👨🏿🚀TechCabal Daily – How much will KYC cost?
In partnership with Share this newsletter: Lire en Français اقرأ هذا باللغة العربية Good morning In Nigeria, food inflation has gotten so bad, its poorest citizens are resorting to buying slices of yam while its political elite continue to fight for their slice of the national cake. About 30 state governors spent $600 million in three months on refreshments—about enough money to buy bags of rice for 11 million Nigerians who cannot afford it. Here’s a chart from The Big Daily that really puts inflation into perspective. If you’d like to get more interesting insights on the Nigerian economy, The Big Daily is where you should be looking. In today’s edition Copia Global lays off 1,060 employees Africa receives only 2% of global clean energy investment KYC requirements to cost Fintechs over $1 million Funding tracker The World Wide Web3 Opportunities Layoffs Copia Global lays off 1,060 employees There are big questions over the future of Kenyan e-commerce startup Copia Global. Citing uncertainties, it considered options like large-scale layoffs or even shutting down entirely in May. Two weeks ago, Copia entered into administration and now, will be having conversations about its future. Today June 7, at least 1,060 of its staff employment will be terminated. In a short meeting, CEO Tim Steel, alongside the newly appointed administrators, told the remaining staff they were required to return company property like laptops and tablets today. Additionally, they were asked to sign termination letters today, officially ending their employment in Copia. The company has agreed to pay a one-month severance package to its laid-off staff, including unpaid leave days as required by Kenyan labour law. But a major snag remains: no one knows when they will actually get the money. This lack of transparency is understandably causing anxiety, especially considering the recent delay in May salaries, which employees just got this week. Per a TechCabal report, two Copia employees have refused to sign their termination letters until a clear payment schedule is established. Just last Tuesday, Copia halted taking orders in six towns including Naivasha, Machakos, Meru, Embu, Kericho, and Eldoret and the staff in these areas were also reportedly sent on leave. Echoing Kenn Abuya’s article where he noted signs of strain despite Copia’s claims of “cracking the nut of last-mile delivery”, the once well-funded company now struggles to stay afloat. Moniepoint is Africa’s fastest-growing fintech The Financial Times has ranked Moniepoint as Africa’s fastest-growing fintech based on its absolute and compound growth rate. Read more about it here. Funding Africa receives only 2% of global clean energy investment despite huge energy gap Global investment in clean energy is projected to hit a whopping $2 trillion this year—double the amount being invested into fossil fuels. While this is a major win for Mother Earth, a new report by the International Energy Association (IEA) found a bit of a bummer situation for Africa. The continent will receive only 2% of this amount, a mere $40 billion. This allocation stands in stark contrast to Africa’s immense energy needs as over 600 million people lack access to electricity, and around 1 billion struggle without clean cooking fuels. While 83% of the global population lacking electricity reside in Africa, the World Bank and AfDB are aiming to cut that number in half by 2030. Their combined plan, estimated at $30 billion, will see the World Bank provide access to electricity to 250 million people, while the Africa Development Bank Group (AfDB) focuses on reaching 50 million. The total amount of money expected to be invested in African energy in 2024 is around $110 billion (USD). Seventy billion will go towards traditional fossil fuels, while the remaining $40 billion will be used for cleaner energy sources. China is expected to receive the largest investment in clean energy in 2024 with an estimated $675 billion, while Europe is set to account for $370 billion and the United States $315 billion Africa currently lags behind the global average in energy investment. While the worldwide share of GDP dedicated to energy sits at 1.8%, African nations allocate only 1.2% of their GDP to this sector. This shortfall is further compounded by a significant funding gap. The IEA new report estimates that Africa requires a yearly investment of $200 billion by 2030 to reach its energy and climate objectives. Unfortunately, the current reality falls far short, with only $25 billion secured annually. Collect payments anytime anywhere with Fincra Are you dealing with the complexities of collecting payments from your customers? Fincra’s payment gateway makes it easy to accept payments via cards, bank transfers, virtual accounts and mobile money. What’s more? You get to save money on fees when you use Fincra. Get started now. Fintech KYC requirements to cost Fintechs over $1million On Monday, June 3, Nigeria’s central bank lifted its six-week-long ban on customer onboarding by Nigeria’s top fintechs—Paga, OPay, Kuda, Palmpay, and Moniepoint. Before the suspension of the ban, the apex bank, on May 20, 2024, shared