Bitcoin Via BitPesa.co & Kipochi Takes On Africa (Say Goodbye To Western Union & MoneyGram) Part I
When thinking about the future of money, many of us now invariably have thoughts about bitcoin. Where is it going? What role might it play in our financial lives? No matter what you think about it, bitcoin is great for starting a debate on where digital money is heading.
Africa is a place where bitcoin has major potential. But what you might not realize is how important electronic money already is to countries there such as Kenya. First, a little economic information about this East African nation. Kenya is one of the region’s largest economies with a GDP of $41 billion dollars. Fifty percent of its people live below the poverty line. Approximately 75 percent of people work in agriculture. According to the CIA World Factbook, on Kenya, “low infrastructure investment threatens Kenya’s long-term position as the largest East African economy.”
Digital Money And Kenya
Kenya is clearly a place where the concept of physical money started going out of style years ago – and it likely has something to do with the lack of infrastructure investments that come from the banking industry. In Kenya, the major mobile operator, Safaricom, introduced a digital payments system called M-PESA back in 2007. The “M” stands for mobile, while “Pesa” is Swahili for money. According to the official website, by 2012 M-PESA had over 14 million active users.
Safaricom, which has a 70% mobile market share in Kenya, lets its customers send and receive money using M-PESA. All customers need to have is a mobile phone and valid identification to get started. The system uses SMS to allow users to send, receive as well as pay bills with the platform. According to Business Daily Africa, Vodafone owns the payment service, while Safaricom licenses it from them.
Not Just Payments
While M-PESA is very successful as a payment platform, it is now becoming a system for other financial services in Kenya. Users can opt for things like savings accounts and can even apply for loans with M-PESA. This is because in 2012 Safaricom developed a deeper financial services platform called M-Shwari. A partnership between the Commercial Bank of Africa and Safaricom, M-Shwari allows users to open savings accounts and obtain microloans at very favorable rates.
As a result, Kenyans don’t have to go to a bank, and often microloans are granted in real-time. With everything being done with a mobile phone, the service has developed into a platform for saving, with a 1% interest rate granted on accounts. According to recent figures, 1.6 million people are using M-Shwari, with savings accounts by far being the most popular service.
Kenyans have taken to M-PESA because traditional banking has not worked for them. Instead of Kenyans going to banks, Safaricom decided to let banks come to Kenyans in the form of a mobile phone. In fact, M-PESA has been able to thrive even though it has had detractors within the country.
The banking industry in Kenya was so concerned about M-PESA it tried to develop its own system. In the end, though, the industry had to start working with Safaricom since network effects have made M-PESA a powerful system of payments relatively quickly. In essence, since so many in Kenya were already using M-PESA, there was really no turning back on its ease of use to go with its sheer number of users.
One very good reason for bitcoin is the relative inefficiency of cash money. It is a system that we have used for a long time, since the time that society decided that the bartering system was inefficient. Today we are dealing too much in the physical handling of cash: it is expensive for money to be transported, secured and maintained.
Kenyans have realized this, and many there have decided using the country’s paper currency, known as the schilling, is inefficient for so many reasons. And when you think about it, they’re probably right: it is expensive for banks to handle, which in turn also costs us money to deal with. Since most of us are already using cards to transact everything, what’s stopping many of us from going completely electronic?
What About Bitcoin?
Bitcoin could have the same network effects as M-PESA has had if a successful mobile payment platform around it were developed. We’re seeing some of that happening in the developer-friendly Android ecosystem. But for the time being, it might have to come from more open platforms for feature phones like the one provided by Kipochi.
M-PESA has been able to use its network of customers to obtain clout with local banks and signing deals with the likes of Western Union to send money to places all over the world. Now, Western Union isn’t scrambing to get bitcoin customers signed up, but the M-PESA example is a sign that all it takes is user adoption for big financial companies to get on board with digital platfoms.
All About Access
It almost seems as if M-PESA was something that was necessary in a country like Kenya to make the usage of money easier for people who did not have access to banking services. In the developed world, there are money inefficiencies, but they aren’t faulty enough to spark massive financial change.
There are places where this is not the case. M-PESA proves that if you give people access they will take advantage. And with the rise of smartphones, especially with adoption of Android in Kenya (see chart), people there will have even more options, where perhaps bitcoin or another decentralized currency will be a choice.
