The take-off of the African Continental Free Trade Agreement (AfCFTA) has opened a new vista for economic growth and prosperity for businesses across the continent, as they seek to actively participate in the technology-driven Fourth Industrial Revolution.
But even as the benefits of AfCFTA beckons, lack of financial inclusion remains a major obstacle for many African businesses especially the SMEs. This may not allow them to reap the potentially endless windfall expected to accrue in a market of 1.3 billion people – the largest in the world.
It is the reason why, many years into a technologically driven economic era in the developed nations, the African continent has yet to fully embrace financial technology (FinTech) for the benefit of organizations, businesses and people.
African businesses have not quite begun to feel the impact and enjoy the absolute benefits of FinTech for lack of credible digital data footprints. The lack of which has hindered visible identity on the international technology superhighway.
They lack what is known as the Legal Entity Identifier (LEI) which hitherto comes at an enormous cost to businesses, especially small and medium enterprises (SMEs) which are expected to be the drivers of economic growth and prosperity in developing economies such as in our continent. Organizations appear to have been stuck with manual methods of securing and maintaining legal identity, at huge expense in terms of time, processes and cost.
The LEI which allows for smarter and cheaper methods for evaluating and making critical decisions including choice of partners across all businesses, industries, activities and functions. For instance, having an LEI enables an organization or business owner to present uniquely verifiable access to the business ownership and structure.
As a matter of fact, it presents a very lucid picture of a business, partner or client, including being able to answer such questions as, “who is who”? or “who owns what?”, in the organization. The platform provides a clear, visible and unique method of identifying all legal entities participating in transactions in a manner that helps to build trust among those involved, thus promoting openness and transparency, as well as adherence to global best practices.
Access to the Global LEI Index also allows organizations in all sectors and industries to save costs, simplify processes and operations, and have a broader knowledge and understanding of the international market. It enables organizations and businesses to have access to numerous applications that include risk management, client relationship management and compliance.
The Legal Entity Identifier is a service product of the Global Legal Entity Identifier Foundation (GLEIF), an organization that was established by finance ministers and governors of central banks of the 20 leading economies of the world (G-20) following the 2008 financial crisis. The GLEIF manages a network of partners for the purpose of providing trusted, open and reliable data for legal and unique identification for organizations and businesses around the world. The LEI, the organization’s flagship product, helps to engender financial inclusion especially in developing economies.
The GLEIF’s objective for setting up LEI is hinged on the belief that every business should have its digital and unique identity, not matter where it is located in the world. The organization seeks to increase the rate of adoption of LEI by businesses around the world, in order to enhance greater involvement of legal entities in global financial transactions.
Recently there was an appointment of some Africans, including a Nigerian, Dr. Folarin Alayande – an international development economist, financial expert and technology investor – to the board of GLEIF. This appointment is considered in relevant quarters as quite significant and important for Nigeria and other emerging markets in the continent.
The development is expected to bring about a stronger presence of GLEIF in Africa, and enhance its activities through driving the continent’s ICT, FinTech and RegTech industries, as well as the SME sector. Moreso as the organization’s products are essentially technology-driven.
A strong presence of GLEIF on the continent and the position of Africans in the organization’s decision-making organ are certain to boost financial inclusion on the continent by giving businesses access to LEI, with attendant benefits. For instance, it would be possible for banks and FinTechs to use EIL to identify businesses. This would enhance credibility and transparency, thus making it easier for SMEs to have access to credit facilities for the adequate funding they need to be able to deliver goods and services that are competitive in the international market.
With digital identity, the risk, by African SMEs, of doing business with fakes and impostors in the global market would be reduced to the barest minimum, if not totally eliminated. There is a high degree of certainty that LEI would give them access to the right partners and customers anywhere in the world. A combination of access to financing and guaranteed markets would position SMEs to be the catalysts for economic growth and prosperity in Africa.
No formal trade has so far taken place under the AfCFTA regime, though this was expected to begin on January 1, 2021. The delay may not be unconnected with hiccups that include the fact that there are several structures that have yet to be put in place for its smooth operation. There is also the fact that more than four years after its inauguration, some countries have not yet ratified the Agreement.
At the last count, 47 out of the 54 African countries have ratified their AfCFTA instruments; 46 have ratified and deposited their instruments; seven have signed but have yet to ratify, while one country has yet to sign.
Economic and FinTech experts see the coming of GLEIF into Africa, and the involvement of Africans in its decision making process, as happening at the right time, considering the opportunity its LEI offers for businesses to be strategically positioned for growth and prosperity through digital identity.
It has come at a time when the largest global market is expected to become fully operational, which would enable organizations to have their unique identification numbers in the global market. And with the trust, transparency, credibility and security that LEI guarantees, access to financing and the right markets would no longer be the insurmountable hurdle it has been for SMEs.
Saka is Chief Operating Officer, Soulcomms – a Strategic Communications & Engagement Consultancy
