- August 22 2023
InDrive continues southern Africa expansion with Lesotho launch
inDrive has launched in Lesotho, continuing its expansion in southern Africa where Uber and Bolt are unavailable in most markets. California-headquartered ride-hailing platform InDrive is continuing its expansion into southern Africa, announcing the launch of its services in Lesotho. According to the company’s business development representative, Vincent Lilani, “There’s a clear need for a new approach to ride-hailing. inDrive’s unique fare negotiation model empowers drivers and passengers to agree on a price without algorithmic restrictions. We believe that this method offers a sound solution to many current challenges in the Southern African ride-hailing market.” inDrive lets drivers and passengers determine their fares rather than using prices determined by algorithms. Passengers can suggest a fare, while drivers may accept, decline, or make a counteroffer without any penalties. The decision on whether to proceed with a ride can be made by considering the fare amount, car type, estimated arrival time, and driver ratings. Drivers can select profitable and convenient requests. As part of its rollout in the mountain kingdom, InDrive will suspend commissions in the first six months of operations, allowing drivers to retain all of their earnings. A well-timed southern Africa expansion? inDrive’s expansion into southern Africa is well-timed as the platform positions itself to be a viable alternative to Uber and Bolt in the region. In Lesotho and Botswana, Uber and Bolt are unavailable and inDrive has become the defacto ride-hailing service. In South Africa, which has Uber and Bolt, inDrive is taking advantage of the country’s high internet costs to garner market share. In January, the company announced that customers could use InDrive without incurring mobile data costs. Ride-hailing market shares in South Africa, per 2022 figures. (Image source: Statista) Additionally, in South Africa, inDrive is capitalising on the endless struggles of Uber and Bolt. driver strikes over commission fees, concerns over customer safety, and fights with minibus taxi drivers are issues Bolt and Uber have had to deal with this year. With the southern Africa ride-hailing market opening up, it will be interesting to see how inDrive builds a strong business case past the attractive launch offers. The struggles of Uber and Bolt, who were once widely celebrated and successful when they initially entered South Africa, are a testament to the complexities of ride-hailing in the region and whether inDrive will weather that storm when it inevitably comes remains to be seen.
Read More- August 22 2023
Knife Capital will write $3-$7 million checks for SA growth-stage startups with $50m expansion fund
Knife Capital co-founder Keet van Zyl speaks on the firm’s Knife Fund III fund for growth-stage South African startups. Knife Capital recently closed its $50 million expansion fund, ‘Knife Fund III.’ The VC firm will use Knife Fund III for the “expansion of African innovation-driven companies.” It will also power follow-on funding for some of Knife Capital’s portfolio companies. TechCabal spoke to Keet van Zyl, co-founder of the Cape Town-based venture capital firm, to understand how the firm plans to deploy its new fund. get TechCabal: What sectors and companies will Knife Fund III focus on? Keet van Zyl: The fund will consider investments in B2B companies that are globalising South African technologies and opportunistic investments in the rest of Africa. The specific focus will be on growth and expansion stage companies at Series A extension and Series B funding stages. In terms of sectors, we will be looking at fintech, platform businesses, software, and tech-enabled business services. The typical investment size of the fund will be $3m to $7m as lead investor and through co-investment with other credible funders across the continent. The investments will take the form of a subscription for shares in the investee, resulting in a significant minority position. Reasonable control will be exercised through a board seat, robust minority protections and a milestone-based investment approach. TC: How long did it take to close the fund and what challenges did you face in raising the fund? KvZ: It took a really long time. About two and a half years in the end. COVID caused delays and we did pause the fundraising efforts deliberately for a while. It is actually quite complex to combine international and local funders into the same fund that has a focus on South Africa for many reasons unique to this market. While many funders seek exposure to South African entrepreneurial endeavours, there are macroeconomic factors to consider when investing here. It is one thing to pass due diligence but another to get several funders into the same vehicle. So we spent some time enabling that with local and offshore optionality. TC: How did you overcome those challenges? KvZ: We had an initial fund close with early fund commitments, a second and final close on June 30, 2023. This allowed us to start due diligence processes and start investing before the final close. We have a group of amazingly supportive funders and they walked the journey with us. We also had great advisors through the process and it does help that some of our Knife Partners are based in the UK to enable the offshore structures with real substance. TC: For startups looking to raise from Knife Fund III, what are some of the factors you will be considering before writing checks? KvZ: We look for mainly 3 broad themes: 1) An awesome product/service; 2) A large addressable market for that product/service; and 3) An entrepreneurial team with the ability to execute the growth of an awesome product/service into the large market. This naturally has many elements, but important to note that a good product/service does not necessarily equal a good company, and a good company does not automatically translate to a good VC investment. Knife Capital looks at many elements before writing checks, but the companies who get there show early traction, have a path to positive unit economics, are capital efficient, can demonstrate a