Even Bill Gates has been impressed. Back in January, he tweeted "Kenya’s M-PESA proves that when people are empowered, they will use digital tech to innovate on their own behalf".
What do you think about M-PESA? Let us know what you think in the comments.
South Africa-based bitcoin software firm Switchless has purchased the largest bitcoin exchange on the continent for an undisclosed sum.
Switchless, which is based in Stellenbosch, snapped up BitX less than a year after the exchange was founded. According to Switchless director Marcus Swanepoel, his company bought the exchange, which is also based in Stellenbosch, for its team in what he described as an “aqui-hire” deal.
BitX’s team consists of three people, one of whom is former Google engineer Timothy Stranex, who co-founded the firm in February. The team brings Switchless’s total staff to eight.
Swanepoel is secretive about the exact nature of his firm’s business, other than to say it develops bitcoin software for financial institutions. One of its investors is incubator FireID, which is also based in Stellenbosch.
“It relates to exchange type of software, and ways to keep your bitcoins safe, like wallets,” says Swanepoel of his product. “The strategy of the firm is to continue investing in building that out to other financial institutions.” BitX says on its website that it is powered by Switchless enterprise bitcoin software.
Given BitX’s position as the best-known exchange for bitcoins in Africa, the firm’s trading volume (around 10 BTC each day, according to Swanepoel) is surprisingly low. But Swanepoel puts that down to the unique nature of bitcoin trading in the African market. He said:
“There are a lot of other exchanges going on in Africa that aren’t necessarily done online. There are people meeting up in Zimbabwe.
To size the overall market is pretty difficult, and obviously it won’t be as big as Germany and the US, because it is just starting up.”
While volumes are low at present, Swanepoel believes that it could take off and grow dramatically in a short time period. One thing that may help here is the relatively large number of “un-banked” people on the continent.
“The big problem in Africa is moving money across borders, and we don’t see that being solved very quickly, but at least it could be a lot cheaper and more efficient than it is at this stage,” Swanepoel said, adding that bitcoin could play a big part in solving the global remittance problem. There are two issues: people moving money within Africa, and foreign workers trying to send money home.
Safaricom’s M-PESA digital cash system has already garnered over 14 million active users, and Switchless hopes that bitcoin will also gain traction in the country because it offers similar advantages.
Many people in Africa don’t have a computer connected to broadband Internet. In fact, data aggregated by Credit Suisse suggests that PC penetration per capita in the Middle East and Africa is projected to reach just 7%, compared to 50% in Western Europe.
However, mobile penetration forecasts are far higher, with a 114% projected penetration rate for mobile subscribers in the Middle East and Africa.
When rates exceed 100%, it means that there are more mobile subscriptions than people, which sounds counterintuitive but which is becoming fairly common in many countries, thanks to a combination of more than one device per person, and business-focused, machine-to-machine connections.
Most of these phones will be feature phones, however; smart phone subscription rates will be a measly 9% in the region, compared to 100% in Western Europe.
Those figures include the Middle East. The African continent alone will see a 63% penetration rate for mobile-cellular across the African continent this year, according to the ITU.
Even phones without a data plan can still be used to send mobile cash, however, thanks to SMS-based messaging (such services are already supported in North America). However, BitX isn’t catering to this market, and will be unlikely to do so in the short term, said Swanepoel.
“BitX will run as it is right now, although we will have some clients that come into the mobile space at some stage,” he concluded.
Bikers Battle Bribes And Busted Tires To Spread Bitcoin In Africa
Call it bitcoin’s answer to “The Endless Summer“ or maybe just one hell of an adventure.
When LocalBitcoins.com announced earlier this month that it would sponsor a motorcycle trip across Africa with the goal of completing a bitcoin-based exchange each stop along the way, it didn’t take long for bitcoin users to collectively voice their envy.
The in-person bitcoin transaction specialist selected two adventurers, identified as Borja and Elvis, for the ambitious 16-country, 8,000-mile trek.
Bitcoin’s most famous motorcycle duo, Borja and Elvis started their journey on 11th October, and shortly thereafter finalized their first exchange in Morocco, trading 1,100 Moroccan Dirham for 1 BTC ($34.90).
