatic development shortly. Especially, the development of the digital finance and digital payment shows significant improvement.
For his part, National Bank of Ethiopia (MBE) Governor, Mamo Mihretu said that following the development of digital technology and enabling ecosystem, digital finance shows a fantastic development in Ethiopia in recent years. Though digital finance is a recent development in Ethiopia, it shows a dramatic development during the past three years and it becomes a game changer in the finance industry. “Digital finance is a game changer in the finance industry and is transforming the industry,” Mamo stated.
Digital innovation in the finance sector makes the industry inclusive. It helps to democratize and to manage income inequality, according to the governor. Now, thanks to the digital finance, cash flow is decreasing and digital payment shows a dramatic development. “Digital payment showed 75 per cent increment during the past five years in Ethiopia,” Mamo said adding this is among the meaningful outcomes of the national reform. The development of financial technology in the finance industry contributes its share in increasing the productivity of the economy by transforming transactions and payment mechanisms.
Saving, loan and insurance and accelerating investment are the major products of the finance industry in a country, according to Mamo. “Hence, when we talk about digital finance, it is all about modernizing, easing, facilitating and making inclusive these basic services of the finance sector,” the governor stated. According to Mamo, before the launching of the Digital Ethiopia 2025 Strategy, financial democratization remains a serious problem in Ethiopia. Majority of the financial service beneficiaries were investors or resource owners. People with important business ideas have no chances to get loans from financial institutions and banks.
“This situation aggravated the income inequality or resource inequality. Hence, the basic problem that the finance sector needed to address was democratizing the financial sector. In this regard, the digital innovation helps in democratizing the sector.” The second problem was financial inclusiveness. Now, the development of digital finance is playing a crucial role in solving these problems. Mobile money, mobile banking and other digital payment mechanisms are showing significant developments in Ethiopia.
According to the governor, there are over 90 million mobile wallet transcribers, 42 million credit cards, over 8.4 million internet banking users in Ethiopia. This digital development in the fiancé industry comes following the measures being applied during the past five years. Due to these developments, according to Mamo, digital payment shows 750 percent increment in less than five years Ethiopia. “This is a huge and significant move,” he added.
The initiative to develop the digital technology during the past five years in general and during the past three years in particular brings meaningful changes in the sector, PM Abiy for his part stated. As to PM Abiy, six years ago, Ethiopia’s total mobile users were limited to 36 million which currently developed to 76 million. Access to internet also shows a significant development during these years.
Though the age of digital payment is less than five in Ethiopia, the development is dramatic. Ethio Telecom launched mobile money in 2021 and currently the number of mobile money transcribers exceeds 40 million and over one trillion birr has transacted through mobile money this budget year. With regard to digital payment, According to PM Abiy, currently there are 18 different companies involved in the sector. Daily, over five billion birr is transacting daily which significantly decreased the cash flow in Ethiopia.
“For the first time in history, during this budget year, Ethiopia’s digital payment transaction overcomes the cash transaction,” PM Abiy stated adding this helps the country to save costs for printing and transporting paper money. NBE Governor also stated that payment mechanism is becoming digital. “For example, last year, over five trillion birr was transacted digitally. Similarly, during the six months of this budget year, over 4.2 trillion birr was paid through the digital means,” he added. This shows that cash transaction is becoming decreasing and being replacing by digital payment.
The development of digital technology in the finance industry is stimulating the economy, making the financial sector inclusive. As to the governor, this development has significant implication especially in guiding monetary policy. It transforms the finance sector. Considering the development of digital technology and digital finance, to secure the transactions and the cyber industry in general, Ethiopia is building a resilient and secure cyber sector in this regard. PM Abiy stated that to control the downsides of the digital technology, the country focuses on building resilient and secure cyber sector which is alert 24/7.
BY DARGIE KAHSAY
THE ETHIOPIAN HERALD FRIDAY 12 APRIL 2024
