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Nigerian entrepreneurs succeed despite Nigeria

Nigeria is a country of extremes. It is the country of limitless tech opportunity and the country with the highest proportion of poor people. As a result, investor sentiment swings wildly. We’re either the darkest part of the dark continent, or the bright spot for opportunity. 

Today, Nigeria is in the incandescent phase aka “The future is so bright it burns my eyes”.

But why now? Headline acquisitions and fundraising are lagging indicators. The hard work of building a company worth acquiring happens well before TechCrunch. Also, Nigeria’s economy has continued on the same wobbly path as it has for the past decade. Something else is going on. 

Acquisitions and Fundraising news are smokescreens

The last 12 months have been amazing for the Nigerian tech scene. Paystack was acquired by Stripe. Flutterwave reached unicorn status. Jumia went from $3 per share in April 2020 to $62 in November of the same year. 

But these stand in opposition to Nigeria’s economic reality. The fundamentals of the economy are in free-fall. Nigeria’s jobless rate has quadrupled over the last 5 years and today, less than half of Nigeria’s labor force is fully employed. Violence and insurgency threaten lives and property in Nigeria’s north-east. It is harder to start a business in Nigeria than in Egypt, South Africa, or Ghana. Permits take months instead of days, and incoherent government policy is a cloud over startups that could rain any moment. All this as the population inches towards 300 million by 2050. 

Despite these dire circumstances, there’s still opportunity. 

What Nigerian entrepreneurs are doing differently

Successful Nigerian entrepreneurs are fearless and many go against conventional advice. They try new business models and are starting to attract capital on their own terms. 

THEY BUILD FOR BUILDERS

Businesses are the primary customers for 4 of 5 Nigerian startups in Y Combinator W21. This is also true for the W20 batch

These B2B startups are important because they make entrepreneurship less risky. The businesses use the startup’s services to make money so they are easier to get and keep. Also, the more customers you get, the less sensitive you are to individual businesses.

Because businesses use the startups to make their lives easier, they are easier to acquire and retain. Today, Paystack and Flutterwave make it possible for businesses to pay and get paid. They eliminate an important business risk for other businesses. These B2B startups also enable new business models that were previously impossible. Many of the savings, stock trading, and food delivery apps are only possible because of these B2B companies that handle, say, payments or identity verification. 

These B2B startups provide the building blocks for other entrepreneurs. Over the next few years, the best companies will build for other builders. 

THEY BUILD FOR THE CONSUMERS IN THE MIDDLE

Nigeria’s upper class is minuscule relative to the rest of the population. Yet, because of the size of the country, the middle class remains a significant market. There’s not enough of the upper class to build a big consumer business and the lowest income classes are either too poor or too expensive to serve. The opportunity is in the middle class. These customers’ needs are not met by the current solutions, and the high-end options are out of reach either because they’re too expensive, or for other structural reasons (e.g., I can’t use Venmo for P2P in Nigeria because licenses)

The startup that comes to mind here is uLesson. Their product, education, is one that most want. Nigeria’s upper middle class can afford to send their children to the best schools. They hire private tutors for after-school classes. The rest of the middle class have to make do with the available schools and find ways to supplement their children’s education. For these customers, uLesson provides an affordable, technology-enhanced supplement. They price this product on the middle-class’ willingness to pay, and have recently raised prices to reflect this (and of course, to cover their costs). 

See this HBR article for more on building for customers in the middle. 

THEY BUILD FOR THE INTERNATIONAL CUSTOMERS

This is more relevant to services or software. Services are unrestricted by physical borders, and in most cases have near-zero marginal costs. 

This is already happening. Startups like Moneymie are going after the immigrant population using remittances and money transfer as a hook. Individual creators are selling NFTs and making a lot of money. Sight unseen, a Nigerian produced a billboard-charting song for Tekashi 6ix9ine.

Startups that serve international customers develop good habits as these customers tend to have a high quality bar. At the same time, the Nigerian entrepreneur can provide these services at a much lower cost with better margins. Shola Akinlade, Paystack CEO, built and sold a software solution to 200,000 international customers before starting Paystack. The best customers for Nigerian entrepreneurs may not be in Nigeria or even Africa. 

Whatever happens, entrepreneurs need to keep building. Nigeria’s collective and individual success will have to happen despite the current macro trends.

”Everybody is doing it” is a bad reason

People worry about starting projects in crowded spaces. Peter Thiel says competition is for losers($). Kevin Kelly, the founder of Wired magazine, says you should work on something nobody has a name for. Everybody wants to work on a new thing or do something that has never been done. 

