Peer to Peer (P2P) Economy & Africa's Energy Gap -Tabbing Takes 02
The one on the continent's Peer-to-Peer economy and its electrification gap.
Tabbing takes is a weekly-ish newsletter aboutinteresting trends in Africa's digital economy, culture and tech.
This is the second issue. Here's the first.
Africa's Peer-to-peer (P2P) Economy
Peer-to-peer economies have always existed in human social systems as a decentralized model where two individuals interact to buy, sell goods and services directly with each other or produce goods and services together, without an intermediary third party.
P2P cuts out the middle man, and instead adopts a model of decentralised peer production, whereby value is delivered back to the place where it largely came from in the first place — peers.
The internet has turned P2P into such a viable system, making transactions more accessible and quicker, and safer. Millions of people now have the capacity to connect to each other, to create value together and to organise themselves.
P2P is a key component of the sharing economy, an economic model that is a peer-to-peer (P2P) based activity of acquiring, providing, or sharing access to goods and services that is often facilitated by a community-based online platform.
Today the P2P model is becoming heavily used in multisided platforms (digital marketplaces), and P2P finance.
Peer-to-peer (p2p) marketplaces are convenient as it unites users (buyers and sellers) on a larger scale. It lets customers quickly find goods or services and enables efficient transactions. PricewaterhouseCoopers expects this industry will be worth $355 billion by 2025.
The P2P framework works very well for e-commerce and online selling marketplaces since buyers and sellers can choose any third-party payment application to send and receive payments
There are tons of P2p marketplaces in existence. On AngelList alone there are over 1,239 marketplace platforms. But in Africa, p2p marketplaces are few and far between With Jiji, OLX, Olist, SA's getWorth the prominent ones.6
However, there’s still a lack of trust in cross-border eCommerce, peer-to-peer (P2P) commerce and online marketplaces, leaving some friction between buyers and sellers all around the world.
P2p commerce involves parties that do not know each other and may never transact again, so it is important that companies with P2p offerings have effective and inexpensive dispute resolution processes in place.
In the case of P2p finance, digital monetary transactions are happening at never before seen scales because of mobile money, cryptocurrencies and the P2P framework.
Apart from paving the way for a fair & competitive marketplace & challenging the monopoly of the finance giants, the evolution of the P2P economy has laid the foundation for the development of distributed P2P models of finance — P2p payments, p2p lending and even p2p insurance.
P2P payments are all about ease of use, convenience, and speed. P2P payments are becoming so commonplace, you'll sometimes hear people say “I’ll Cashapp you,” or “I’ll PayPal you,” instead of simply saying “I’ll pay you back”.
Peer-to-peer (P2P) payments are reshaping how people on the black continent move money. With a significant number of the African population still unbanked or underbanked despite fintechs proliferation, there's room for new players to enter as a lot of the market remains untapped.
The growth of P2P Cryptocurrency transactions in Africa also means that more people are turning away from traditional monetary systems, especially remittances. Peer-to-peer transactions are becoming the go-to for migrants to use in sending money to friends and families in their home country.
The companies at the cutting edge of p2p payments in Africa are Abeg and Chipper cash (p2p money transfers)
You can also expect more innovative P2p companies leveraging technologies like crypto, Blockchain, and Defi to spring up in Africa.
P2p Lending or debt-based crowdfunding is a new approach to lending, not simply a specific financial product. P2p lending widens the scope of unsecured lending vs collateral-based lending. In a study of 2013, the World Bank estimated that the crowdfunding potential for Africa might rise to $ 2.5 billion by 2025.
P2P lending volumes growth in Africa have averaged 300% in the past few years, indicating high uptake of the innovation mainly driven by players in South Africa, Nigeria and Kenya.
By leveraging the internet’s interconnectivity, P2P lending platforms build a direct relationship between investor and borrower.
Peer-to-peer lending is exciting because it cuts out the middlemen, enables faster transactions and better interest rates to all parties involved.
Well-regulated and transparent peer-to-peer platforms offer great opportunities as an alternative investment for loan providers as well as for borrowers – both in retail and small businesses.
