The Africa SMME Tech Report
Issue No. 10. Africa-Middle East small business tech news for 17 July 2021. This edition features M-Kopa, MarketForce, OZÉ, Apple, Uber, GetTOD, SweepSouth, AIfluence, and more...
Why Is Everyone Expanding into Nigeria?
As someone who spends many hours looking at news rolling out of the African tech scene, it seems that hardly a day goes by without an African start-up from Kenya, Ghana, or wherever announcing plans to expand into Nigeria.
So the question that has been swirling around in my mind is, why? Are there reasons for this decision beyond the nakedly obvious, which is that Nigeria is a really big country? And by big, I mean 160 million people and $500 billion GDP big.
Big means opportunity, of course. But it also means bigger costs and challenges. And, finally, it means everyone else sees the same opportunity.
All Roads Lead to Nigeria
We’ll offer three recent examples of companies taking the plunge with Nigerian expansion. There are many others. But these three are among the latest in a long succession of startups launched in Accra or Nairobi or elsewhere that decided that their scale ambitions require putting Africa’s biggest market on their expansion roadmap.
M-Kopa is a Kenya-based fintech launched in 2010 that helps the underbanked finance purchases for “life-changing” products like solar panels, mobile devices, and appliances, as well as consumer loans, healthcare, and more.
The company recently hired Babajide Duroshola, most recently the Nigeria country lead for the ride-hailing service SafeBoda (another East African company that expanded into Nigeria), to lead its expansion into Nigeria.
Duroshola is widely credited for SafeBoda’s successful launch in Nigeria. In particular, Duroshola is credit for making the savvy decision to launch the motorbike ride-hailing solution first in Ibadan rather than the more obvious Lagos. The logic was that SafeBody would face less competition in Ibadan. And the unorthodox decision seems to have paid off.
Nairobi-based MarketForce recently raised a $2 million Series A round to bring its lifetime funding to $2.5 million. The company plans to use the funds to focus on building up its RejaReja marketplace and to take its concept to, wait for it, the Nigerian market.
MarketForce was co-founded in 2018 by CEO Tesh Mbaabu and CTO Mesongo Sibuti. It’s flagship product RejaReja is a marketplace that helps informal shops source, order, and pay for inventory at any time via interactive SMS and a mobile app. RejaReja then delivers the goods within hours.
And then there is OZÉ. This Ghana-based SaaS company offers a business management tool for SMMEs and also provides small loans to businesses. The company raised a $700,000 seed round in January. Expansion into Nigeria was one of the announced purposes for the funding.
While Nigeria is by far continental Africa’s largest country, it’s worth noting that South Africa’s per capita GDP of $6,000 is more than double Nigeria’s $2,230. Yet we are seeing fewer fintech and other startups migrate from Kenya, Ghana, etc., into South Africa.
Chris Lister-James is a founder and director of Khulisa Investment Partners, a South African private equity firm that invests in fintech companies like SmartWage, Ukheshe, and others. He says that while South Africa may have a higher per capita GDP than Nigeria, there are other reasons why more startups add Nigeria to their expansion roadmap before South Africa.
He believes Nigeria’s sheer size is of course the biggest single factor. He also cites the presence of so many freshly minted unicorns in Nigeria (Flutterwave, ChipperCash, etc.) as a proof point that is attracting more companies to the market.
Chris also thinks South Africa is a somewhat less hospitable environment for fintechs entering the market from outside.
“The bureaucracy around starting a business is quite difficult. And also the regulation in financial services is quite strict. In world competitiveness rankings, we always ranked high for financial regulation and stock exchange regulation and auditing practices,” he said. “Regulation is a good thing in that it protects the consumer, but it also adds a massive cost.”
He sees signs of progress. For example, he said the South African Reserve Banks recently expanded its fintech team from two to six people. Chris interprets this as the bank asking, “Well, how do we embrace fintech? And how do we try and improve access to financial services for the majority of the population?”
As for Nigeria, in addition to being a large market, it’s also a startup factory. So any fintech from Nairobi has better assume it will likely face off again several homegrown competitors.
A May report from fDi Intelligence (part of the Financial Times), as reported in Quartz Africa, revealed the following about the 2020 African startup scene, also underscoring South Africa’s superior wealth.
“Nigeria had the highest volume of start-ups—over 750. South Africa came second, but its startups raised $241 million…in 2020, compared to Nigeria’s $64.1 million.”
