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In the fast-paced arena of technological advancement, Africa has emerged as a pivotal player that’s reshaping the global innovation narrative. With a digital economy that’s projected to grow to $712 billion by 2050, the continent is positioned to wield transformative influence in the global marketplace. Yet this potential is threatened by a critical challenge: regulatory frameworks that struggle to keep pace with the rapid evolution of technology. This issue has become particularly pressing, as funding for African tech businesses saw its first decline since 2016 last year. While various factors contribute to this trend, it is imperative that regulators make conscious efforts to avoid stifling the very innovations that are likely to drive the region’s future growth.

Regulation is often viewed as a barrier to innovation, as it can impede progress and hinder growth. Global and regional precedents illustrate how regulatory crackdowns can cripple emerging businesses, as seen in one pertinent case study in Nigeria. In 2020, the country’s federal government proposed amendments to its broadcast code that sought to dismantle content exclusivity, which — along with economic issues and growing competition — prompted iROKOtv (once dubbed Africa’s Netflix) to halt its growth effort in Africa and shift its focus to international markets, leading to widespread reports (disputed by the company) that it is shutting down. Could iROKOtv have dominated the Nigerian or African market, either instead of Netflix or alongside it? That’s something we will never know, thanks in part to the impact of overly stringent regulations. 

However, it is imperative to acknowledge the potential for harm that may arise in the absence or inadequacy of regulation, particularly when it comes to consumer protection. For instance, In the early 2000s, the rapid proliferation of microfinance institutions (MFIs) in Nigeria occurred without a regulatory framework, leading to instances of mismanagement, fraud and unsustainable lending practices within the sector. Vulnerable customers, notably low-income individuals and small businesses, bore the brunt of substantial financial losses due to the collapse of poorly regulated MFIs, underscoring the critical role robust regulation can play in safeguarding these consumers’ interests. However, this trajectory began to change when a regulatory framework was introduced in 2005.

How can regulators navigate this complex terrain, taking an approach that both nurtures innovation and protects stakeholders? Finding and maintaining this delicate balance requires them to first identify the challenges at hand.

Are regulations in Africa playing catch-up?

One of the most significant hurdles facing Africa’s tech sector is the fragmented and outdated regulatory framework that governs it. Across the continent, policymakers grapple with a patchwork of regulations that vary widely in scope and effectiveness, creating confusion and uncertainty for tech companies and investors alike. This fragmentation not only hampers innovation, it also impedes the ability of businesses to scale across borders, stifling the growth of regional tech ecosystems. Moreover, many existing regulations were crafted in an era before the advent of digital technology, leaving them ill-equipped to address the unique challenges posed by the digital economy. As a result, tech companies often find themselves operating in a legal gray area, unsure of how to navigate complex and often conflicting rules and regulations.

This regulatory uncertainty hinders investment and undermines the confidence of consumers and businesses in the digital ecosystem. This is the case with cryptocurrency and blockchain technology across diverse African markets, as the region’s crypto sector has dealt with vastly different regulatory approaches in recent times. To take one example, Nigeria’s regulatory landscape for cryptocurrencies has been marked by uncertainty and shifts in policy. In February 2021, the Central Bank of Nigeria (CBN) took a restrictive approach, barring financial institutions from facilitating cryptocurrency transactions. This move seemed to suggest a disapproval of crypto trading in general. However, just over a year later, in May 2022, the Nigerian Securities and Exchange Commission (SEC), the body overseeing capital markets, issued a framework for regulating crypto assets. This signaled a potential green light for crypto trading under a regulatory framework. But the picture remained unclear. The SEC appeared to reverse course in November 2022, raising further questions about Nigeria’s stance. Finally, in May 2024, the CBN added another layer of complexity by banning person-to-person cryptocurrency trading in the Nigerian naira.

In contrast, South Africa has taken a more proactive approach to crypto regulation. Over the past two years, the country has established itself as a leader on the continent by developing a regulatory framework for the crypto asset industry. This culminated in the recent issuance of licenses to 75 crypto institutions, demonstrating regulators’ willingness to embrace innovation while managing potential risks. With two of Africa’s top four economies moving in increasingly different directions in the crypto industry, it begs the question: Which approach to regulation is right?