However, for every company that created a category, there are more that entered crowded markets. Facebook was not the first social network, and Google was not the first search engine. This is as true for individual creators as it is for businesses. 

When does it make sense to go where others rush in? 

People have been concerned about crowded markets for centuries. Everybody was printing books after Gutenberg’s invention1. I’ve read that reducing the cost to create content reduces the value of all content created. By this logic, the mobile phone, which makes it easy to record audio and video, reduces the value of all created content. 

This isn’t true. In fact, the opposite happens. The more people can create content, the better the best content becomes. For example, it’s trivial to write and share a newsletter, but few do this as well as Byrne Hobartor Packy McCormick. Something else is happening. 

The lower barrier to entry creates new opportunities. It allows creators to differentiate themselves. Some do by finding a niche. For example, the most popular newsletters create content for a narrow niche, or 1000 true fans. At least they start there; Matt Levine’s newsletter is for finance nerds but has gone mainstream

There is also the opportunity to differentiate by providing higher quality or a different approach to solving the problem. Google developed a better way to search by analyzing the relationship between websites. Facebook took advantage of network density and engagement in US college campuses. 

The next time you walk away from something because “many people are doing it”, remind yourself that is not a good enough reason. There is second order question to ask about if you can differentiate yourself in this space

  1. Fifteen million books were printed in the first 42 years of the movable printing press, more than have been printed in the preceding 1000 years. https://www.uh.edu/engines/indiana.htm ↩︎

You need (lots of) humans to run your tech startup

Nigerian startups have a person. This person signs the transactional and follow-up emails, follows up with customers on promotions and acts as the virtual face of the company. These are actual people, not manufactured names for a Helpdesk request. For example, Uche is the city manager for Taxify in Lagos and the other people work with their startups. This would be like in 2011, when Uber launches in New York, and all the city manager signs all receipts and ride confirmations.

This is very different from the asset-light, “Here’s a link to our help page” approach to customer service of western tech companies. These Nigerian startups discard the corporate veneer to become human, while the startups in the US are more likely to want to resemble a corporation.

In Nigeria, people love to complain about these accounts. They send too many emails and are too aggressive. However, they perform an under-appreciated function: They humanize the consumer startups that want to change human behavior. You may not trust a new online-only bank, but maybe you will trust Nosa from Kuda. This meets the customer expectation that there’s someone you can call when things go wrong with this new product or service.

This is just one of many ways that building a tech company in Nigeria is different from conventional Silicon Valley.

Mayweather, Mourinho and avoiding mistakes

The game is won by the team who commits fewer errors.

Jose Mourinho

Jose Mourinho and Floyd Mayweather have built successful careers by avoiding mistakes. Mourinho’s teams concede fewer goals, and are famous for  “parking the bus”. His 7 rules for winning big games can be summarized simply as “Don’t make mistakes”. Like Mourinho, Mayweather’s opponents land only 16% of their shots, less than half the rate of his last opponent.

They’ve both gone on to be very successful. Mourinho has won domestic titles in four different countries and is one of only 3 managers to win the UEFA Champions League with 2 different teams. Floyd Mayweather is undefeated through 50 fights and is one of the world’s highest paid athletes.

Obviously, this is not the only way to be successful. Muhammad Ali is the greatest fighter of all time and was not a defensive boxer. Other football managers play an expansive game that is more beautiful to watch and has led to as many titles. But, that’s not the whole story. Muhammad Ali’s greatest fights are those where he was able to defend well and withstand shots. Guardiola’s Barcelona success is, at least in part, a result of one of the greatest centre-back pairings of all time. Similarly, he struggled in Manchester City until he was able to find the right defenders, despite the wealth of attacking options.

In sports as in life, playing it safe gets a bad rap. Most business advice is focused on how to win instead of how not to lose. Journalists write stories about George Soros’ $1B bet or how Elon Musk invested all his PayPal earnings to start Tesla and SpaceX. You hear more about the times people take risks and succeed. You don’t hear about all the times people take risks and fail. In any case, you can’t become a hero for “playing it safe”. In the case of Mourinho, you can even become an anti-hero, a cautionary tale. Managers don’t get rewarded for the mistakes they avoid, but for the goals they score.

Yet, playing it safe makes sense. The future is impossible to predict and the goal is to be “alive” in as many versions of the future as possible. A strong defense or fall-back plan gives you that. Both Buffett and Munger credit avoiding mistakes for some of their success. This means they avoid some wins, but they also reduce their losses and live to fight another day.

Don’t believe the hype. Surviving is the only thing that matters. For every decision, the probability of unacceptable loss should be zero. Only those who survive can go on to win, whatever that means for you.

How much should I charge Nigerians for my product?