high growth rate towards sustainability and would be acquirable by a potential exit partner universe at a financial return that makes it all worthwhile. TC: There has been some concern about SA startups exiting too early, with some experts citing a lack of capital for follow-on rounds as a reason. What role will Knife Fund III play in solving this problem? KvZ: Support to SA startups at the early growth stages is key to advancing innovation, job creation, and economic growth in the country. Despite their immense potential, promising South African startups that have managed to grow beyond the Series A funding stage often struggle to find the capital they need to scale further and take their innovations into the rest of Africa or to a global level. Sometimes when startups try to raise growth capital, they turn to strategic investors who seize the opportunity and make a full acquisition offer. Knife Fund III will assist in closing this funding gap – but much more needs to be done to back our best businesses as they scale continuously. There is still however a massive seed funding gap in SA. TC: Knife Capital has a record of exits. How will this fund work in facilitating the continuation of that reputation? KvZ: Knife Capital has a proven record of exit-centric business building and preparing South African technology startups for strategic acquisition by the likes of General Electric, Visa, Garmin and Uber Eats. It successfully divested its entire Fund I, which is a rare achievement in the African venture capital space. Fund II has started with some exits and a few more are being worked on at the moment. In Fund III we will use our skillset and experience in applying what we learnt in building sustainable high-growth businesses and negotiating exits, as exits rarely just happen. TC: South Africa dropped down the ranks of attractive VC destinations on the continent. Can Knife fund III turn around the country’s fortunes? KvZ: Yes for sure. I don’t really see it as a competition vs other ecosystems in terms of deploying funds or attracting huge volumes of VC. Each country has its unique environment with challenges and opportunities for entrepreneurs. Because of scarcity, South African entrepreneurs just had to be more capital efficient – a metric that is standing the local scale-ups in good stead in a global downturn. TC: What is the role of growth capital in helping to build a more resilient and valuable startup ecosystem in SA? KvZ: Capital is an enabler for growth in a disruptive startup, as are other things like product, customers, team and business
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- August 22 2023
Understanding MVNOs in Nigeria
This article is a guest submission by Ernest Akinola, an MVNO expert and the Managing Director of Bboxx. Although MVNOs (Mobile Virtual Network Operators) are a relatively new concept in Nigeria, it’s likely to become a household term by the end of 2024. An MVNO is a business model where an existing or new brand leases the radio spectrum of an incumbent Mobile Network Operator (MNO) to provide value-added services to customer segments not fully served by the incumbent MNO, e.g., remote rural areas. MVNOs were not born out of design but of necessity; One2One launched the world’s first MVNO in 2000 when Virgin Management had the idea of running a mobile network without building one. At the time, they had approached the dominant Mobile Network Operators in the market but had been declined due to a lack of strategic fit. One2One was the fourth entrant at the time—like Etisalat was in Nigeria in 2008—and needed to accelerate its market share and use its national network capacity. Once a network is built, it becomes a sunk cost and needs traffic to generate revenue to cover operational costs. The default strategy is to grow organically and run the network at a loss until it breaks even; it’s similar to an airline flying A380s half-empty across the Atlantic. With the aspirations of One2One and Virgin Management seemingly aligned, I was tasked with assessing the validity and sustainability of this potential partnership and making a recommendation to the board. Ultimately, we formed a Joint Venture and launched the inaugural and most successful MVNO brand worldwide, spawning the revolution in MVNOs. The Nigerian Context MVNOs will be launched in Nigeria later this year under a mandate by the NCC to the MNOs. However, the underlying dynamics in Nigeria differ from the more laissez-faire approach in the UK and the rest of the world. Firstly the Nigerian regulator has mandated five different tiers under which an MVNO can operate. The five tiers under which MVNOs can operate Secondly, Nigerian MVNOs are mandated to MNOs as more of a push than a pull strategy. In the UK, European and USA context, MVNOs embraced MNOs as a strategic and tactical approach to growing market share, reaching more customers and driving enterprise value. MNOs in Nigeria now need to re-evaluate their strategic plans, technical readiness, network capacity and human capital to manage a new business concept that may appear to be a logical extension. Still, it is not as simple as that. Along with the perceived benefits of launching an MVNO, inherent challenges must be overcome to run a successful sustainable operation. It is, therefore, incumbent and imperative on both the MVNO licensee holder and the MNO partner to fully map out expectations and a roadmap to success. This will be explored in more depth in another article. It stands to reason that the higher the tiered license, the more complex and intricate the planning and execution, depending on the MNO’s readiness and integration capabilities. On the other hand, a tier 1 or 2 licensee may be more of a plug-and-play, but it is inherently more dependent on the MNO and will need a solid voice to ensure good service from the MNO network team. The lower-tiered MVNOs are more closely dependent on the MNO’s efficiencies than the higher-tiered MVNOs. Irrespective of what level of service is provided, the main objective is to offer more value-added services to customers, push services to rural areas and, most importantly, run a sustainable MVNO business.