Another pressing challenge is regulatory catch-up. Innovations, by their nature, introduce brand new ways to address long-standing challenges. However, the novelty of these advancements often means that existing regulations are ill-equipped to govern their operations. Consequently, by the time regulations are formulated or updated, consumer protection may already have been compromised in some instances. Conversely, in other cases, regulations may err on the side of caution, seeking to safeguard consumers but inadvertently stifling creativity within the sector. Although this uncertainty is understandable as regulators struggle to strike the right balance, it is hindering success across many sectors. Africa is home to many brilliant innovators, who are steadily churning out innovative ideas and technologies — and their number is likely to grow, as by 2050 one in four people across the world are projected to be African. Unfortunately, regulators have yet to match this level of innovation, which raises an interesting question: Could regulators themselves become innovators, leveraging technology to formulate regulations tailored to different sectors?

The Case for Balanced Regulation

In light of these challenges, there is an urgent need for policymakers to adopt a more balanced approach to regulation that promotes innovation while safeguarding consumers and businesses. At its core, balanced regulation seeks to maintain a delicate equilibrium between fostering innovation and protecting the public interest, recognizing that these two goals are not mutually exclusive but rather complementary. 

Central to encouraging innovation while ensuring consumer protection is the principle of regulatory agility — i.e., developing flexible regulations that are responsive to the rapid evolution of the digital economy. Instead of rigid rules, regulators should focus on broad principles, as exemplified by the Monetary Authority of Singapore’s approach to regulating that country’s fintech sector. Singapore’s regulators have established overarching principles while providing flexibility for fintech firms to innovate within these regulatory boundaries. This approach has transformed Singapore into a fintech hub, attracting global players and enabling local firms to develop innovative solutions, while upholding consumer protection and financial stability.

To help enable this greater agility, regulators must adopt a more collaborative approach, engaging with industry stakeholders to solicit feedback and co-create regulatory frameworks that are both effective and equitable. By pursuing dialogue and partnership between regulators, tech companies and other stakeholders, policymakers can ensure that regulations are informed by real-world insights and grounded in the needs and priorities of the digital economy.

Recall the earlier question about regulators themselves becoming innovators: This is where collaboration comes into play. At Payaza, we have operations across 13 African countries, providing cutting-edge systems and innovative solutions that ensure businesses can seamlessly send and receive payments within and outside Africa. To that end, we provide businesses with access to a robust platform that streamlines transactions and enhances financial operations. I strongly believe that a similar level of effectiveness can be achieved on the regulatory side if regulators and tech innovators ramp up their collaborations. Imagine a dynamic collaboration between the Central Bank of Nigeria and a homegrown regtech startup like Verifyme, Identitypass or others. The possibilities for innovation in Nigeria’s financial sector would be truly transformative. Through such partnerships, the CBN could harness the agility and ingenuity of Nigerian regtech firms, empowering them to develop adaptable and data-driven regulatory frameworks. Such a collaborative model would enable regulators to stay ahead of the curve, proactively addressing new challenges and opportunities as they emerge in the rapidly evolving digital landscape.

Building Trust Through Responsible Governance

But the responsibility for protecting consumers and ensuring the stability of national and regional financial systems doesn’t belong to regulators alone. Even in the absence of regulatory reform, it is imperative for tech companies working in Africa to uphold responsible governance and ethical standards. This entails prioritizing data privacy, cybersecurity and transparency, while ensuring compliance with relevant regulations and standards. Notably, in Nigeria, ongoing issues with cryptocurrency highlight the importance of responsible conduct. The government’s clash with Binance over allegations of currency manipulation and money laundering underscores the need for accountability in the industry. While cryptocurrency and blockchain technology hold transformative potential, operators must act responsibly as governments refine their regulatory frameworks to foster innovation while safeguarding public interests.

By building trust with regulators and consumers alike, tech companies can help create a more conducive regulatory environment that encourages innovation and growth. Moreover, responsible governance is not only a moral imperative but also a strategic one, as companies that prioritize ethics and transparency are more likely to attract investment and talent, and to develop stronger long-term relationships with customers and partners.

Africa’s tech sector stands poised to drive innovation, growth and prosperity across the continent. Yet unlocking this potential will require concerted efforts to overcome the regulatory barriers that are hindering progress. By embracing a balanced regulatory approach that takes all stakeholders’ interests into account, policymakers can cultivate an environment conducive to the flourishing of Africa’s tech ecosystem. Through constructive partnerships and a spirit of cooperation, we can chart a course that strikes the right balance — nurturing growth and creativity while upholding crucial safeguards. Our unified aim should be to unlock Africa’s vast technological promise for the benefit of all.

Seyi Ebenezer is the Founder and a board member of Payaza Africa Ltd.

Photo courtesy of Ron Lach.