The answer depends on how big you want to become, because the market is small and your customers don’t have a lot of money

How much should I charge Nigerians for my product

Pricing products for the mass market

There’s a limit to how much consumer products can charge users and remain widely available. Many technology companies charge the user nothing, or pass on the costs to the seller or interested third parties. Amazon offers users free shipping and charges sellers to reach customers. Google charges nothing to store your photos but they charge businesses who want to reach you. These models work because the customer has spending power independent of the service they are currently using. Also, businesses know they can meet their business outcomes if they can reach the company’s consumers. Taken to the extreme, WeChat and Alibaba, the biggest Chinese tech firms, own the user, and support a network of services to make money from the businesses who want to reach their users. The business model varies from advertising to transaction fees, but the principle is the same: I have the users, and you must pay me to reach them.

These models hit a wall in Nigeria and many other African countries.

Why this doesn’t work in Nigeria

Most people in Nigeria have too little spending power, and it is difficult to meet a price point that creates big and build a profitable business. Take Facebook for example. In the “Rest of World” which is mostly African countries, Facebook made Average Revenue Per User (ARPU) per quarter of $2.77 in Q4 ’20 vs $53.56 in the US and Canada. The low ARPU is not due to a small number of users. Given Facebook’s revenue is from advertising, lower ARPU means fewer businesses are willing to pay to reach customers in these “rest of world” markets.

Africa’s telcos are similar. MTN, Nigeria’s largest telco, has an ARPU of N1,467.02 ($3.5) per month as at Q3 2020. In contrasts, telcos in the US hover around the $30 — $50 range. In many African countries, telcos are the definition of mass-market and have tens of millions of customers. Yet, the most successful of them have lower ARPUs, in part due to the lower spending power of the population.

In addition, the African middle class is not as big as many $JMIA bulls think. In Nigeria, half of the population lives in extreme poverty, in absolute number more than any other country in the world. Also, those who can are [emigrating in droves], further hollowing out the middle class.

What does this mean for my business?

For Nigerian businesses, there is a trade-off between being big and profitable. Few businesses can be both. One isn’t better than the other, but it is important to make that choice early and with intention. Those who choose to be profitable must raise prices, as Netflix continues to do. Africa’s operational complexity means that it is difficult to reduce costs. For example, uLesson recently raised prices 40% after lowering them [a year ago].

For business owners, how lucky do you feel? How much real or perceived value does your business provide to users? Your revenue is competing with your customer’s food, housing and mobile phone budget. Are you providing commensurate perceived value compared to those things? This is hard to do for any business.

Because the middle class is so small, the businesses that do well will focus on non-consumption. As a businessperson, how do I provide my product in a way that brings customers who did not use this service before?

Choosing to be big is fun. It also supports a strong narrative which makes it easier to raise money. However, there are no benefits of scale that can solve structurally bad unit economics.

Many emerging markets founders have to make a choice between big and profitable. Most choose to be big. The next time you look at a business or startup idea, ask the founder how she will choose between being big and being profitable.

Dealing with information asymmetry

You’ve likely faced situations where you felt you were being played, but couldn’t put your finger on why or how. Like a “deal” on a used car, it feels too good to be true, or you felt doomed to make a suboptimal decision.
In these situations, one party has better information than others, aka information asymmetry. It can be a problem if you’re on the wrong side, but it can creates opportunities to build new businesses. For example, Expedia, Glassdoor and Zillow make money by resolving information asymmetry.

How do you know when it’s happening?

  • The stakes are high and getting it done is more important than getting it right. Imagine you’re a tech founder, about to IPO your startup. You’ve worked on this company for the last 8 years and now it’s time for your big payday. There are many investment bankers telling you “how it’s really done”, or sharing examples that prove their expertise and usefulness. They tell you how your company is a unique snowflake, and that you must do everything how they tell you to. Few founders are willing to take the risk of getting this wrong. Statements to look out for: “Trust me, I know this space and have done many like this”, or “This time / person/ house is different”.
  • The other side makes money regardless of the outcome. For example, no matter what you pay for a house, the real estate agent makes a healthy commission.
  • Pricing is opaque and fees are discretionary. Before Expedia, travel agents made money because it was difficult to compare prices. Expedia made that information available, and today it’s much easier to do so. The same thing happened with Zillow and real estate in the US.