P2P lending builds off of market weaknesses by acting on existing needs not being met. It promotes financial inclusion by reaching under/unbanked borrowers by unlocking capital access to them in numbers that banks would find difficult to attain.
Interesting players in the P2p lending space in Africa are CARMA (a P2P data marketplace solving the credit data challenge), Pezesha (a scalable Peer to Peer platform to directly lend to creditworthy low-income informal micro-businesses).
The emergence of P2P economies is just the latest example of the internet's value to consumers. This model is now significant and disruptive enough for regulators and companies to have woken up to it. That is a sign of its immense potential for such innovative business models in years to come.
An example is South Africa's only peer-to-peer insurer, Pineapple Insurance. The startup is getting the attention of some of the biggest insurers and other financial services firms around the world as it is now the technology provider of the biggest insurance firm on the east coast of the US: Traverse.
Then there's the role of regulation, especially in the P2p lending space. If the space is to keep growing it will need clear guidelines, especially on fraud and money laundering. In the absence of crowdfunding (p2p lending) specific regulation in Sub-Saharan Africa, generic financial services regulation tends to apply to P2P lending platforms that otherwise fall within the scope of activities covered in existing laws.
Mauritius seems to be at the cutting edge of p2p lending regulation in Africa as it created Regulatory Sandbox Licence (RSL) in 2017 for p2p platforms to share their on-the-ground experience under the RSL with the Mauritian regulator for non-banking financial services, the Financial Services Commission (FSC). The FSC released a new set of P2p lending rules in March 2021 that incorporates further feedback from the industry players.
As fintech deepens Africa's startup culture it appears profitable to build information systems based on P2P frameworks. But, the extent to which companies can take advantage of the peer-to-peer model is still under debate.
Will P2P’s decentralized control be able to cope with challenges regarding network control, security, interoperability, meta data, and cost-sharing?
Filling Africa's Energy Gap
- % growth in Africa’s supply & consumption of electricity, 1990-2020
Sources: IEA, Kleos Advisory.
Without electricity, a lot of the things that are possible today will not exist. This totally radical, pervasive, and decentralized phenomenon eliminates time and space factors in human association and creates involvement in depth exactly as do radio, telegraph, telephone, TV and the internet.
Yet around 592 million people in sub-Saharan Africa live with no access to electricity.
This is due to the high cost of transmitting electricity to remote areas, the low income of most African consumers and the difficulties that power companies face in collecting fees for the power they supply.
Those that do have access to electricity also tend to partly rely on diesel-powered generators, which are costly, unreliable, and contribute a lot of pollution to the environment.
This means many African rural communities might never connect to their national grid.
These barriers that prevent access to reliable power for off-grid communities in Africa not only prevents these households from using the one of the most radical tech of our time—electricity, and the domestic appliances its power, it makes it more difficult and expensive for them to connect to the digital economy.
In Nigeria, off-grid power provides more than four times the level of power actually delivered by the country’s national grid.
The major categories of energy for electricity generation are nonrenewable (Petroleum, Hydrocarbon Natural gas, Coal and Nuclear Energy) and renewable (Solar energy, Geothermal energy, Wind energy, Biomass - from plants, and Hydropower).
- % share as source of fuel for Africa's power generation, 2017
To address Africa's energy problems, the World Bank encourages governments in sub-Saharan Africa to invest in specific electrification plans - like renewable sources of energy (read solar) that are best suited to their communities as it will help them reach their goals much faster.
In fact, some sub-Saharan African countries are actually already working to increase their capacity when it comes to handling renewable energy. With increasing population growth, urbanisation and industrialisation, renewable energy can help Africans have reliable access to electricity.
While Africa’s renewable energy mix started with hydropower and thermal plants, solar power is yet to become a common source of electricity despite its growth on the continent. African solar power output grew twentyfold over the period 1990-2020, to an estimated 6,090 ktoe (kilotonnes of oil equivalent).
Despite being a very young industry, Africa’s solar power sector already has a high degree of segmentation and diversification. Some companies are focused on large-scale production to replace grid power. Others are leveraging solar’s ability to connect African households to their own private power supply and to sell them an array of goods and services that are enabled by access to electricity.
While solar tech continues to evolve and get better the most interesting trend has been combining solar power with fintech (mobile credit and payments), giving every African household access to affordable off-grid power.
