Post COVID: Predicting the Future of African Startups

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n order to succeed in business, you need to cultivate the skill of predicting futures, reading meaning into the present and analysing past records. The market place today trades in human intuition at scale; the product that can today capture what humans will likely do in the next 5-30 years wins. Eventually. You probably also need great marketing tools but that’s a debate for another day. Facebook, for example started locally as a social network for students on Harvard campus. Facebook today has shaped human interactions in such terrific dimensions, it is almost scary thinking about how the communication gap between humans globally has become little to non-existent.

On the African front, the businesses on the fastest path are tech start-ups helping to improve the resilience of the continent’s small business sector. This line of opportunity is African start-ups’ present and very possibly future; the pace over here is slow and not equivalent to the global pace just yet. While on world stage, most tech start-ups are focused on electric cars, climate change & reducing gas emissions, blockchain and generally digitising daily living, African start-up ideas likely to succeed are solving issues designed to give informal, micro and small businesses a tech upgrade. Why? Because Small business is big business.

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The big business of servicing small businesses is highlighted by Stripe’s $200 million acquisition of Nigeria’s Paystack . The Nigerian start-up presently has around 60,000 customers, including small businesses, larger corporates, fintechs, educational institutions and online betting companies. Sendwave another fintech start-up this time out of Kenya, was also acquired in August by WorldRemit in a $500 million deal. Half a billion dollar investment in the green continent of Africa. What could possibly be next?

The future of African start-ups

The impact of the COVID-19 outbreak was felt the world over as even developed nations are still grappling with containing the downward slope of their economies. On the African continent, it’s the same. Giant of Africa, Nigeria can’t seem to catch a break as it’s currently on its third recession ride since recent times. However, there is hope in the ideas that will spring up because of opportunities of the COVID-19 realities. Even though a slowdown in funding is very likely in the cards for the nearest future, it is believed there will be a readjustment. For example Cape Town-based startup accelerator AfricArena says total funding in African startups this year dropped by as much as 40%. The report’s worst case scenario suggests the effects of the economic slowdown could last through 2021.

Nonetheless, the startup space holds real possibilities in rescuing the economy post-COVID, a factor the World Bank says will be vital in economic recovery for countries across the world. It is even a statement of fact that once again technology kept many small businesses going during this pandemic. Beyond the pandemic, small businesses will look not on their governments but to tech startups for scale.

The 4-pronged approach that will form the direction of the African start-ups based on what observations have uncovered are:

1. Protecting Workforces

2. Automating Distribution

3. Capital protection

4. Digital Currency

Protecting Workforces: Quarantines, lockdowns, and self-imposed isolation have pushed people to work from home, speeding up a new workplace experiment. One huge role tech has played and will continue to play post-COVID is guaranteeing safety and continuation of the workplace; ie keeping employees with their employers connected.

The idea of remote work isn’t new but in the last six months, businesses that have previously hesitated to adopt this have been forced to experiment working remotely and many are seeing that it’s not impractical. This is a good thing particularly for the future as operation costs can be significantly reduced without the burden of a physical space and all its attendant costs.

The Zoom video conferencing app experienced a meteoric rise to massive popularity in the thick of the pandemic, buoyed by the lockdown in various countries that saw an increase in work-from-home routines. As of December 2019, Zoom had reported about 10 million daily meeting participants. This massively increased to about 300 million in April 2020 showing about 3000% user growth. And as remote working continues, Africa may soon have need for an emergence of its own video meeting service with lower data usage for rural areas where data is still a luxury and other adaptations.

Automating Distribution: “When movement of people and goods sharply stopped early in the pandemic, very few businesses had the operational agility to switch gears and capture online customers”, says African Briefing. They did that either through new products and services or by automating their distribution to become swift and/or contactless.

Kenya’s Data Integrated for example is helping communal taxi and bus operators institute digital ticketing and go cashless. Sokowatch is working with informal kiosk and retail owners to streamline inventory ordering and payments. Social finance lender Uganda’s Tugende used the pandemic to build out its digital offerings helping small businesses cover operation costs.

In Senegal, a passenger mobility company that was shut down for months in Senegal because of the lockdown shifted to logistics and delivering goods. Max.ng in Nigeria made a similar pivot. And Sendbox, also in Nigeria, shifted from standard e-commerce deliveries during the strictest period of the lockdown to getting a logistics license to deliver essential goods.

African customers are shopping online more and visiting stores less. Retailers are now rethinking strategy, organisation and distribution to better suit evolving customer preferences.

Capital protection: In Nigeria, Africa’s largest country and economy, 95 percent of daily transactions are still cash-based. In the wake of the COVID-19 pandemic, capital took a sharp nosedive as many businesses lost out after the forceful closure and access to income. Now as things return to normal, people are looking to regain what’s lost. Savings, loans and investments need to be recouped and people have turned to tech start-ups to protect what’s left of their capital.

Government rescue grants and loans from state-backed banks & MFBs are having a hard time keeping up with all the fund demands. These institutions now need to find creative ways to revamp and introduce new flexibility to meet current needs. To do this, they may need partner up with fintech start-ups bringing in creative financial-support models.

Without direct government support, fintech investing has taken flight post COVID with the likes of Risevest, Bamboo, Afvest and so much more, opening up more access to wealth.

Growth in these sectors will take time to emerge. Trust will first have to be established between individuals/businesses and fintech in African countries promising capital protection.

Digital currency: The genesis of Africa’s digital currency adoption was mobile money originating from Kenya. Its appeal and quick adaptation has seen it spread to over 30 countries in Africa. Presently, 46% of global mobile money accounts are in Africa. This translates to approximately 395.7 million accounts out of a global total of 866 million.

As digital currency continues to broaden, citizens of countries battling high inflation are likely to opt for stable online currencies like cryptocurrency, because “with their paradigm of decentralization, these currencies offer an alternative to disastrous central bank policies.”

South Sudan’s inflation rate was 102% between September 2016 and September 2017, according to the World Bank. Nigeria, Ghana and Kenya have also seen double digit inflation rates in recent times. And with the political climate all over sub-saharan Africa, it only makes sense that citizens of these countries protect their investments. That African governments are not now regulating cryptocurrency may be a factor spurring its growth on the continent even though there is no guarantee that they will not switch up their current mindset.

Conclusion

At 39.3% internet penetration, more than half of the continent’s population are still unable to access the internet or reap the benefits that tech brings. But since COVID-19, human contact has become less, it has also forcefully gone virtual. Could the Pandemic provide the trigger that pushes Africa towards becoming a digital economy? I’d say yes. The possibilities are endless but the journey will require persistent communication between all stakeholders – government, businesses & customers/users.

Enthusiastic about the future.