The trip will bring the motorcyclists to the end of the continent at Cape Town and include stops in Nigeria, Angola, Burkina Faso and Namibia (you can find a full list of the planned stops here).
As of 15th October, four days after starting, the adventurers were still in Morocco due to operational difficulties.
“We had some help of a local motorbike rider that we helped after he punctured his back wheel. After that, we went to Tanger center and were a bit lost, because our GPS [didn’t] work properly,” Borjas told Bitcoin Magazine.
Bitcoin Bolt reported on 22nd October that Borja and Elvis had traveled 2,500km to pass through the Mauritanian border into Senegal, though the media outlet noted that this crossing was anything but smooth. Borja said:
“The border was hell. We spent lot of time dealing with many corrupt policemen asking for money. In the Mauritanian part of the river, 10km before we arrived in Rosso, the usual police controls started to be different, and all of them were saying ‘Do you know someone in the border?’”
Borja reported similar issues at the Senegal border to Bitcoin Bolt, and said that he and Elvis have been continually asked for bribes by police, but that so far, bitcoin transactions with the local law enforcement have yet to take place.
“They never wanted USD. They didn’t know (yet) about bitcoin,” Borja told the media outlet.
Borja and Elvis are currently in need of local contacts for their adventure, and have asked anyone in these countries to contact them with more information. To find out how you can help LocalBitcoins.com and its intrepid travelers, visit LocalBitcoin.com’s official blog.
Africa's Richest Man Bets Big on Oil Refinery
Africa's richest man sat barefoot on his new yacht in a lagoon here after another night of about three hours sleep.
The day was filled with meetings about his cement company and preparations for a polio-fighting trip with fellow billionaire Bill Gates. His BlackBerry buzzed every few minutes with messages from the president of Benin, and a former U.S. ambassador wanted some face time.
"You don't see any sign of stress on me," Aliko Dangote said with a tight smile. The 56-year-old businessman said he was getting an energy boost from a weeklong fast that limits him to six glasses of watermelon juice a day.
For two decades, Mr. Dangote (pronounced DAHN-go-tay) has turned his relentlessness, connections and entrepreneurial bets on the rise of Africa into a fortune estimated at about $22 billion.
Most of it comes from his controlling stake in a conglomerate of cement, sugar, salt and noodle factories sprawled across 16 countries. Profits in three publicly traded companies he controls (Dangote Cement, Dangote Sugar and National Salt Company of Nigeria) hit $1 billion in the first nine months of 2013, up 43% from a year earlier.
Mr. Dangote now has a plan to quintuple his wealth—and become one of the five richest people in the world. He will spend $9 billion to build the largest privately owned refinery in Nigeria, which produces more oil than any other African country but must import most of the motor fuel and diesel it uses because existing refineries are dilapidated and inefficient.
Within about two years, the new refinery in a stretch of swampy shoreline outside Lagos could start piping in crude from roughly 7 miles offshore, bypassing a traffic jam of tankers often stuck for weeks. Competing against four government-managed refineries that run at barely 20% of their capacity, Mr. Dangote would double the country's maximum refinery output.
The refinery project is a bet that Africa's economy will keep growing much faster than the rest of the world, especially as a wave of consumerism sweeps the continent.
New airlines are taking off so quickly that some jet-fuel sellers, hurt by a shortage, have been caught trying to fill airplane tanks with kerosene instead. Car imports through Nigeria's main port have risen to about 300 cars a day.
As a result, Africa now is the world's fastest-growing oil user, and the International Energy Agency expects oil consumption in Africa to surge about 30% to 4.5 million barrels a day by 2018. The jump represents 15% of the world's projected rise in oil demand.
Mr. Dangote and his supporters, including Nigeria's president, see more than money in the new refinery. To them, it also defies centuries of Africa exporting its most precious resources—including gold, diamonds and humans—rather than putting them to work at home.
Nigeria's government has collected about $1.3 trillion in oil revenue since 1980, according to the Economist Intelligence Unit. Yet about 60% of the country's 170 million people live on less than $1 a day, according to the government. It says as much as 400,000 barrels of oil per day—or one-sixth of total output—are pilfered from pipelines by bandits. Most of the stolen crude is loaded onto barges at night and shipped abroad.