What to do if you’re in one of these situations

  • Get many sources of information and corroborate everything. For example, you should not trust the recruiter when she says “I can’t offer more”. This is not as easy as it sounds, especially for underrepresented minorities and outsiders. Also, the information you need may be proprietary or difficult. Try cold emails or DMs on Twitter and LinkedIn. It’s a red flag when your counterparty is also your only source of information.
  • Move beyond opinions to facts: Keep it fact-based as much as possible. One trick charlatans use is keeping the conversations vague, while appealing to your fear of getting it wrong. For the most part, experience can be reduced to data. If you’re going to trust someone, be sure to confirm that the data proves the experience.
  • When possible, every party should have skin in the game. Offer a share of any upside or downside from the results of the transaction. In most commercial cases, these incentives will lead to better behaviour.

One more thing you can do is to ask better questions. You may not get the answer you want, but the answer will tell you everything you need to know. An example of abetter question is “What would you do if you were in my shoes?” vs “What should I do?”. The former tells you more – about the person, if not just the problem.
To learn more about building businesses that resolve this, read this NYTimes profile of Rich Barton, founder of Expedia, Zillow, Glassdoor. If you’re in the mood for a book, read Skin in the Game by Nassim Taleb.

I just discovered the KC school song is not original

Ah, 2020. In addition to the pandemic and everything else, I discovered that my beloved secondary school song was plagiarized.

King’s College, Lagos (KC) is Nigeria’s most well known secondary school. Former students (or Old Boys) are everywhere in business and politics and include Nigerian household names like Hakeem Belo-Osagie, Bayo Ogunlesi, Lamido Sanusi. Real business gets done at our old boys’ meetings, and given the size and distribution of the class, there’s always someone you should be talking to. 

Most importantly, KC Old Boys are proud of the school’s history. KC was set up in 1909 by the British colonial government to “provide for the youth.. a higher education than those supplied by existing schools”. KC was founded before Nigeria the country (1960) and Nigeria the British protectorate (1914). We carried ourselves accordingly. KC students and alumni fought in WWII and for Nigeria’s independence. It’s impossible to talk about Nigerian history without Kings’ College. 

The school song is an important part of our shared experience. We sing it everywhere. I have joined other old boys to yell all 4 verses as other wedding guests sat confused. We sing (solemnly) at funerals. We sing at Old Boys’ meetings. We sing to remember the old, good times. The song is the soundtrack to our KC identity. We even use the first word of the school song – “Floreat!”- as a greeting to other old boys. It’s our thing.

Then I stumbled on this video.

Why were these old, white men singing our school song? Strange.

The title and comments sent me down a rabbit hole that ruined everything.

Queen Mary’s Grammar School, Walsall, was founded in 1554, before the first Europeans visited Africa. Like King’s College, it also has accomplished alumni. And like Kings’ College Lagos, the same school song.

King’s College Lagos on the left, Queen Mary’s on the right

One difference is the first line of the school song. “Floreat Collegium Schola Mariae” or “May the school of Queen Mary flourish” which Kings College replaced with the similar sounding “Floreat Collegium shall our motto be”.

Looking back, it should have been obvious. The first line of the KC version is “Floreat Collegium, shall our motto be”, but our actual motto is “Spero Lucem” (we hope for light).

In the News| King's College Lagos 110... - King's College Old Boys'  Association
“Spero Lucem” shall our motto be doesn’t quite have the same ring to it

From the archivist at QMGS, I learned the song was written in 1908, specifically for QMGS. FG Layton, the author said this was the only thing he’d done that would outlive him. He might just have been right.

Sigh. 

Perhaps, it should have been expected. We know now that the school’s founders weren’t creating “leaders for the colony” but an army of subordinates to make the colony easier to manage. [1]

On the other hand, maybe the community is bigger than we thought. KC Boys can think of QMGS as a sister school, and the song as a shared experience across both schools many miles apart. And we will still continue to sing, because the song means more than just words to those who sing it, whether they are from Lagos or Walsall. I choose to remember it that way, and the words still ring true. Service to our living, Honor to our dead.

[1] The British colonial government wanted “African subordinates to serve the [British] central government” and a ‘”…limited number of educated Nigerians..” Check out this paper for more.

Nigeria needs to raise tobacco taxes

Tobacco has a high public health cost in Nigeria. More people are smoking, starting earlier and smoking for longer than ever. As a result, smoking-related diseases are growing. In addition to the public health costs, Nigeria under-taxes and under-regulates this industry compared to the west or other African countries. There’s a massive financial and public health benefit in better regulation of the tobacco industry, and we can get enough in taxes to manage the public health costs. 

Nigeria charges lower taxes on tobacco, in part due to lower tax rates and how it charges taxes. In addition to import taxes, Nigeria charges tobacco taxes based on the value of the goods, different from the WHO-recommended tax on retail prices. Even without low rates, this tax structure is prone to under-valuation and encourages creation of lower-quality products. 