Follow the Talent and Resources
We asked one startup founder who has been through this process if there are some deeper reasons for the intense focus on Nigeria.
We caught up with Meghan McCormick, co-founder and CEO of the aforementioned OZÉ, right before she boarded a plane for, you guessed it, Nigeria.
Here is a lightly edited transcript of our conversation.
The Report: Are there any reasons beyond the obvious to explain why so many companies are expanding into Nigeria.
The massive market is for sure the biggest driver. But here are some others.
Most of the African funds investing in African tech, and fintech, are based there. It's easier to get on their radar and for them to get excited if you are there too. Nigeria being on the roadmap was table stakes for some of our investors based there.
Since so much fintech is there, you can build in a slightly more developed ecosystem. For example, there are features we want to build that become so much easier with Mono or Okra. While they have been in Nigeria for some time, Mono is just entering Ghana and Okra isn't here yet. There is just a more developed tech stack/infrastructure in Nigeria for fintech apps.
And even at the human-tech interface, they have a much more developed and open agent network system.
More fintech in the market means more consumers who have been introduced to fintech products and how they work and therefore less consumer education/ friction.
A huge population also means that there is a lot of talent there. The best talent is attracted to companies they heard of and know people using and feel the hype of it in the market.
The Report: Are there any pitfalls to a Nigerian market entry that you can share from your experience?
Meghan: In our experience, Nigerian consumers care about their customer service and support being delivered by Nigerians more than Ghanaians have seemed to care. I also think you need to be aware that West Africa is really different from East Africa. Lagos is not Nairobi. I'm sure I'll learn more as we grow more.
And something we all need to be on top of is the volatility in the regulatory landscape.
The Report: Is there any concern about saturation?
Meghan: I'm not really concerned about too many entrants but that's probably because of the niche we are in. OZÉ is not a commodity and it's hard to replicate our system. But if I was doing something like consumer lending on the back of non-proprietary data or payments I would be worried about price wars.
The Report: Thanks Meghan!
What do you think? Share your thoughts and comments with the community.
Is Apple’s BNPL Entry a Game Changer?
We saw multiple news reports this week that Apple plans to launch its own buy now, pay later solution. And we wondered what, if any, impact this would have on the BNPL space in MENA, or throughout the Continent?
First a bit on Apple’s plans. According to multiple news accounts, Apple will partner with Goldman Sachs (which also backs the Apple credit card) to roll out a BNPL solution called Apple Pay Later. Reportedly, the option will be available through Apple Pay in two options — “Apple Pay in 4” and “Apple Monthly Installments.”
The news on Wednesday had an immediate and negative impact on global stocks tied to BNPL, including PayPal, Affirm, Afterpay, ZipCo., and others. However, most of these stocks were recovering Thursday.
Regional BNPL players seem largely unconcerned by this development.
We exchanged emails with one executive at a Middle East BNPL platform who told us that the Middle East is an Android market, so Apple's move isn’t going to upset the competitive balance in any meaningful way. Also, this executive expects Apple will focus on rolling out Apple Pay Later in the U.S. market, at least in the near term.
It is true that Android rules in the Middle East and Africa. According to Statcounter.com, in 2020 Android had an 83.5% market share in Africa, vs. 14.5% for IOS and 2% for a smattering of others. iOS has a somewhat bigger presence in the UAE, where BNPL is extremely popular. There iOS has a 25.5% share vs. 72% for Android.
There is the question if, over time, Apple’s BNPL solution helps drive regional IOS adoption. We’re doubtful at this point that BNPL alone will move the needle, given the many other reasons, cost high among them, for Android’s regional dominance. But it’s still a notable development worth monitoring.
In the U.S. a far more dominant iOS market and where Apple Pay is widely accepted, the near-term calculus for BNPL competitors may be different.
Kenyan Startup AIfluence Raises $1M to Make Sense of Influencer Marketing
Influencer marketing is a big and growing business. Globally it’s estimated to be worth around US$7.7 billion. But tracking the performance of an influencer campaign has historically been as simple as nailing jelly to a wall.
A Kenyan-based startup has just raised a $1 million seed round (cue Dr. Evil) to solve this very problem. AIfluence was launched in April 2020. The company cracks this nut by, in its words, “leveraging advanced Machine Learning algorithms, the platform can precisely match influencers with a target demographic through its audience-first strategy.”
