The system uses technology to send money to another mobile subscriber via a text message otherwise known as short message service (SMS). It is run by Kenya’s leading telecommunications company SAFARICOM.

Though Kenya is the second country in the world to come up with such a system two years after Philippines’ Globe Telecom and Smart Communications were launched in 2005, it has risen, just under 10 years, to become a world leader on mobile money.

The system has sparked a mini-revolution in more than 20 countries in Africa and Europe with Romania being one of the places where the technology stands the best chance of gaining adoption.

According to a World Bank study, Kenya today, has more mobile phone subscriptions than adult citizens and more than 80 per cent of those with the mobile phone are subscribed to the M-PESA service.

A recently published study by US News on the long-run effects of mobile money on economic outcomes in Kenya provides some valuable insights that will benefit economic development and financial inclusion policies across Africa and world over. The study found that increased access to mobile money has reduced poverty in Kenya, particularly among female-headed households. Rapid expansion of mobile money has lifted an estimated 2 percent of Kenyan households (some 194,000 as at January 2017) out of extreme poverty. It has also enabled 185,000 women to move out of subsistence farming and into business or sales occupations.

Reaching off-grid

For Kenyans with no bank accounts, and in many other countries where mobile money has expanded, M-PESA has become far more than just a way of sending money. Routine purchases like airtime or utility bills are paid via mobile money. Retailers of all sizes accept M-Pesa merchant payments for groceries, cab fares, airline tickets or even school fees. Microfinance organizations are also able to offer lower interest rates due to saving on cash collection costs by receiving payments through mobile money.

Impact of M-PESA

M-PESA has significantly reduced transaction costs in Kenya. When it was launched the average distance to the nearest bank was 9.2 kilometres. Eight years later in 2015 the average distance to the nearest M-PESA agent was a mere 1.4 kilometres.

When M-PESA started it created a network of agents that were geographically dispersed which meant that more people in rural and sparsely populated areas were within reach of one. This resulted in significant and widespread adoption.

Now that mobile money users are able to form more diverse risk-sharing networks, it’s not surprising that users, compared with non-users, tend to receive more remittances from more people. This is particularly marked when users are responding to negative shocks.

Mobile money users are therefore more financially resilient and can protect themselves better against economic and other shocks. It also allows them to increase their consumption in bad times. This is key to enabling households to lift themselves out of extreme poverty.

The recent findings also show that in areas that have experienced large increases in access to mobile money people were more likely to be working in business or sales rather than in subsistence farming. Additionally, fewer people in these areas reported having secondary occupations.

Both these findings were seen to be particularly true for women. This was found to be true in female-headed households as well as male-headed households. An estimated 185,000 women have been induced to switch from subsistence farming to business or sales as their primary occupation as a result of mobile money access.

That mobile money has a positive impact on economic outcomes for women is particularly notable when seen against some historical studies on related subjects. For example, studies on the impact of micro-finance on female clients, and on the economic returns to capital grants for female-operated small businesses, have tended to show limited results.

This may reveal something crucial. For women, the route out of poverty may be financial inclusion that allows them to better manage their existing financial resources, rather than increasing their financial resources from credit or grants.

This finding has significant implications for policy and poverty-reduction efforts.

As other products built on mobile money platforms are developed, financial inclusion is deepened and users are empowered to improve the management of their financial resources. Other products allow users to, for example, earn interest on savings, access micro-loans and affordable insurance, and invest in government securities.

Mobile money has been transformational in Kenya, and has the potential to similarly benefit not only the sub-Saharan Africa but also the rest of the world.

Impact on the World

It’s becoming clear that mobile payment technology has staying power, however technologies like near-field communication, have been around for many years without gaining huge traction, so what has broken down the barrier to entry? What has changed making mobile payment a viable solution for everybody?

The smartphone, of course, is at the heart of this evolution. In this regard, personalized and real-time marketing and virtual wallets are not just the future of big business. They are already a viable proposition, and one that looks set to blossom in the near future.

But while mobile banking and payments may be getting more and more ingrained in consumers’ lives, as well as the business models of banks and vendors, monetizing mobile money is still proving to be a difficult task. In this segment, we consider three pillars of mobile money on smart phones: personalized, localized and timely mobile marketing; the rise of the digital wallet; and the various business models that are emerging that will influence where the mobile money market is heading.

Mobile marketing

For some, it may be an uncomfortable thought that every movement, purchase and communication they make on their mobile phone leaves behind a data trail that is being analysed by various industry participants, such as banks or specialist providers, to unlock new business potential.

Your searching and spending habits are viewable for all to see and this level of data transparency comes at a time when the card industry’s margins are under pressure, especially in the U.S., where market forces and incoming regulation have impacted interchange fees. This led banks to cut back on their loyalty schemes, as most card issuers used to fund these schemes from the card fees they charged. This does not mean that competition has scaled back, however.

What may be bad news for card issuers has created market opportunities for others. Vendors that can act as a gateway between the merchant and issuer, or who can aggregate and analyze transaction data to enable the merchant and bank to offer personalized, relevant and timely offers to card users, have been growing their business of late. Whichever model is used – the consumer will have to opt in to the service, meaning pushy marketing campaigns become irrelevant. This issue is also linked to regulation about information access and data management.

The development of mobile payments is primarily driven not by demand from potential clients, but by the search for reduced costs or increased revenue that it can offer the payment system operator. In this regard, it is not yet clear what the leading solutions or business models will be, but investments into the sector continue, and some business models are starting to emerge, such as special merchant deals.

