2020 was mixed for African technology businesses. While Nigeria and South Africa saw their economies contract because of the pandemic, there were some high-flying fundraises and acquisitions. World Remit acquired Sendwave for $500M, Stripe acquired Paystack for $200M, Jumia is up 2,000% from pandemic lows and multiple companies raised $10M+.
I put together the top 3 things I want to see in Africa technology next year. Think of the following as closer to a wishlist rather than predictions. Predictions are mostly useless anyways anyways. [1] For a podcast version of this essay, more predictions and discussions, please listen to the Afrobility 2021 & beyond podcast episode.
More startups that build for entrepreneurs
In the past few years, we’re starting to see the compounding benefits of easier payments. For example, there are many companies in Nigeria that could not exist without the solutions and access provided by, say, Paystack or Flutterwave.
In 2021, we will see more of these companies that reduce the barriers to entrepreneurship and make it easier to set up and run businesses across all industries. Similar to how companies like Shopify or Stripe have made it easier for creators to monetize, there will be more companies that help entrepreneurs get started and keep going. For example, an easy-to-integrate identity verification and payments integration layer makes it possible for a banking entrepreneur to imagine a new kind of bank or business model.
There’s more to be done here. Who’s building the Stripe Atlas for Nigerian or Kenyan entrepreneurs? Who’s helping new companies deal with the complex regulations across healthcare, transportation or finance? Who’s building the small business versions of the internal custom software Africa’s biggest companies run on?
As these solutions become more widespread, it will lead to more entrepreneurs but more entrepreneurs who can build big scalable businesses.
Of course, not all the entrepreneurs will be successful, but the ecosystem will benefit from the successful ones and learn from the failures.
Higher internet penetration driven by anyone other than the telcos
Internet access is still not a solved problem in Africa. In Nigeria for example, Internet penetration is under 50% with less than 25% of households having access to any kind of internet access. For many African countries, increasing internet access is close to being an objective net-positive, for the new business models and wealth it creates.
However, Africa’s largest telcos are not in the best position to invest. Airtel is offloading its African assets to better compete in its home market, where it’s facing competition from Reliance Jio; MTN is still reeling from the fallout of the $5B fine from Nigeria, and their share price has fallen from a high of $11 in 2018 to $4 today.
If not the largest telcos, who will invest?
Telcos are behaving rationally; investment is expensive. ARPUs are likely lower in parts of Africa that don’t already have internet, and given how low they are in Africa right now ($2-4 in most of SSA ex South Africa), not sure they want to go after those less profitable customers.
Also – the telco business models are under threat. Voice revenues have fallen off a cliff and data revenues are not growing fast enough, or profitably enough, to make up for the difference. There is limited incentive to continue to invest in building out a platform that the global majors – Netflix, FB, Google, etc – will be able to monetize better. (e.g., FB has similar ARPU to the telcos in Africa – ~$2 – without the same level of infrastructure investment, or just stress)
Google Loon launched in Kenya and is expanding. Space X has launched 800+ satellites and plans to go up to 40,000. Amazon’s Project Kuiper has plans to launch another 3,200 satellites. There are regulatory hurdles and incredible technical complexity to overcome, but the potential is massive. A services model (like Jio) or other business models can make serving these new customers more profitable and spur further investment. Driving down the cost and increasing access and quality will change the game for the entire African technology ecosystem.
Africa coming into her own as a true offshoring hub
“Talent is equally distributed but opportunity is not”
Leila Janah
Okay, this one is not new. In 2007, Nigeria created a National Outsourcing Strategy(pdf). Not much clearly happened since then so they did it again in May 2020. Andela raised $181 million for a similar opportunity based on this but has struggled recently.
But hear me out. This time is different.
The pandemic has forced many companies to re-evaluate what absolutely needs to be done in the office. Fewer people have followed this to the logical next step. If you don’t need to be in the office, do you need to be in the same country? Do you need to have an individual employee relationship with the worker? This is not new; some technology companies are fully remote- Gitlab, Basecamp, Automattic (makers of WordPress) and many more. In addition, The biggest technology companies have made commitments to expand remote work. What does that mean for where talent can be located?
Other than the pandemic, Why now?
The cost differential between the US and major African countries is higher than ever and increasing. In the last 5 years, Nigeria’s currency has gone from NGN150/$ to N450 today; SA’s currency has gone from ZAR 11/$ to ZAR15 today. There’s money on the table and the economic incentive for offshoring is getting stronger.
Africa’s largest economies are hurting. Nigeria’s GDP is down 3.6% in Q2, South Africa is down 6%. Currency devaluation means the largely import-dependent countries can’t access the foreign currency they need to run their economies. Unemployment is 27% in Nigeria and concentrated in younger age groups with up to 40% unemployment.. South Africa has 23.3% and produces over 200,000 graduates a year. We can’t create enough jobs for our people in our declining economies, we need more ways of putting people to work.
Africa – in general – has clear advantages as an offshoring location. It’s a young population with an average age of 15. A legacy of colonialism means that the language of formal instruction is English or French. Time zones mean that we’re within 3 hours of EU countries.
Companies of different sizes are already operating in this space. Hugo, Integreon, Techno Brain, etc. Also, EU blue chips are testing the water with Deloitte, BT and British Gas and Amazon relying on outsourced labour in South Africa. I hope 2021 is the year that this blows up.
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What do you think? If you have any ideas or thoughts – email me at bmakanju (at) gmail (dot) com or leave a comment below
[1] Human predictions are more like fantasies and are unrealistically optimistic. We project our own biases and think bad things are less likely to happen. Case in point: few people predicted a pandemic in 2019.