a list of requirements for these fintechs to continue customer onboarding which include blocking peer-to-peer (P2P) crypto transfers and mandating physical address verification for customers of all tiers of accounts and POS agents who offer agency banking services. With well over 1.5 million POS agents combined, these fintechs could be spending as much as $1 million to verify their physical addresses. Muktar writes all about it here. What were the most popular payment channels on Paystack in 2023? Find the answer here paystack.com/2023 TC Insights Funding tracker This week, Moroccan agritech startup YoLa Fresh secured a $7 million pre-Series A funding round. The round was led by Al Mada Ventures, with participation from Algebra Ventures, E3 Capital, Janngo Capital, and FMO, the Dutch entrepreneurial development bank. Here’s the other deal for the week: Egypt-based prop-tech Birdnest closed an undisclosed round of pre-Series A funding from investors, including Beltone Venture Capital and CI Venture Capital. Zambian e-commerce startup Bosso raised $400,000 in a pre-seed round. Investors include Leonard by Vinci, Launch Africa
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Nigerian fintech startups could spend over $1 million on KYC address verification
Following important changes to Know Your Customer processes by the Central Bank, fintech startups must now physically verify the addresses of POS agents (if they offer agency banking services) and all other customers. While the startups will not grumble over the requirements—it was a condition for lifting a six-week freeze on new customer onboarding—several executives spoke about how expensive the process will be. To physically verify POS agents, for instance, these startups could pay up to ₦1000 ($0.40) for each agent verified. Those costs could balloon quickly for prominent startups that boast hundreds of thousands of agents. Per publicly available figures for its number of registered agents, OPay could pay at least ₦563 million ($376,000), while PalmPay’s bill could be in the region of ₦500 million ($333,883), and Moniepoint would have to fork out ₦304 million ($196,000). It could cost the fintech industry ₦1.5 billion ($1 million) to verify 1.5 million POS agents. Those figures could eventually be higher considering that several fintech executives declined to specify the amounts they pay the verifiers. Additionally, as many PoS agents work for several fintech startups, there’s also the possibility that the total bill could be a lot lower. Whatever the final bill is, it will not include the cost of verifying retail customers which would eclipse the cost for POS agents as self-reported numbers for these fintechs exceed ten million. Fintechs like Moniepoint, Opay, and Palmpay, with an extensive network of agents, could use agent managers to verify the addresses of retail customers. While this approach might be cost-effective as the managers—scattered all over Nigeria—are already on these fintech books, they would still need to be paid extra. Physical address verification for agents and retail customers is an important part of increasing transparency and reducing the lack of visibility that bad actors exploit. POS fraud contributed 8.8% to the total amount lost to fraud in the fourth quarter of 2023, according to the Financial Institutions Training Centre (FITC), a financial research and advocacy organisation operated by the Central Bank of Nigeria. For fintechs like Kuda and Paga that do not run extensive cash-in and cash-out operations, identity management startups will likely help with address verification. While it is difficult to verify the prices of these services due to confidentiality, it would still represent a significant burden for these fintechs. On April 29, Nigeria’s Central Bank ordered a freeze on new customer onboarding after concerns that lax KYC was giving bad actors joy. Physical address verification will also help authorities have more visibility over peer-to-peer crypto transactions, which it argues is a key component of currency manipulation. The regulators will point to NIBSS’ Q1 2024 fraud report which showed a decline in incidents and amounts lost, but it’s still early days. Beyond the monetary cost of address verification, Nigeria has also missed a six-week window to increase financial inclusion as these fintechs have become synonymous with introducing banking to areas with low bank and ATM penetration. According to an industry report, technology contributed heavily to an 8% jump in formal inclusion in three years. POS agents have quickly become the backbone of financial inclusion in Nigeria. Image Source: The NigerianFinancial ServicesMarket Report by Intelpoint In 2023, OPay claimed to start the year with 19 million accounts and according to a regulatory filing by Opera, an early OPay investor, the fintech quadrupled its user base (76 million). Based on that filing, fintech averaged 1.1 million new users weekly and the onboarding freeze would have cost the company at least 6 million new users. While OPay is the market leader, Moniepoint and Palmpay follow closely and are growing rapidly, according to an industry expert who asked not to be named.
