market players

BOX 3.5

Examples of direct public support for the modernization of financial sector market players

The state can play a driving role in the modernization of market players providing financial services. It could set up matching grants (or another form of financial assistance) to do the following:

• Modernize the firms’ accounting ecosystems:

Technology is changing the way bookkeeping/ accounting activities are conducted worldwide.

New forms of accounting include (a) the use of mobile to scan/send invoices (clients and providers), (b) the use of remote data entry centers, (c) automated connection to bank accounts (to regularly update firms’ cash flows and expended bank account balances), and (d) the use of all these data to enrich firms’ credit scoring/rating and further expand credit. Senegal could reform its “centres de Gestion Agrées” (light public accounting structures) by embracing these new technological trends and providing technical assistance and financial support for firms to adopt and use these

DT solutions. • Help create a regional crowdfunding platform, sponsored by the regional stock exchange and supported by the existing credit enabling institutions such as ADEPME, DER, and so on.

A presentation of the concept was made by the world Bank to Senegal and côte d’Ivoire.a • Accelerate the adoption of uSSD codes by financial service providers (mainly microfinance companies and fintech companies). An analytical work conducted by the world Bank in 2019 shows that, out of 32 requests for uSSD codes, only one was implemented in Senegal.b • Stimulate the expansion of networks of financial service agents in low-density areas by setting up a public-private dialogue aiming at defining a viable business model for cash-in/cash-out agents in rural areas.c • Help microfinance companies acquire a Digital core

Banking System and enable them to catch up on their technological gap (e-wallets, remote account opening, e-credit, connectivity to the regional interoperable payment systems, and so on).d • Incentives for the use of payment terminals at merchants (several options could be considered: tax reduction, lottery, and so on).

a. It is included as a background note to this report. See Gonnet 2020, appendix A. b. The Use of USSD Codes in the WAEMU, World Bank, 2019. c. See also Support to Digital Connectivity and Transformation in Senegal (P171740). d. Digital Core Banking Systems (D-CBS) are a new generation of CBS allowing the full integration of traditional management information systems with modern technologies (smartphones, GPS, USSD, internet, 3G, blockchain), new products (lending based on e-rating) and new channels of distribution (agent banking, subagent banking).

the supervision of the central Bank of west African States (BcEAo) and by adopting international best practices of corporate governance. Second, the interest rate subsidy policy is wanting. There is a policy of subsidizing interest rates mainly in the rural/agricultural sectors. However, this policy has two major problems: the subsidized rates are poorly targeted (they indiscriminately benefit borrowers, that is, without income level conditions) and are distributed exclusively by a state bank although it would be more efficient to authorize their distribution by other banks and microfinance companies. Third, the government should consider creating an SME financing mechanism to support high-growth SMEs. finally, there is a need to design and implement a public policy to support the financing of start-ups. Pre-seed and seed types of funds are rarely 100 percent private initiatives worldwide. An intervention of the government in this segment would be welcome. The creation of a public-private start-up fund should be fast-tracked.

Using DT solutions to support technology adoption and entrepreneurship

Digital technologies could enhance high-potential ecosystems through several channels. for example, DTs could be used to promote better and more training, targeting specific products and skills in agriculture. The diffusion of DTs applied to GBfs could also facilitate the expansion of DT supply provision markets, and therefore, the ability of user firms to afford more specific DTs to support production. The demand for these DTs and the support to use them could also be increased by providing better and more information at lower cost, through simpler DTs. Better access to DT enablers, combined with more efficient procurement processes online, could also be important for expanding their markets.

Businesses will need to adapt to covID-19 and look for DT solutions to reach customers and suppliers.The covID-19 pandemic is resulting in faster diffusion and adoption of DTs. Some social distancing and mobility restrictions may stay in place for the foreseeable future for fear of contagion and follow-on waves of infection. DT solutions have been one of the main channels for businesses to adapt to the new reality around the world. for example, in china, large farms and agricultural product distributors have been buying high-tech equipment such as drones in a push to reduce human contact, raising demand for DT startups in agriculture (Ye 2020). In west Africa, the crisis might be a trigger for mobile payment growth; the incentive to avoid infection could outweigh existing barriers such as a lack of trust in digital payments.

The increase in the demand for DT solutions for business as part of the covID-19 responses can generate opportunities for DT-providing firms. A recent survey conducted by the world Bank to analyze the effect of covID-19 on the private sector suggests that about 24 percent of firms increased their use of digital solutions to sell their products and 11 percent invested in digital solutions as a response to the shock, primarily large and formal businesses (cirera et al. 2020). The survey includes formal and informal firms with 5 or more employees. The adoption of digital solutions was significantly higher among formal and large firms that also have invested more in new digital equipment. The increase in demand for digital solutions is expected to lead to new opportunities for local digital entrepreneurship ecosystems.

Senegal has been stimulating start-ups and innovation, including digital solutions. The government recently adopted new start-up legislation, which aims to create an attractive environment for start-ups and digital innovation. The law was influenced by the new policy-making process called “Dakar Policy Hackathon,” which borrowed from hackers’ techniques to identify main bottlenecks in the entrepreneurial ecosystem and propose solutions in the shape of a draft law/manifesto.50 The next priority is to make the new law operational by adopting its implementing regulations, which may cover the following areas: – Set up a start-up fund or equivalent early-stage financing mechanism (in line with upcoming regulations on PE/vc to be adopted by wAEMu’s Regional council for Public Savings and financial Markets. – Define labeling processes and support structures (incubators, accelerators, and so on). – Explore the provision of grants/credit for research and development. – Explore the provision of an attractive tax program for venture capital investors and business angels.