How banks are driving African business offshore

Poor financial infrastructure in Africa could be costing the continent billions by driving business offshore, says Peter Harvey

June 20, 2012

Poor financial infrastructure in Africa could be costing the continent billions by driving business offshore, says Peter Harvey, founder and MD of internet payment gateway provider PayGate.

“There is huge demand from African businesses to be able to do business online and accept payments over the Internet,” says Harvey. “But very, very few banks on the continent outside South Africa are prepared to make the necessary facilities available. By and large they don’t understand e-commerce and are still very suspicious of it.”

Even if a bank does agree to provide a business with an online merchant account, adds Harvey, it’s often on terms that the business isn’t prepared to accept. “One of our clients, an airline, was so appalled by the terms on offer from their own bank that they chose to register a new business offshore instead,” says Harvey. “And they’re not the only ones.”

“The trend is definitely for the more affluent businesses to set up shop in Europe,” says Harvey. “There are some initial hurdles to overcome in registering the business, but once you’ve done that life is much easier all around. You can get the payment facilities you need, at much more favourable rates.”

Smaller businesses often turn to “supermerchants” who make their own merchant facilities available to others – but the costs are high. “People are being charged exorbitant fees and the payment cycles are notoriously bad,” says Harvey. “It can take as long as 30 days to get your money out, which kills cash flow.”

With African businesses facing these hurdles, gaps in the market are often filled by others instead. “African entrepreneurs are being denied the opportunity to market their own goods to the world on a fair basis,” says Harvey. “As a result they can easily be held hostage by middlemen who have much easier access to all the facilities they need to sell globally.”

The losses to the continent are numerous, concludes Harvey. “We’re losing out on tax revenue and on re-investment in local business growth,” he says. “Just as important, we’re losing out on opportunities to learn how to operate in a global marketplace. We need much more competition and innovation in the banking sector, and more pressure from governments to encourage their banks to modernise.”