Leadership and Democracy LabWestern Social Science

Broadband Policy and the Emergence of FinTech in South Africa

Primary Analyst: Brandon Robinson

FinTech Group Leader: Jake MacDonnell

7/11/2016

In 2012, the South African government released its’ National Development Plan (NDP) that aimed to eliminate poverty and reduce inequality.  Part of this plan included the National Broadband Policy (NBP), with a primary mandate to cover 90% of the population with a minimum broadband download speed of 5Mbps by 2020.   When the government announced the NBP it was determined that only 33.7% of the citizens met the threshold. Now, three years into the project it is believed that 49% of country now meets the minimum requirements.  While FinTech was arguably insignificant at this time, the National Broadband Policy was a main reason why South Africa has become one of the world hubs for the FinTech Industry.

 To fund the NBP the government allocated ZAR $3.6 billion (USD $166.1 million) for the first two years of the project, which will be further funded by ZAR $1.6 Billion between  2016-2018.  This money was given as a subsidy to Telkom, a Public-Private Partnership (PPP) monopoly in which the government retains a 40% share of the company.  

 Coincidentally during the implementation of the NDP, the FinTech industry grew exponentially worldwide, having seen investment grow from USD $4 billion to USD $12 billion. Therefore, had the South African government not passed the National Broadband Policy in 2012, South Africa would have lacked the technology that has enabled the rapid growth of the FinTech Industry.  However, since the government invested in necessary infrastructure, the South African economy was perfectly positioned to become a hub for the FinTech industry.

safintechinvest

This year however signaled a change in direction from the South African government towards the NBP as the Independent Communications Authority of South Africa announced it planned to auction off spectrums in the broadband service to other competing companies.  A possible explanation for this announcement are the South African financial forecasts that include a moderate GDP growth of 1.3% over the next few years and a decline in government revenues from 10% in 2016 to 7.9% in 2018.  By auctioning spectrums of broadband service to private companies, South Africa will attempt to mitigate the effect of declining future revenue inflows.

Prior to the NBP the South African financial sector had been described as, “sophisticated, and highly regarded internationally with domestic and foreign institutions providing a full range of services.”  However, with the government now involved in promoting the growth of the internet, new innovations can be developed.  Further evidence of the attractiveness of online usage can be seen in the growth of e-commerce in South Africa where an estimated 25% increase in online sales occurred between 2012 and 2013. Additionally, Ipsos, a market research firm, reveals that 48% of internet users plan to shop online in the future, an increase over the current estimate of 22%. As the government allows private companies to bid on broadband spectrums, the growth of FinTech in South Africa should continue to grow, provided that broadband remains affordable and accessible. Neither the NDP or the NBP made any reference to FinTech as means to help alleviate the poverty and inequality in South Africa, but it looks like FinTech has emerged as a factor to help control the social issues that the government attempted to address through legislation.