Read MoreKenyan e-commerce startup Copia Global lays off 1,060 employees
Copia layoffs will raise questions about the company’s future two weeks after it entered into administration. Two weeks after an internal memo showed that the B2C e-commerce platform was struggling to make payroll, Copia Global has laid off at least 1,060 employees, suggesting the company may be on the brink of a shutdown or massively scaling back operations. In a 20-minute meeting with staff on Thursday, Copia CEO Tim Steel and administrators appointed last week to take over the company asked employees to return company property, including laptops and tablets, and sign their termination letters on Friday, June 7th. CEO Tim Steel declined to comment but promised to share new information on Friday. Although Copia has agreed to pay a one-month salary and other benefits like accrued unpaid leave days by Kenyan labour laws, administrators have not yet specified a timeframe for these payments. This lack of clarity has caused concern among employees, considering the recent delay in May salaries, which were only paid this week. Two employees told TechCabal they would not sign their termination letters until Copia clarifies the payment schedule for their compensation and benefits. An ex-employee claimed Copia started facing business difficulties in 2022. The financial constraints forced the company to scale back operations, including exiting Uganda barely two years after launching and laying off 700 employees. On Tuesday, Copia stopped taking orders from six key locations in Kenya, including Embu and Eldoret, likely to cut its already squeezed expenditure. It had asked employees working in the affected markets to take leave. At its peak, Copia had a 50,000-agent network serving rural Kenya. On May 16, in a leaked internal memo, Copia warned employees that the company could either fold up or restructure its business by laying off 1060 employees.
Read MoreUnveiling the startup illusion: Critical questions every policymaker must answer
This article was contributed to TechCabal by Salma Baghdadi. In an era where talk of Startup Acts, Innovation Bills, and the emergence of new tech hubs saturates political discourse, it’s crucial to scrutinise the readiness of nations to foster a conducive environment for startups. The allure of becoming the next Silicon Valley in Africa or elsewhere may seem enticing for politicians eager to garner support, but the reality is far more complex. Policymakers must embark on a critical self-assessment journey before delving into the arduous task of drafting and passing legislation to nurture startup ecosystems. Here are some tough questions they must grapple with: Vision and Objectives: What exactly does it mean for a country to aspire to build a tech ecosystem or transition to a digitised economy? Without a clear vision and defined objectives, efforts to support startups may lack direction and coherence. Infrastructure Readiness: Is the country’s tech infrastructure up to par? Are internet access and mobile connectivity widespread and affordable? Without adequate infrastructure, startups will struggle to thrive in an increasingly digital world. Economic Policy: Does the country truly encourage and support private initiatives, or are bureaucratic hurdles and government intervention hindering entrepreneurship? An open and stable regulatory environment is essential for fostering innovation and growth. Administrative Management and Processes: How easy is it to start a business in the country? How easy is it to raise and invest funds? Are administrative processes transparent and free from corruption? Excessive red tape and regulatory ambiguity can stifle entrepreneurial endeavours. Political Stability: To what extent do political movements and instability threaten long-term visions for fostering tech entrepreneurship? Political will and continuity are vital for sustaining efforts to support startups amid shifting political landscapes. Pipeline: Does the country produce enough skilled engineers and entrepreneurs capable of driving innovation? If not, what steps can be taken to attract foreign talent and leverage the diaspora community? Research & Labs: How vibrant is the country’s research ecosystem? Are research findings being translated into practical solutions and commercialised? Investment in research and innovation is crucial for fueling startup growth. Economic Weave (Private Sector): What is the landscape of the private sector, and how actively are big corporations engaging with startups? Collaboration between established players and startups is essential for ecosystem maturity. Entrepreneurship Culture: Is there a culture of entrepreneurship, or are traditional sectors dominating the economy? Cultivating a mindset conducive to innovation is essential for nurturing a vibrant startup ecosystem. Answering these questions requires more than a simple yes or no; it demands a comprehensive assessment and a commitment to addressing gaps and challenges. While every country may aspire to become a digital hub, the reality is that many emerging markets lack the political vision and economic infrastructure necessary to support such ambitions. Building a startup nation requires more than just rhetoric and promises; it demands tangible action and investment in the right assets: technical infrastructure, political stability, administrative efficiency, and talent development. Only then can countries truly harness the potential of their digital-native population and emerge as global leaders in innovation and entrepreneurship. The journey towards building a startup nation is fraught with challenges and complexities that cannot be solved through legislative measures alone. Passing laws without concurrently investing in infrastructure and addressing systemic issues may lead to disillusionment among entrepreneurs and the public alike. Furthermore, such actions could undermine future initiatives aimed at fostering an entrepreneurial ecosystem, perpetuating a cycle of unmet promises and missed opportunities. Therefore, policymakers must prioritise a holistic approach that encompasses infrastructure development, administrative efficiency, talent cultivation, and a supportive regulatory environment. Only then can countries truly achieve their aspirations of becoming global players in innovation and entrepreneurship. — Salma is a startup enthusiast currently working with Startup Tunisia to foster the startup ecosystem in the country. A former entrepreneur in Tunisia and France with two tech startups, she has also worked with an international media holding and consulting firm in Paris.