Read More- August 22 2023
What we know about Uche Nnaji, the new Minister of Innovation, Science and Technology
Not many people know that Nigeria has two tech-focused ministries. The first is the Communications and digital economy ministry, headed by Bosun Tijani, and the second is the Ministry of Innovation, Science and Technology, led by Uche Nnaji. When news broke last week that Bosun Tijani has been named Nigeria’s minister of communications, innovation, and digital economy, members of the Nigerian tech community were excited. Tijani’s appointment validates the growing tech industry. But what has been overlooked is that two tech-focused ministries oversee technology and the digital economy. The Communications and Digital Economy Ministry will create policies impacting Nigeria’s digital economy. The Ministry of Innovation, Science and Technology will facilitate developing and deploying science and technology to drive Nigeria’s economic growth. Both ministries are an offshoot of the now-defunct Ministry of Information and Communications. While Tijani will man the communications and digital economy ministry, Uche Nnaji is the minister of innovation, science, and technology. The former is expected to lead the implementation of two landmark policies—the Nigeria Startup Act and the National Digital Economic Policy and Strategy, while the latter will focus on improving research and development in line with the national development plan 2021-2015. In essence, Tijani will drive policies that directly impact Nigerian startups, while Nnaji will promote the use of science and technology across board. Based on President Tinubu’s policy document, Tijani will drive policies that will create one million new jobs in the ICT sector, among other things. At the same time, Nnaji will take on the implementation of government digital services. However, it remains to be seen how the new administration intends to pull these off. A non-technical tech minister? Tijani’s appointment signifies a new order in the Nigerian polity, but Nnaji’s is the opposite. The two ministers are expected to lead Nigeria’s digital revolution through policies and reforms. As such, sufficient experience in the tech industry is a no-brainer for the offices. Judging by his campaign manifesto, President Tinubu is bullish on the potential of Nigeria’s tech ecosystem, but his choice of a non-technical tech minister is interesting. Uche Nnaji Nwakaibie is a Nigerian politician and businessman. He was the governorship candidate of the ruling All Progressives Congress (APC) in Enugu state at the 2023 general election. He lost the polls to Peter Mbah of the Peoples Democratic Party (PDP). According to a profile included in his campaign manifesto, he has spent decades in the healthcare sector, specialising in the importation and procurement of healthcare equipment and technologies. He was reportedly the youngest and the first African to procure a computerized tomography (CT) scan in Nigeria in the mid-1980s. He later ventured into politics and got elected as senator representing Enugu East senatorial zone in 1999 but unconditionally relinquished his seat. Nnaji also holds a record in public service, serving as a board of directors member at the Federal Capital Development Authority (FCDA).