The refinery planned by Mr. Dangote will "change the economic and industrial landscape of Nigeria," said Doyin Okupe, senior special assistant to Nigeria President Goodluck Jonathan. The president thanked the billionaire and his bankers by inviting them to Mr. Jonathan's villa on a day usually reserved for government planning sessions.
The project faces daunting challenges. Competition will be fierce from U.S., Asian and European companies that also want to satisfy Africa's thirst for gasoline and other fuel products. Some energy firms are expanding operations in Africa, and American refineries are gaining an edge around the world as the U.S. shale-oil boom lowers their production costs.
Nigeria also subsidizes imported oil, keeping prices at the gas pump about one-third lower than they are in the U.S.
"I don't know how he's going to do it, but I do know it's going to be very, very tough," said Bismarck Rewane, managing director of Financial Derivatives Co., a research firm in Lagos. He has known Mr. Dangote since they lived near each other in the 1980s and attended middle-of-the-night house parties together.
Despite all his connections, Mr. Dangote hasn't won government approval for a license needed to build the refinery. That is not unusual. From 2000 to 2010, more than 100 refinery construction projects were announced in Africa. Only one was built, according to consulting firm Citac Africa Ltd. Others often fell victim to political interference or high borrowing costs.
"We will get it," Mr. Dangote said about the license. The ministry reviewing the license application declined to comment. Nigeria's next presidential election is scheduled for 2015.
In an interview on his yacht, named Mariya after his mother, the billionaire said his refinery will have no trouble competing because it will avoid Nigeria's costly and congested ports. He hasn't said if it will sell gasoline to retailers for less than they pay now.
He also expects Nigeria to eventually abolish foreign-oil subsidies, which cost the government $6.5 billion last year.
In the past decade, Africa's economy has grown by an average of 5.6% a year, compared with the world-wide growth rate of 3.6% per year, according to the International Monetary Fund. The surge has helped turn some of the richest businessmen in Africa into tycoons.
Africa now has 27 billionaires, up from 16 in 2012 and just two a decade ago, according to Forbes magazine. Those two were white South Africans.
Mr. Dangote was born into wealth. Near the dawn of British colonialism in the early 1900s, his great-grandfather, Alhassan Dantata, cornered the peanut market in drought-prone northern Nigeria. While other Nigerians chafed at colonial rule, Mr. Dantata exported tons of peanuts to feed Europe's growing appetite.
During the oil boom of the 1970s, an uncle of Mr. Dangote gave him a government-issued license to import cement. But few Nigerians had ever heard of him. Mr. Dangote spent much of his time and earnings in Brazil, usually enjoying the Carnival festival before Lent. In the 1990s, a friend talked him into flying to Atlanta, where he bought a house and then swung through every other month for jaunts at nightclubs.
He felt comfortable amid Atlanta's historically black colleges and restaurants, far away from a succession of military coups and botched elections in Nigeria. Startled by a snake in his basement one day, Mr. Dangote sold the house and bought a larger one.
But he started to feel the tug of his homeland, the most populous country in Africa. On trips to Brazil for Carnival, he saw signs of the economic progress the country had made: Desperate hustlers, touts and money changers didn't swarm him at the airport any more. And cement factories were popping up in the mountains.
“ 'If there is anything higher than the national honor that the president gave me two years ago…then he obviously needs to give me another national honor for building a refinery that we never, ever dreamt about.' ”
That gave him an idea to do something big, he said. He flew back to Nigeria, contributed to the upstart People's Democratic Party and made a promise after its presidential candidate won election in 1999. Mr. Dangote vowed to build one of the world's largest cement plants if the government restricted the flow of cement through the country's ports.
The businessman got what he wanted. The limits on imports of cement—the most common building material in Africa—lifted prices to twice the world-wide average. His business empire mushroomed. Dangote Group now makes a two-thirds markup on every bag of cement it sells.
In return, Mr. Dangote spent $1 billion on the cement factory and an adjoining, 1.7 mile-long airstrip, borrowing some of the money at an interest rate of 42%. They opened in 2008, and he vaulted onto the billionaires' list for the first time.