Read MoreHow can Africa create more angel investors?
This article was contributed to TechCabal by Rossie E. Turman III, Deangeor Chin, and Waleey Fatai of Lowenstein Sandler, Africa Practice. Startup funding in Africa increased steadily from 2016 until the pinnacle in 2022. After that, deal volume and deal size decreased significantly. Although the funding picture in Africa was consistent with the global downward VC funding trend, the currency volatility and high inflation in Africa have prompted investors to prioritise “safer investments;” i.e. companies with established track records and/or a US base over African startups, leaving many emerging Africa companies without the capital needed to grow. Despite the venture capital funding market recoil, early-stage founders in Africa still have options when looking for capital to operate and grow their businesses, including Africa-based incubators, venture debt loans, friends and family rounds, family offices, and angel investing. In this article, we will focus on angel investing, and discuss our views on ways to increase angel investing in Africa’s venture ecosystem on a macro-level— while also dispelling some myths about angel investing on the continent. What is angel investing? Angel investment is funding made by an individual to a promising startup with high growth in exchange for a piece of the business, often in the form of equity ownership or royalty payments. Although many angel investors are high-net-worth individuals, angel investors may or may not be accredited investors. They are commonly business professionals, C-level company executives, or successful small business owners who have already launched successful companies and typically prefer to invest in the very early stages of a company. Angel investing differs from venture capital in a few ways: Venture capital funds are run by managers who invest other people’s money, in addition to their own dollars, while angel investors invest their own funds. Venture capital funds most often want proof of concept before investing, while angel investors are more likely to invest in the ideation phase of a company. Venture capitalists will often want a board seat and other operational involvement in the company, while angel investors may provide advice and counsel but do not typically require operational control. Becoming an angel investor in Africa: How to do it? For those looking to become angel investors in African emerging companies, here are a few ways to get started: Get smart about the potential investment. Having a strong educational foundation and knowledge base about Africa, including the specific regions and industries where a blossoming angel investor may intend to invest, can improve one’s ability to navigate the business of early-stage investing. This entails staying abreast of emerging trends, recent funding transactions and key terms, recent company exits, and current market dynamics to strategically evaluate startups with worthwhile proposals. Successful investors make trips and spend time on the continent, developing relationships with people and monitoring progress. Develop relationships. For new angels, joining angel networks focused on the regions, countries, or industries (i.e. tech or agriculture) in which they intend to invest. Meeting with like-minded investors provides diversified insight into evaluating companies and allows for sharing the considerable due diligence work that large investments require. Further, angel networks have visibility and access to more deals to which most individual investors would not customarily be privy; by joining an angel group, a new investor can vastly expand or diversify their options for investment. Dispelling Myths: Africa Angel Investing With the recent drop in Africa’s venture capital funding, angel investing is particularly valuable to the continent’s ecosystem. Below we dispel a few myths about angel investing in Africa. “I cannot be an angel investor because I am not rich.” Angel investors do not have to be high-net-worth individuals; investing in Africa does not necessarily require substantial wealth. Africa offers investment opportunities across different sectors such as agriculture, technology, renewable energy, and real estate. These opportunities come with different capital requirements, many of which are accessible to less wealthy investors. There are many investor groups and angel networks focused on African startups that allow individuals with all levels of assets to pool funds and invest in growing companies. “Investing in Africa is only for impact (not financial returns).” While it is true that funding Africa’s venture ecosystem has a positive effect on the related communities in Africa through such benefits as job creation, economic growth, and social development, it is also true that investments in emerging African companies can be extremely profitable. Some examples include Lagos’ startup Paystack and Kenya’s Sendwave. “I can’t invest in Africa because I do not live on the continent.” Approximately 140 million Africans live abroad. With its growing population and accumulated savings, this African diaspora represents a significant potential source of investment for the continent. This group’s deep understanding of both African and global markets positions them uniquely to bridge gaps and foster economic growth. The African Development Bank (AfDB) also recognises the critical role of the diaspora in investing in Africa. The continent’s lack of financial capacity to build new infrastructure underscores the necessity of attracting investors, particularly those from the diaspora. The diaspora’s investment can contribute significantly to the continent’s structural change and development in several ways: Bridging and building: By leveraging their unique position, the diaspora can build trust and understanding between African startups and global markets. Pooling resources: Diaspora funds and syndicates can amplify the impact of investments. Mentorship: With global exposure, the diaspora can mentor African entrepreneurs, sharing insights and business best practices. Policy advocacy: The diaspora can influence government and corporate policies to create a more favourable investment climate. Utilising remittances: A diaspora-ed macro channelling a portion of remittances into startup investments offers a large, novel. and consistent source of funding. Conclusion Angel investing offers rich opportunities for both founders and investors to reap ample benefits, as well as make significant and positive impacts on the continent’s economic development. More important than the level or value of investment is the willingness of all parties to conduct research, develop relationships, and collaborate with other innovators throughout the startup economy.