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- August 22 2023
TechCabal Daily – Don’t reach for the stars
In partnership with Share this newsletter: Lire en Français اقرأ هذا باللغة العربية Good morning You no longer have to worry about WhatsApp reducing the quality of your pictures. Last week, amidst deciding whether or not he would fight Elon Musk, Meta CEO Mark Zuckerberg announced that WhatsApp is rolling out a new feature that will let users send images in higher resolutions. Images will still be compressed, but they’ll look sharp enough that you don’t have to squint every time you receive them. In today’s edition Somalia bans TikTok SA sanctions importation of Starlink Nigeria has a new union for ride-hailing drivers Remote workers in SA face taxing The World Wide Web3 Event: NTICE Expo 2023 Opportunities Social media Somalia bans Tiktok Image source: TechCabal Time has run out for TikTok in Somalia. The East African country’s government says it will shut down access to certain social media platforms including TikTok and Telegram, which authorities believe disproportionately harm youth. According to the ministry of communications and technology, the move was to counter the spread of extremist content, nude images and other materials deemed offensive to Somali culture and Islam. The ministry will also ban the gambling platform 1XBET. This is Somalia’s first attempt to shut down any platform on social media. The ban will kick off on Thursday, August 24. Moral Issues? Questions of whether TikTok is a threat to cultural and religious values is becoming a trend on the continent. Earlier this month, Kenyan citizen “Bob Ndolo” reportedly petitioned the lawmakers to look into the social media platform because it’s “a threat to the cultural and religious values of Kenya”. Ndolo told lawmakers that if TikTok is not banned in Kenya, it could lead to a decline in academic performance and mental health issues among youth. Get a working card from Moniepoint With the Moniepoint personal banking app, you get reliable payments every time and a card that always works. Enjoy seamless payments powered by the infrastructure that 1.5 million businesses trust. Download the app. Internet South Africa sanctions the importation of Starlink Speaking of bans, South Africa’s telecommunications regulator wants Starlink users to come back to Earth. This week, the country’s ICT regulator (ICASA) asked IT Lec, a local Internet service provider (ISP), to stop importing Starlink kits. It also wants IT Lec to cut off existing Starlink users in South Africa from the satellite internet service. GIF source: Tenor Why? Starlink needs the Individual Electronic Communications Service (IECS) licence and Individual Electronic Communications Network Service (IECNS) licence to operate as an internet service in the country. But according to the regulating bodies, Starlink has not applied for the licenses yet. Why haven’t they? Turns out, to snag those licenses, you need more than just a star-studded name. There’s a clause in South Africa’s rulebook that demands all telecoms applying for these licenses should have at least 30% ownership in the hands of persons from historically disadvantaged groups such as black people, youth, women, and people with disabilities. Starlink is missing that essential 30% equity puzzle piece. So how are people using Starlink? Starlink’s cosmic web stretches across the globe and is available anywhere unless Starlink specifically barred the service in a designated area. Starlink has not barred South Africa, so people there can still access its network. However, they cannot order the kit or pay the monthly subscription fees directly from the website. This is why thousands of people living in rural areas and sparsely populated areas in South Africa are ordering through third parties like IT Lec which imports Starlink kits on their behalf and also manages their accounts with Starlink. What will happen now? Per MyBroadband, IT Lec has been will move its operation to Mozambique, one of five African countries where Starlink has rolled out. From there, it will continue to provide its services to its customers in South Africa and other countries where Starlink has not launched yet. Mobility Nigerian ride-hailing drivers’ union becomes official GIF Source: Tenor Drivers of ride-hailing platforms in Nigeria have formed what is arguably the first union for gig workers in Africa. Nigeria’s ride-hailing drivers merged all their existing unions and groups into one body, and this newly united front goes by the name: the Amalgamated Union of App-based Transporters of Nigeria (AUATON). This is good news for riders across the country who have been protesting against unfair working conditions in various ride-hailing companies, particularly Bolt and Uber. Sounds interesting? Well even though the union only just got official, the road to forming this groundbreaking union actually kicked off seven years ago. However, it hit a heavy snag earlier this year when Uber and Bolt objected to the union’s application notice. Why? Both companies argued that drivers cannot form trade unions because they are independent contractors, not workers. And, the first name that AUATON had decided to go by—Amalgamated Union of App-Based Transport Workers Of Nigeria (AUATWON)—labelled the transporters as workers. This distinction in how drivers are classified is a legal question that Uber has fought and lost in countries like the United Kingdom. Anyway, the drivers changed the name from AUATWON to Amalgamated Union of App-based Transporters of Nigeria (AUATON), and have now been officially recognised by Nigeria’s Ministry of Labour and ride-hailing companies as a legitimate union. Policy SA wants to change how remote workers are taxed GIF Source: TechCabal South Africa is taxing its remote workers differently. Yesterday, the South African Revenue Services (SARS) shared a draft of the proposed Tax Administration Laws (Amendment) bill, which seeks to change how remote workers pay taxes. Part of the changes includes removing the distinction between remote and non-remote workers, and requiring employers of South Africa-based remote workers to deduct pay-as-you-earn (PAYE) tax. Currently, remote workers pay taxes by declaring their earned income during the tax season—July to October every year. SARS has valid concerns that this method of tax collection leads to revenue losses. By switching to a Pay As You Earn (PAYE) model for remote