Nigeria charges 20% of the UCA (unit cost) as taxes, down from 40% in 2009. This is much lower than the WHO-recommended 75% of retail price benchmark, and even lower than the 50% recommended by the Economic Community of West African States (ECOWAS). 

What’s worse is that cigarettes have become more affordable in the past decade, when you adjust for income and affordability. This is unacceptable, and unique to Nigeria. If higher taxes are compelled to lead to higher prices, demand will drop. People will smoke less, and fewer people will die from smoking-related diseases. 

Nigeria needs the revenues, and is in a position of strength to raise taxes. Both British American Tobacco (BAT), and Japan Tobacco International (JTI) have production facilities in Nigeria. BAT controls 80% of the Nigerian market, serving its West African market out of their Ibadan factory, and Nigeria continues to be one of the growth and profit drivers for BAT. This does not end with having the tax laws on the books. We also have a problem with collecting taxes for the laws we do have, and the abused but well-intentioned tax holidays for setting up factories. 

The prize is high for getting it right. It’s a significant revenue opportunity with a payback period as short as a year, according to some estimates. In 2012, the Philippines “Sin Tax” law raised tobacco taxes which counter-intuitively increased revenues and reduced smoking prevalence. This increase in revenue allows the government to subsidize insurance for more of the population. In 1994, South Africa’s increased taxes raised government revenues 100% and dropped smoking rates 30% in a decade. Why not Nigeria?

This is not a knock on the tobacco industry, at least not for the taxes. It is reasonable to expect businesses to find ways to reduce their tax bill. These companies are huge employers of labour, they pay corporate income taxes and their export revenues are a valuable source of foreign exchange for the government. However, studies have not seen any evidence that higher tobacco taxes in countries like Nigeria will lead to job losses. Nigeria can get a “fair share” of this revenue to deal with the public health impact, and in line with other countries. 

Taxation alone will not address the public health implications. We need to enforce restrictions on advertising, better notices on packets and other tobacco control measures. Some Nigerian states are seeking redress in the court system with court cases as far back as 2007. We need everything. Combined with higher taxes, Nigeria can increase revenues and reduce the negative public health impact of smoking.

The best books I read in 2020

What a year 2020 has been. The below is a list of the books I read this year. For me, the best books are those that if they were the only books I read, it would still be a good year of reading. 

“The Halo Effect…. And the eight other business delusions that deceive Managers” by Phil Rosenzweig 

Everything we know about how businesses become successful is coloured by one of these delusions. The author goes through several delusions and dismantles them. My favourite delusion: We attribute a company’s success to anything in sight – culture, leadership, strategy, etc. When a company is not successful, we attribute its failure to the same things. All the attribution is based on prior performance. After reading this book, you’ll never look at another business book or article the same way again.

“How to take smart notes” by Sonnke Ahrens

In order to develop a good question to write about or find the best angle for an assignment, one must already have put some thought in the topic. 

Writing does not start from a blank page. The best ideas come from connecting ideas across disciplines that you come across in different contexts. This book teaches you a different way to collect notes as the basis of coming up with ideas. Read this book if you consume a lot of interesting content and you’re looking for a way to get more from what you read or watch.

“Anatomy of a swipe” by Ahmed Siddiqui

Ever wondered how payments systems work together? What does PayPal do and how is it different from Stripe or Apple Pay? What happens when you swipe your card in store or online? This book runs through the complex payments system and the payers for each space.If you’re even marginally interested in payments, you should know everything in this book. That’s the only reason not to read it if you are curious about how payments work.

Honorable mention for other great books I read in 2020

  • Escaping the Build Trap by Melissa Perri: “The Build trap is when organizations become stuck measuring their success by outputs rather than outcomes. It’s when they focus more on shipping and developing features rather than on the value [it produces]”
  • The Book of Why by Judea Pearl: To really understand if / how A causes B, you need an accurate model of how the world works built on causal analysis. Data is not enough. Insight is model-driven.
  • No Rules Rules by Reed Hastings: Exceptional people deserve an exceptional workplace. To build this and attract exceptional people, you have a duty to push the boundaries to hire and retain only the best and diligently keep it that way. Whatever it takes. 
  • Shape Up by Ryan Singer: 2020 was the year I “discovered” Basecamp. I signed up for Hey and started using Basecamp for my personal projects. Basecamp is a company run differently. Shape Up outlines how they build products, prioritize features and think about backlogs. It’s different from most of the industry. And they’ve clearly had some success with their approach, growing Basecamp to 3m+ accounts. Read if you’re curious about a different approach to building products and managing teams.

My wishlist (not predictions!) for African tech in 2021

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.