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👨🏿🚀TechCabal Daily – Rwanda plans its own CBDC
In partnership with Share this newsletter: Lire en Français اقرأ هذا باللغة العربية Good morning We’re still taking responses for our survey. Please take a couple of minutes to share your experience reading TC Daily, and let us know how we can do better. In today’s edition Kenya’s postal service fires 20 people over fake degrees New tax threatens ride-hailing business in Kenya Ghana to increase 4G penetration by 65% Rwanda set to launch its own CBDC The World Wide Web3 Opportunities Layoffs Kenya’s postal service fires 20 people over fake degrees Kenya’s cash-strapped Postal Service wants to reinvent itself. But first, it must shed excess weight. As part of that process, the service is auditing its staff and letting go of people who faked academic credentials. It will also lay off at least 1,000 people. Here’s Adonijah on what’s driving those decisions: “PCK’s business model took a beating after people ditched sending letters and new entrants like bus companies took over the courier business. According to government disclosure, the postal service has accumulated $45.9 million (KES6 billion) in losses over the past decade.” Since 2023, the service has been in the works to reinvent itself to offer services like e-payments, e-governance and e-commerce. It aspires to become the go-to choice for logistics needs, not just within Kenya but potentially on a global scale. These plans are efforts to make the cash-strapped postal service become profitable. But to do this, it has to stop burning cash, stabilise its business and go through some restructuring. That restructuring will lead to the layoff of about 500 employees as the postal service has too many employees on its payroll. Already, over 20 Postal Corporation of Kenya (PCK) staff have been dismissed after a government audit of employee qualifications revealed fake academic credentials. Although reducing staff with fake degrees wasn’t the initial aim of the restructuring plan, Postmaster General Tonui acknowledged it would contribute to the overall workforce optimisation goals. As part of the restructuring plan, PCK will be cutting back on the number of people they employ, going from 2,364 workers down to 1,860. The plan to turn PCK into an e-commerce and logistics powerhouse hasn’t been smooth sailing. However, the Kenyan government threw PCK a lifeline with contracts to deliver medical supplies and passports directly to people. It also partnered with the Independent Electoral and Boundaries Commission (IEBC) for additional business. Its reinvention is still faced with hurdles from all sides: resistance from worker unions, and a tough market where even established private companies have struggled. Moniepoint is Africa’s fastest-growing fintech The Financial Times has ranked Moniepoint as Africa’s fastest-growing fintech based on its absolute and compound growth rate. Read more about it here. Ride-hailing New tax threatens ride-hailing business in Kenya Once considered by many to be a lucrative hustle, gig driving in Africa is now fraught with complaints on all sides. Driver partners say inflation, car maintenance and the ride-hailing company’s commissions eat into their margins. The companies have to contend with a consumer base whose pockets are under pressure. And if the Kenyan parliament has its way, Uber, Bolt and other companies will have to also figure out how to make their businesses work after paying a Significant Economic Presence Tax (SEP). SEP? The new tax, which replaces the current Digital Service Tax (DST), will charge multinational companies like Bolt and Uber which have a substantial economic presence in Kenya a 6% tax on their gross turnover. Representatives of Bolt argued that the SEP tax, when implemented, will completely erode their profit. Bolt argued that the SEP tax will mean a KES2 loss on every 500KES trip. If the SEP tax is approved, Bolt and Uber might be forced to pass on the cost to customers or reduce drivers’ commissions. The approval of the bill might also signal an exit for Bolt and Uber from the Kenyan market. The SEP tax comes as President William Ruto plans to increase the country’s earnings. On May 14, Ruto announced plans to increase