Read More- August 21 2023
Steering the digital future of Nigeria: the case for NIMC’s status quo
Idris Alubankudi Saliu, former CTO of Interswitch Group and the co-founder of Ceviant Finance, submitted this guest article to TechCabal. As the age of digital transformation gathers pace, Nigeria stands at a crucial crossroads. Central to this transformation is the role of the National Identity Management Commission (NIMC). With the recent transition of the NIMC to the Federal Ministry of Communications and Digital Economy, it’s essential to understand the multifaceted reasons to maintain this new alignment and why it offers the best prospects for a Digital Nigeria. 1. A Unified Vision: President Muhammadu Buhari’s decision to move the NIMC under the Ministry was not arbitrary. His vision of the NIMC as a cornerstone for the objectives of the National Digital Economy Policy and Strategy (NDEPS) reflects a desire for unity of purpose. Housing the NIMC within this ministry consolidates efforts and streamlines the approach to achieving a digital economy. 2. Efficient Monitoring & Coordination: The transition promises a strengthened synergy, fostering an effective supervisory mechanism. This integrated framework better positions the government to monitor, track, and accelerate its digital transformation initiatives. 3. Addressing Past Inefficiencies: While the NIMC has faced criticism for perceived inefficiencies, its new placement within the Ministry provides introspection and restructuring opportunities. Lessons from the past can guide future initiatives, ensuring smoother roll-outs and public adoption. 4. Capitalizing on Existing Momentum: With recent milestones and digital identification, momentum is building. Shifting the NIMC’s positioning again could disrupt this momentum, potentially stalling or reversing progress. 5. Optimizing Data Integration: The ambition to integrate diverse data sources, from BVN to driver’s licenses, into a cohesive identity framework necessitates a focused, unified approach. With its digital-first agenda, the Ministry of Communications and Digital Economy is best poised to oversee this integration. 6. Rebuilding Public Trust: In the wake of challenges, such as data mismatches in the NIMC mobile app, it’s crucial to rebuild public trust. Consistency in leadership and direction can play a pivotal role in this regard. Constantly changing the NIMC’s alignment might breed further skepticism. 7. Leveraging Synergies for Innovation: The Ministry is a hub for digital innovation. By keeping the NIMC under its aegis, there’s an opportunity to harness technological advancements and innovations, propelling the NIMC’s services into the future. Given these considerations, the NIMC’s current positioning within the Ministry of Communications and Digital Economy offers a strategic advantage in realizing Nigeria’s digital ambitions. It’s a blend of consolidated vision, efficient oversight, and an opportunity for rejuvenation. It is imperative, now more than ever, to remain steadfast and harness the potential of this alignment. A unified, coherent approach can pave the way for a genuinely digitized Nigeria, ensuring that every citizen is not just a number but an integral part of the nation’s digital narrative.
Read More- August 21 2023
After pushback, Nigeria’s ride-hailing union drops ‘workers’ from its new name
Delays in formalising an amalgamated drivers union focused on one technicality, so the drivers union has chosen pragmatism as a way forward. In January 2023, Nigeria’s ride-hailing drivers merged all existing unions and groups into one body: the Amalgamated Union of App-Based Transport Workers Of Nigeria (AUATWON). It was a critical moment for the drivers whose unionisation efforts date back seven years. As part of formalising the new union, AUATWON applied to be registered with Nigeria’s Ministry of Labour. While the application was supposed to be straightforward, a part of the process allows the ministry to hear objections to a union’s registration. When the union’s application notice was published, Uber and Bolt reportedly objected. Both companies argued that drivers cannot form trade unions because they are independent contractors, not employees. This distinction in how drivers are classified is a legal question that Uber has fought and lost in some jurisdictions. See also: Are Uber and Bolt drivers employees or independent contractors? In reaction to those concerns, the drivers union appears to have made a compromise. The ride-hailing drivers have now changed their name to the Amalgamated Union of App-based Transporters of Nigeria (AUATON), dropping the contentious ‘workers’ tag. The drivers still consider this a victory. AUATON can picket, ask for their rights and organise appropriately. The general secretary of the Amalgamated Union of App-based Transporters of Nigeria (AUATON), Ibrahim Ayoade, told TechCabal this morning that the victory was a hard-fought battle. “I can recollect where the struggle started. The first meeting we had was at YabaTech in 2016. Our second meeting was in the national stadium, and since then, it has been filled with ups and downs.” Finally the 1st App-based union in Africa get it certificate from @LabourMinNGGlory be to God, we started this struggle since 2016 lead by me the journey isn’t easy but today our efforts is now crown.Congratulations to App-based workers in Nigeria, Africa and Globally pic.twitter.com/qL6H4DMrPv — Ayoade Ibrahim (@maiwega) August 19, 2023 Ayoade said with the approval of AUATON from Nigeria’s Ministry of Labour, the union would have a broader outlook. Ayoade says the name came after a lot of research, but the essence of the change is to extend the union beyond just drivers to everyone in the gig economy involved in the transport business. According to him, the name is a “win-win” and the first time in the history of gig workers in Africa that a union would represent the industry globally. The national treasurer for the Union, Jolaiya Moses, said on a separate call “We are done with registration as far as the trade union act is concerned.” AUATON is open to collaboration The next stage is a collaboration between the app companies and drivers. Ayoade says the union wants better driving conditions for transporters. “A union is not about bringing any company down, whether it is Uber or Bolt. It is a matter of understanding. If these app companies are doing well, we will do well. Our members will earn more money,” he said.