In some cases, the mobile phone is turned into a payments terminal, the point of sale (POS). Examples include Square in the U.S. and iZettle in Europe. Typically, there are two models for this business proposition: the mobile phone as a POS where a merchant is typically swiping a card though a mobile device such as Square; and the mobile phone at a POS where the consumer uses their mobile device to pay.

It is hard to quantify a market that has potential but has not yet reached mass adoption. To take just one example, NFC technology has for some time been almost synonymous with mobile payments. It has also been around in Japan and South Korea for years. While these countries are ahead of the curve when it comes to NFC adoption, even in innovation and technology-driven Asia, NFC has not gained traction.

NFC adoption may seem to be making slow progress compared with the speed of other technology-related devices or systems, but when banks, network operators, today’s start-ups and others have worked out the business models that work for them, the future of mobile money will be clearer.

Such infrastructure gaps continue to weigh down the continent, reducing the dividend from its brisk growth of the last two decades. But some countries—and mega investors too—are making huge progress in reducing the size of the deficit.

It is for this reason that a number of big infrastructural projects have been initiated and built in Africa by International economic and trade partners. They vary from, railway lines, power projects, water dams to roads. This paper will highlight just a few, both complete and ongoing.

The Grand Ethiopian Renaissance Dam

The Ethiopian government is currently constructing the Grand Ethiopian Renaissance Dam (GERD). Once complete, GERD will be the largest hydropower facility in Africa. It will add about 6 000 Mega Watts to the national grid. This is nearly triple the country’s current electricity generation capacity – and represent a potential economic windfall for the government.

The benefits for Ethiopia and for many electricity-importing countries in East Africa are clear. However the implications for downstream countries aren’t all positive – and need to be better understood.

In 2016, about 30 per cent of Ethiopia’s population had access to electricity and more than 90 per cent of households continued to rely on traditional fuels for cooking. Traditional fuels can cause respiratory infections, and according to the World Health Organisation (WHO), acute lower respiratory infection is the leading cause of death in Ethiopia.

Financing

Ethiopia has not succeeded in getting international/outside financing for the project, in part due to its lack of competitive bidding for the project’s construction contract.

The project therefore is 100 per cent sponsored by the Ethiopian government. It says it will sell dam bonds directly to the citizens to realise this.

Most public workers in Ethiopia earn relatively low wages and face a significantly high cost of living.  Hence, they are not likely to be able to sacrifice that much of their salaries to invest in this national project.  Nevertheless, many of them have been observed purchasing the GERD bonds, primarily because of pressure from the government and the belief that participation in this national project is a show of one’s patriotism.

The Trans-Kalahari Railway

Namibia and Botswana took the first steps in 2015 to establish a multi-billion dollar railway project to link Botswana’s rich coal fields to the Namibian coast.

The project, which is still ongoing, is meant to be developed by the private sector in the two countries. Private companies will have to gather capital for the project and not the two governments.

Although several media reports from Botswana have said that the government may have changed its mind about supporting the project, it is said the project is more beneficial to Botswana’s coal exports through Namibia.

Financing

Botswana and Namibia have already signed a bilateral agreement for plans to develop the 1 500-kilometre railway for transporting coal exports to Walvis Bay that will cost US $15 billion.

Once the two countries have resolved all outstanding issues, this will make way for funding initiatives and tenders.

Chinese and Indian demand for the more than 200 billion metric tonnes of coal in Botswana’s central Karoo basin could boost economic growth in the landlocked southern African nation.

Lake Turkana Wind Power Project

Kenya with 11 eleven projects, has the greatest number of large infrastructure projects in East Africa equivalent to 26 per cent of the total. Lake Turkana Wind power project, a renewable energy project is one of them.

It aims to provide 300MW of reliable, low cost wind energy to Kenya’s national grid, equivalent to over 20 per cent of the current installed electricity generating capacity.  The wind farm site is located in northern Kenya, approximately 50km the Capital Nairobi.

The Project will comprise a wind farm, associated overhead electric grid collection system and a high voltage switchyard.    The Project also includes rehabilitation of an existing road which covers a distance of approximately 200km.

Financing

The total project cost is estimated at US$680 million and includes the cost of the envisaged 400 km transmission line from Lake Turkana to a sub-station near the capital Nairobi, as well as the cost of upgrading 200 km of roads and various bridges.

The project will be financed through equity debt (25 per cent), mezzanine debt (5 per cent) and senior debt (70 per cent). As the mandated lead arranger and senior co-lender, Africa Development Bank (AfDB) will provide a long-term senior loan of USD 150 million.

Coastal Railway – Nigeria

This is the largest ever contract awarded to a Chinese company in Africa. The project is worth $12 billion. The deal was signed between the Federal Republic of Nigeria and China Railway Construction Corp (CRCC) in 2014. The railway is 1,402 km in length and upon completion (final phase ongoing), it will link Lagos, the nation’s economic capital, with the eastern city of Calabar, passing through 10 states. It will also link cities with the oil rich state of Niger Delta.

In the last 20 years, Chinese companies have built and upgraded around 4500km of railway in Nigeria.

Bagamoyo Port – Tanzania

The project is worth $7 billion. It is funded by China Merchants Holdings International and State Government Reserve Fund of the Oman government. The port is being built in Bagamoyo, a coastal town in Tanzania. Upon completion, it will be able to handle about 20 million containers annually and will be the largest port on the East African coastline, bigger than the Port of Mombasa in Kenya.  Its construction started in October, 2015, but was halted earlier 2017 due to financial constraint facing the Tanzanian government.