the country’s tax rate from 14% to approximately 22% by the year 2027. However, the president’s quest to boost Kenya’s revenue may have far-reaching implications for ride-hailing businesses. As Kenya’s parliament prepares to make a crucial decision by year-end, the fate of ride-hailing companies in the country hangs in the balance. Collect payments anytime anywhere with Fincra Are you dealing with the complexities of collecting payments from your customers? Fincra’s payment gateway makes it easy to accept payments via cards, bank transfers, virtual accounts and mobile money. What’s more? You get to save money on fees when you use Fincra. Get started now. Internet Ghana to increase 4G penetration by 65% Since the launch of 5G in Africa, experts have held mixed opinions about it. While some hold an optimistic view that the fifth-generation internet network will aid new development on the continent, some critics argue that the continent is putting the cart before the horse by failing to first address the affordability of mobile internet service. Data affordability is only one part of the divide; other critics argue that there is a lot of room for improvement and adoption of the existing 4G technology, which currently falls short of the global average. Data from the GSM Association (GSMA) supports this argument: 4G only represents 16% of the mobile connections in Sub-Saharan Africa, falling below the global average of 55%. 3G represented 57% of mobile connections on the continent, while 2G represented about 26%. Ghanaians believe that there is more room for improvement. The West African country plans to increase its 4G penetration by 65% over the next three years. Despite the introduction of the 4G network in Ghana three years ago, the majority of folks in Ghana still use 3G. That’s about to change soon, as the country’s Minister of Communications and Digitalization, Ursula Owusu-Ekuful, said it will increase its 4G penetration from 15% to 80% in the next three years. Ghanaians will soon be able to
Read MoreKenya holds interest rates at 13% as the exchange rate stabilises
The Central Bank of Kenya (CBK) has maintained interest rates at 13%, the same as in April 2013, in a move to strengthen recent economic gains. The decision follows a period of interest rate hikes that brought overall inflation down to an ideal level. According to a statement by CBK Governor Kamau Thugge, the exchange rate, a key indicator of economic health, has stabilised. However, the Monetary Policy Committee (MPC), which met on June 5, remains cautious as non-food, non-fuel inflation, save for volatile food and energy prices, has persisted. The MPC said that the global economic landscape presents a challenge, with major economies keeping interest rates high due to their battles with inflation. The MPC determined that holding the current interest rate is the most important course of action to address these concerns and ensure continued price stability and a secure exchange rate. Despite its downsides for borrowers, this decision prioritises long-term economic health by keeping inflation in check and the currency stable. “The MPC will closely monitor the impact of the policy measures as well as developments in the global and domestic economy and stands ready to take further action as necessary in line with its mandate,” said Kamau Thugge. Kenya’s inflation remained steady at 5.1% in May compared to 5.0% in April, and although food inflation rose slightly due to recent flooding in parts of the country that saw the price of vegetables rise sharply, other food items and fuel prices declined. Non-food, non-fuel inflation also dipped slightly to 3.4% in May from 3.6% in April, reflecting the effectiveness of recent monetary policy measures. With a stable exchange rate, improved food supply from better weather, and the continued impact of monetary policy, overall inflation is expected to stay stable around the target range soon. “Overall inflation is expected to remain stable around the mid-point of the target range in the near term, supported by the stable exchange rate, improved food supply attributed to favourable weather conditions, stable fuel prices, and the impact of monetary policy actions which continue to filter through the economy,” the MPC said.
