• Friday, March 29, 2024
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Will under fire Facebook Libra find soft-landing in Africa?

Libra (1)

The survival of Libra, Facebook’s vision for a global currency, is hanging on very thin ice, hence may prompt the social media powerhouse to turn to African countries to stay alive.

When approached, eventually, African regulators will need to decide whether to tow the hard-line as their counterparts in the US or Europe or just embrace the company that has given millions of dollars in aides and technology to startups on the continent.

Repeated efforts by Facebook negotiators to convince regulators in the US and Europe that Libra’s is not on a mission to take over the world’s economic system is falling on deaf ears and forcing former allies to break ranks.

In less than two weeks, the Calibra Network has lost five of its most powerful members including Paypal which quit on 4 October, then Visa, Mastercard, eBay, Stripe and Mercado Pago bailing on 11 October. Their exits mean that every major US payment processor has exited the association. PayU, the only processor remaining, is keeping its decision to either remain or exit close to its chest.

Facebook had on 18 June 2019 announced that it plans to launch a developmental global cryptocurrency which it called Libra in 2020. According to a White Paper, Libra is designed as a form of digital money backed by a reserve of assets.

In the beginning, the company imagines Libra will be used mainly to transfer money between individuals in developing countries who lack access to traditional banks. Eventually, the goal is to create the first truly mainstream cryptocurrency: a decentralized global form of payment that is as stable as the dollar, can be used to buy almost anything, and can support an entire range of financial products — from banking to loans to credit.

Libra’s biggest problem is Facebook’s global reputation which has come under intense scrutiny in recent times on the back of widely reported cases of data abuses.   

Facebook reputation is perhaps a problem the 27 members of the Calibra Network did not anticipate will drag for so long, hence the decision to leave Facebook as the face of the project. That decision has not paid off, if anything, some members are likely to suffer reputational losses in associating so closely with Facebook.

In explaining the reason for their exit, eBay and Stripe said they had received letters from US authorities threatening regulatory actions for simply associating with Facebook.

In a letter to G20 finance ministers on Sunday, Randal Quarles, the head of the global Financial Stability Board, said that, with a “host of challenges” posed by global “stable coins”, such as Libra, “possible regulatory gaps should be assessed and addressed as a matter of priority”.

Although Libra is projected as an ideal payment technology for emerging markets, Facebook will be hard put to turn to Asia where Chinese companies already dominate.

But it seems to have a warm relationship with African countries all thanks to its investment in startups in the tech ecosystem, including a $25 million funding of Andela, several startup meetups and boot camps, free internet connection among others.

Africa has also responded in kind with 139 million users resident on the continent accounting for 69.84 percent of internet users on the continent.

“We see there is a demand from customers in countries in Africa to use mobile money services because they bring a lot of value to them in terms of the ability to not only send and receive money, but store money in a much more secure way than using cash,” Bertrand Perez, chief operating officer, Libra Association, told BusinessDay in London.

The company will be counting on authorities’ relative ignorance to the nature of blockchain and other technology which is partly responsible for the low investment in digital infrastructure.

Importantly, across the continent, many regulators have adopted a “wait and see” approach, hence the blockchain market in Africa is largely allowed free rein while authorities claim to be “understudying” the market.

Elo Umeh, co-founder, and CEO of Tetragon Group says Libra’s headache may also come from Chinese companies in Africa.

“Chinese companies have emerged as commercially astute operators in Africa and have succeeded in overcoming the region’s connectivity difficulties to access hard-to-reach consumers,” Umeh said. “To ensure Libra’s long-term success in African markets, Facebook needs to watch out for Chinese companies – unencumbered by regulations – which are expanding aggressively across the continent.”

Notwithstanding, the global scrutiny Facebook is undergoing on behalf of Libra will certainly not go unnoticed by African central banks which have long harboured suspicions about digital assets. The majority of these Central Banks are conservative, it is expected that some level of scrutiny will be brought to bear on the company. 

Thus, for Libra, the 2020 launch looks even further away.