This solar-fintech duality is utilizing a pay-as-you-go (PayGo) model that combines the latest solar technology with fintech to enable first-time African consumers to buy a solar unit on a rent-to-own basis. Repayments are made by mobile, with the daily cost equalling the typical expenditure on buying kerosene for lighting and paying to recharge mobile phones.
It seems that promoting low-cost solar energy use in rural areas could be one of the tangible objectives that give financial inclusion real-world purpose, beyond a vague drive to give more people bank accounts that they may not need.
In sub-Saharan Africa, one of the first companies to use solar power is Kenya’s M-Kopa. Their customers can get a solar home system for just a deposit of 35$. Other companies in Africa that are tackling the continents energy issues are Zola Electric, InfiBranches (a fintech + Renewable Energy Services), Daystar power, Baobab+, PEG Africa, Solar Sister, Innovex, Yellow, Easy solar and The Sun Exchange (crowdfunding-based finance to drive solar installations for schools, businesses and other organizations).
Then there's Cold hubs that provides solar-powered food storage units designed for markets and farms, resulting in food waste reduction. The company now has 54 units in 22 states across Nigeria. Over 5,250 smallholder farmers, retailers, and wholesalers use its cold rooms. In 2020, Coldhubs stored 40,000 tons of food.
Meanwhile, Nigeria and Burkina Faso are also employing mini-grids, which are independent, centralised electricity networks that aren’t connected to the main grid (typically a national grid).
Mini-grids generate electricity for local consumption in communities that either has too small a population or are too remote. In Uganda, Innovex is offering off-grid solar energy systems installers and distributors to scale their businesses using digital tools. Allowing them to offer better after-sales support and pay-as-you-go options for larger solar systems.
Then there’s also the case for P2p energy systems that offer an opportunity to improve energy distribution, ensure value for money, and empower customers. P2P platforms offer the opportunity for consumers without distributed energy resources to access affordable clean energy.
P2P platforms can provide an environment for mini-grid customers to sell surplus electricity to neighbours who occasionally need more electricity but cannot afford the monthly fee for higher tariffs. These platforms will also prevent energy wastage.
Moreover, P2P energy platforms would empower consumers to have full control in matching their electricity access to changing household energy demands and their income patterns. Such platforms would enhance electricity distribution by providing dynamic and responsive service delivery.
However, For P2P energy trading to be successful in African communities, critical technical, regulatory, and policy requirements must be met.
The effort to increase electrification uptake rates in sub-Saharan Africa may be a long and difficult process. However, by making solar much more accessible on a larger scale it will ensure that electricity reaches as many people as possible
The reality for many Africans in remote communities is that they don’t need to be on the grid to get the benefit of electricity. Most off-grid African households have limited power needs anyway.
There is a further, unique dividend that solar-fintech models can deliver to African consumers, a benefit that not even consumers in Western markets receive: almost free power.
With over 600 million Africans still without access to electricity, the commercial opportunity to deploy solar-fintech is enormous.
Given the ability of solar-fintech solutions to deliver power to African households along with the affordable financing to pay for it, solar could be the breakthrough technology that finally connects Africa’s vast off-grid communities.
Every country needs a diverse energy mix and off-grid solar should play a key role alongside the grid and other alternative renewble energy sources in ensuring that all African households have electricity.
The combination of solar and fintech is driving an economic transformation in Africa, making the ‘unbankable’ bankable, keeping them electrified and embedding them in the digital economy.
Yellow Card's $15 million Series A funding raise is currently the largest funding of a B2C crypto exchange on the continent.
African focused Smartphones makers are growing global market share.
Investment Opportunities in French-Speaking West Africa.
Foondamate has helped over 100K+ students across Africa get study help right from Whatsapp.
MoyaPayD, one of South Africa’s fastest-growing Fintech doesn’t require airtime or data.
Which Africans Gamble the Most?
Africa’s Major economies are looking to roll out electronic fiat currencies.
A mobile-based health wallet (M-tiba) is influencing Kenya’s healthcare space.
By 2025, the internet’s contribution to GDP in Africa will grow at the same rate as Sweden, Taiwan and the United Kingdom.
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