There are a few interesting things about EQ2’s participation. The UAE market is a major hub for influencers and has an active community of influencer marketing agencies like Brand Ripplr. So we wouldn’t be shocked if a move into the U.A.E. isn’t in the cards for AIfluence, particularly if its solution is as groundbreaking as advertised.
Second, EQ2 is also an investor in ArabyAds, a performance marketing agency based in Dubai. ArabyAds is also one of the seed-round investors. Is there a vision there of an intersection between performance-based advertising and influencer marketing in the UAE?
Here is Aseka’s obligatory funding press release quote.
“We are at the cusp of a revolution, the way marketing works globally is changing. We find ourselves at an intersection of advanced technology and the fastest-growing region in the world in terms of digital and social media penetration. It’s an exciting place to be. Our guiding philosophy is that influence is not a profession, it’s an outcome.”
We are not giant fans of canned quotes. But we do like the last line. Influencer marketing involves so much sizzle that it’s important that someone out there tries to measure the steak.
The Fairworks Project Names, Shames (& Praises) South Africa’s Gig Economy Platforms
Here is how Fairworks describes its mission.
“The Fairwork South Africa 2021 ratings evaluate the working conditions in 12 digital labour platforms (Uber, UberEats, Bolt, inDriver, MrD, Droppa, PicUp, getTOD, SweepSouth, NoSweat, M4Jam, SecretAgent) against five global principles of fair work – fair pay, fair conditions, fair contracts, fair management, and fair representation.”
As the chart below shows, some platforms are doing a better job than others at providing a suitable environment for gig workers.
The report notes that data on the scale of the South African gig economy is difficult to obtain. It estimates that about 1% of South Africa’s workforce is engaged either full or part-time in the gig economy. And that use of gig platforms by workers is growing at about 10% per year.
In general, homegrown South African platforms had the better scores. These include GetTOD, a service for finding qualified tradespeople, and SweepSouth, which matches domestic workers with homes that need cleaning.
Money4Jam is a platform that uses gig-based “jobbers” to collect data on local businesses, fill out surveys, conduct product tests and other “microtasks”. The company partnered with CellC to provide relief funds to its jobbers during the 2020 lockdown. SweepSouth also raised funds for its domestic worker partners via the “SweepStarts Covid Fund.”
International platforms like Uber and Bolt stood out for their lower scores. And not all native South African platforms fared well in the report. For example, Droppa, which is, in its words, “an on-demand delivery service that makes it safer and easier to move office or household goods and furniture,” only managed a score of 2/10.
The report didn’t offer much on why specific companies fared poorly. However, Uber’s general resistance to having gig workers classified as employees seems to have played a role in its middling score of 4/10. The report cites this example as an illustration of the difficulty South African gig workers have in gaining recognition.
“In several countries, workers have taken court action to claim employee rights, in some cases successfully but in others not, depending on the details of their work and the local definition of ‘employee’. In South Africa, Uber drivers who tried to do so were unable even to have their claims heard. In one case, drivers tried to take a dispute with Uber to arbitration. Despite performing key functions for the South African market, the Netherlands-based company fell beyond the reach of South African law.”
The report’s fact-gathering process involves three elements, desk research (reviewing publicly available information), worker interviews, and platform interviews.
Here is how the project describes its scoring system.
“Each of the five Fairwork principles is broken down into two points: a basic point and a more advanced point that can only be awarded if the basic point has been fulfilled. Every platform receives a score out of 10. Platforms are only given a point when they can satisfactorily demonstrate their implementation of the principles.”
The report offers examples of measures some of the platforms have taken to earn more advanced scores. Here are a few examples, taken directly from the report.
“SweepSouth released a public statement confirming their willingness to engage in collective bargaining.”
”NoSweat has created a non-technical version of their terms and conditions (T&Cs) to ensure that all workers have a thorough understanding of the contract they are committing to.”
“GetTOD converted their terms and conditions from UK to South African law.”
It also included some stories from the gig workers themselves. They mostly described an unstable existing, with diminishing returns on their efforts, in particular since COVID.
The Fairwork Project is a joint effort among the University of Oxford, the University of the Western Cape, The University of Ghana, as well as other educational institutions. Its mission is to highlight both positive and negative business practices in the emerging gig economy.
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