Read MoreUber and Bolt argue that Kenya’s economic presence tax threatens business
Ride-hailing apps Uber and Bolt have argued that their Kenyan operations may be unsustainable if the country’s parliament approves the 6% Significant Economic Presence Tax (SEP) proposed in the Finance Bill 2024. “By introducing the 6% Significant Economic Presence Tax, the effective rate for a non-resident in the digital market space will be 22% on gross turnover without taking into consideration the operating costs,” George Abasy, Bolt’s public policy manager, told a parliamentary committee on finance and planning. Celia Kuria, Bolt’s tax manager, told parliament that the tax reviews would push earnings from taxi rides that cost less than KES500 to a net loss. The apps, used by urban and peri-urban dwellers, mostly cover short trips. The Finance Bill 2024 has proposed a 6% SEP tax on gross turnover for all non-resident companies, which the two digital taxi firms told parliament will hike their operational costs. Appearing before a parliamentary committee on Wednesday, representatives from Uber, a US-based company, and Bolt, an Estonian ride app, warned that SEP pushed out foreign firms in Nigeria and will do the same in Kenya. The industry experts warned that increased taxation could eat into their razor-thin margins and drivers’ earnings, leading to a total collapse which could trigger mass job losses in an economy already battling high unemployment rates. Uber urged the National Assembly to reject the proposals by the National Treasury. President William Ruto’s administration’s push to raise more revenue from new taxes to repay the country’s debt and fund lofty campaign promises like affordable housing. “SEP, as proposed, does not indicate how a non-resident person will be deemed to have created a significant economic presence in Kenya therefore becoming liable to tax in Kenya,” Chizeba Nnonyeh, Uber tax manager, told lawmakers. Other industry associations like the Kenya Association of Manufacturers (KAM) have also jumped into the debate, urging the country’s legislature to reconsider the tax proposals including SEP, eco-tax, VAT on banking fees, and higher excise duty on several goods and services.
Read MoreKenya’s cash-strapped postal service fires staff with fake degrees
Five months after the Kenyan government directed state corporations to audit their employees’ qualifications, the cash-strapped Postal Corporation of Kenya (PCK) fired over 20 staff with fake academic papers. John Tonui, postmaster general, told TechCabal that the corporation sent the academic qualifications of employees to the Kenya National Examination Council (KNEC) and the Kenya National Qualifications Authority (KNQA) for verification. Tonui said the exercise has not ended and could weed out more people who falsified documents to get jobs. This comes as the corporation readies a turnaround plan that will see it lay off over 500 workers as it rejigs its workforce to invest in new areas like e-commerce and cargo clearance. The ICT ministry-backed plan was approved by the company’s board in December 2023. “The directive came from the Public Service Commission (PSC) and out of 780 academic papers we submitted for verification, those of 29 employees turned out to be fake,” John Tonui, postmaster general told TechCabal. The postal service is among 50 state corporations struggling with a bloated wage bill, and have been unable to turn on profit. While Tonui agreed that the clamp down on fake degrees is not part of the restructuring, he admitted that it would help the corporation achieve some of its restructuring goals. As part of the plan, PCK will reduce its headcount from 2,364 to 1,860. “The intention all lead to the same goal of having a lean corporation that is profitable and attractive to investors. We are working to turn around Posta to ensure it delivers efficient last-mile connectivity,” Tonui said. PCK’s business model took a beating after people ditched sending letters and new entrants like bus companies took over the courier business. According to government disclosure, the postal service has accumulated $45.9 million (KES6 billion) in losses over the past decade. To stay afloat, the government has handed the company contracts to provide last-mile delivery of medical supplies and passports. It also has an agreement with the Independent Electoral and Boundaries Commission (IEBC). Efforts by the ICT ministry to transform the corporation into an e-commerce and logistics service provider have hit numerous roadblocks including government bureaucracy, opposition from workers unions, and a tough operating environment that has seen established private players shut down.