Dangote Group now employs about 25,000 people in Nigeria, is building cement factories in 14 countries in Africa and is buying mining licenses from Kenya to Zambia.
A pop song in Nigeria called "Aliko Dangote Special" includes the line "Cover of Forbes, he no be joke." The motivational book "Dangote's Ten Commandments on Money" cites the billionaire's advice "to make the best of your time because any time lost cannot be regained." No. 8: "Believe in Nigeria."
"It's something he said to me years ago: 'Only Africans will build Africa,' " said Kola Karim, chief executive of oil-exploration company Shoreline Natural Resources Ltd. Mr. Karim sells most of the oil from Shoreline's fields in the Niger River delta to India but would rather do business with Mr. Dangote.
The two men, who are friends, recently talked over the details on a dock next to the billionaire's yacht but haven't announced an agreement. "This is where my future lies," Mr. Karim said. "The market is in Africa."
Mr. Dangote will soon borrow $1.5 billion to lease about 740,000 acres, an area 50 times bigger than Manhattan. He wants to grow sugar and rice for Dangote Group's processing plants.
The area in northeastern Nigeria is swarming with fighters from Islamic insurgency Boko Haram, but the fields will put so many people to work that the insurgents will "leave us alone," Mr. Dangote predicted. Once the farm is thriving, "Boko Haram will not have guys to recruit."
The industrialist nudged Nigerian bankers for more than a year about his refinery plans. Then he started telling them how much they should lend—and at what interest rate.
"When he wants something, he gets it," said Edmund Boyo, a partner at law firm Clifford Chance LLP who worked on the deal.
In September, Dangote Group announced a $3.3 billion syndicated loan from banks led by Standard Chartered of the U.K. and Nigeria's Guaranty Trust Bank PLC. Terms of the $3.3 billion loan weren't disclosed, though he said it includes a penalty if he repays the banks too quickly.
Nowadays, banks sometimes charge him less than 6% interest, he added, a lower interest rate than Nigeria's government gets on its loans.
Yvonne Ike, chief execuitve of investment bank Renaissance Capital's operations in western Africa, said she has seen bankers' "eyes watering when they thought about how much they had lent" to Mr. Dangote at rock-bottom interest rates compared with other companies. Still, the bankers "couldn't stand not to be a part of the biggest debt deal in Africa," she said.
Mr. Dangote now is trying to line up oil to feed his refinery. Chevron Corp. and Royal Dutch Shell PLC are selling oil fields along Nigeria's coast after long battles with kidnappers and pipeline-bombing oil thieves.
The billionaire wants to buy the two companies' tracts of oil-rich swamp. To protect the oil from bandits, he will bury pipelines to and from the refinery. Chevron and Shell declined to comment.
The billionaire hasn't announced any deals to sell the gasoline, plastic and other fuel products that will be made by his refinery.
He likely will have to lure away customers from state-owned oil company Nigerian National Petroleum Corp. It controls the four rundown refineries that dominate Nigeria's oil industry. Government leaders have denounced the company as opaque and unscrupulous.
"It's a waste pipe of corruption," said Ken Saro-Wiwa Jr., a spokesman for Mr. Jonathan, Nigeria's president. An NNPC spokeswoman couldn't be reached for comment.
Mr. Dangote hasn't had a vacation since he took 18 children, grandchildren, nephews and nieces to Walt Disney World in Florida last year. That was his first vacation in 17 years, and he has no plans for another one. The refinery is keeping him too busy.
"If there is anything higher than the national honor that the president gave me two years ago, which I do appreciate very much, then he obviously needs to give me another national honor for building a refinery that we never, ever dreamt about," he said.
The billionaire's private jet was landing in Lagos at 1 a.m. last month when his pilot got a call from air-traffic controllers. Mr. Gates, the Microsoft Corp. co-founder and one of the world's richest men, had just spent two days with Mr. Dangote but was stranded 400 miles away by a broken-down plane.
Mr. Dangote told his pilot to turn around, pick up Mr. Gates and fly back to Lagos. Mr. Dangote got home at 4 a.m. and was at his desk by 7:30.
* Bitcoin Via M-Pesa Takes On S. America And Africa (Say Goodbye To Western Union And MoneyGram) Part II
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