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👨🏿🚀TechCabal Daily – Copia’s coping mechanism
In partnership with Share this newsletter: Lire en Français اقرأ هذا باللغة العربية Good morning TC Daily wants to keep being your go-to source for tech news. Here’s the catch: We need your help! Take our bi-annual survey and let us know what you think. Think of it as your chance to become the editor-in-chief (without the boring meetings). Tell us what you think in two minutes. In today’s edition Copia shutters its Central and Eastern Kenya services Canal+’s offer to MultiChoice is fair, Board rules Bolt blocks 6,000 South African drivers South Africa’s new use it or lose it rule The World Wide Web3 Opportunities Shutdowns Copia shutters service in Central and Eastern Kenya “Markets take the stairs up and the elevator down.” This saying, attributed to wealth manager Tim Egart, rings true for Copia, the Kenyan e-commerce platform that aims to revolutionise rural retail. Despite raising money from big-name VCs like DFC and GoodWell Investments, the Kenyan B2C startup could not crack the razor-thin margins of the e-commerce business. Here’s what Adonijah and Kenn wrote about the startup: “Copia, once a darling of venture capitalists—including the DFC and GoodWell Investments—received $123 million in funding but failed to turn a profit. The company sought to turn informal rural kiosks into a multi-billion digital retail platform, linking customers directly to fast-moving consumer goods (FMCG) manufacturers to lower product costs.” On May 24, the business entered into administration after failing to raise new capital. “Copia Global, the parent company of Copia Kenya, was unable to attract capital on terms that were amenable to all existing stakeholders, funders, and investors. Copia Global is now winding down, leaving the Copia Kenya business in a new position to raise capital directly,” Copia said in a statement sent to TechCabal. As the company seeks to raise new funds in Kenya, it is taking steps to cut costs. Copia Kenya has now shuttered its business divisions in Central and Eastern Kenya. Naivasha, Machakos, Meru, Embu, Kericho, and Eldoret were the six markets affected by the new decision. While the company announced plans to lay off over 1,000 staff on May 16, staff working in spots across the affected markets have been sent home pending a decision from the company. Moniepoint is Africa’s fastest-growing fintech The Financial Times has ranked Moniepoint as Africa’s fastest-growing fintech based on its absolute and compound growth rate. Read more about it here. Streaming Independent Board says Canal+’s offer to MultiChoice is fair Canal+, a French media group, has been trying to buy MultiChoice since the beginning of the year. Its Initial offer of $2.5 billion—and an improved $2.9 billion—was rejected. However, by increasing its ownership in MultiChoice to over 35%, it is expected to formally offer to buy all remaining shares. It has since upped its ownership to 40.8%. You see, South African laws say that once a company has a 35% stake in another company, it has to make a mandatory buyout offer. And Canal isn’t new to these rules. Way back in 2016, around the same time Blackberries and man buns became a thing, it perfected a hostile takeover of France-headquartered Gameloft by buying over 30% of the company first, before convincing other shareholders to sell their stakes. It might be taking the same route with MultiChoice. After months of back and forth, in April, Canal+ offered MultiChoice $2.9 billion which MultiChoice again rejected because the latter company felt it was worth more. An independent board created by MultiChoice evaluated Canal+’s offer price for the remaining shares. This board, reviewed by Standard Bank, has now concluded the price offered by Canal+ is fair and reasonable for MultiChoice shareholders. It recommended that shareholders wait until the offer becomes final before approving it. A key challenge is regulatory approval. Several government bodies in and outside of South Africa need to give the green light before the deal can proceed. Additionally, South Africa’s ownership rules, the Electronic Communications Act limits foreign companies from owning more than 20% of the voting rights in a South African broadcaster, which creates a challenge for Canal+’s full acquisition of MultiChoice. Both companies have confirmed to be working together to find a structure that satisfies both the regulations and maintains MultiChoice’s commitment to black economic empowerment. The Canal+ offer is expected to close by April 22, 2025. Collect payments anytime anywhere with Fincra Are you dealing with the complexities of collecting payments from your customers? Fincra’s payment gateway makes it easy to accept payments via cards, bank transfers, virtual accounts and mobile money. What’s more? You get to save money on fees when you use Fincra. Get started now. Mobility Bolt blocks over 6,000 drivers in South Africa for misconduct When South Africans were asked about their ride-hailing preference, Bolt took the top spot. The Estonian mobility startup, which launched in the country in 2016, is doing all it takes to keep its top spot. In recent times, Bolt has faced criticism for the misconduct of its drivers in the country. Those drivers have been accused of harassment and sexual assault, sparking a social media outrage. Emmanuel Mudau, a former Bolt driver, was sentenced to two life sentences and two 15-year terms for rape, kidnapping, and assault. Another driver in Cape Town was taken into custody and charged with allegedly stabbing two young women following a dispute over their drop-off location. The ride-hailing firm has now responded to this claim by blocking over 6,000 drivers involved in such misconduct over the past six months. “The company will continue to permanently block drivers and riders who have been reported for misconduct from accessing the platform,” Bolt said in a statement. Bolt’s action comes after it received threats of litigation for failing to hold its drivers to good standards. An attorney group also claimed it would launch a civil claim against Bolt for failing to protect passengers. Only time will tell if Bolt’s recent actions are enough to regain the trust of South African riders. What were the
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