Read More- August 21 2023
South Africa is proposing a change in how remote workers pay taxes and employers will bear the brunt
Proposed amendments in South Africa’s tax law may impose stricter tax requirements for remote workers and their employers. South African Revenue Services (SARS) has shared a draft of the proposed tax administration bill [pdf], that will seek to change how remote workers pay taxes. One of the proposed changes includes removing the distinction between remote and non-remote workers and requiring employers of South Africa-based remote workers to deduct pay-as-you-earn (PAYE) tax. Currently, remote workers pay taxes by declaring their earned income during the tax season, which is usually between the beginning of July and the end of October every year. But SARS has valid concerns that this method of tax collection leads to revenue losses. By switching to a Pay As You Earn (PAYE) model for remote workers, the revenue authority can collect tax deductions directly from employers and increase revenues. In its justification for the proposed new law, the treasury said that requiring PAYE tax would “level the playing field between resident and non-resident employers and ensuring alignment with skills development levies and unemployment insurance contributions.” To efficiently withhold the PAYE tax of South African staff, foreign companies would need to apply for and receive a SARS income tax number, register a branch company within South Africa, and register for Skills Development Levy (SDL) and Unemployment Insurance Fund (UIF) contributions. Some labour and tax experts state that these complex demands might prevent international companies from considering South African personnel for remote work opportunities. South African remote workers are already facing scrutiny by foreign employers. The country’s rolling blackouts, also known as loadshedding, have led to employers questioning their likely impact on the productivity of SA-based remote staff. The new regulations will add to the challenges and make it even harder for workers to be considered for remote opportunities. The proposed amendments are currently open for commentary from the general public, with that process expected to conclude on 31 August 2023, after which the final bill will be released for tabling in parliament.
Read More- August 21 2023
Understanding the opportunities and challenges of building in pre-emerging markets
Moonshot by TechCabal is the conference that will bring together Africa’s tech ecosystem in person to network, collaborate, share insights and celebrate innovation. Join us in Lagos on October 11 and 12. In this article built around the conference, founders of Union54 and Cashlinq share insights on the opportunities, challenges and future of building in pre-emerging markets. According to Perseus Mlambo, founder and CEO of YC-alumni fintech Union54, the decision to choose Zambia as the startup’s first market was driven by the promise that the pre-emerging market held. Before Union54, Mlambo had founded Zazu, a fintech whose flagship product was a debit card connected to a mobile app which enabled users to understand how they were spending money. “Over time [with Zazu], we started to realise that the problem we had been solving in Zambia was also present in other markets across the continent. So we developed Union 54 as an API to help other fintechs and non-banks, to be able to issue debit cards,” said Mlambo. By using a pre-emerging market like Zambia as a sandbox to solve a continent-wide problem, Mlambo and his team built Union54 into one of the continent’s foremost startups, with over $15 in raised funds and partnership with Mastercard. The intricacies of pre-emerging markets By definition, a pre-emerging market is a country that is more established than the least developed countries (LDCs) but still less established than the emerging markets because it is too small, carries too much inherent risk, or is too illiquid to be considered an emerging market. Tendai Mugovi is another entrepreneur building in an emerging market. He is the founder and CEO of Cashlinq, a Zimbabwean fintech offering core banking services via a banking-as-a-service model. The startup also has operations in Zambia. For him, the decision to launch in a pre-emerging market like Zimbabwe was driven by the fact that it was a country where the founding team members had been operating and had, over the years, built a good reputation. Additionally, it was easier for the banks to go with Cashlinq as they knew how good and experienced our team was. Moonshot: Africa should not play catchup with AI regulation Mugovi points to the numerous advantages of building in a pre-emerging market. These include less competition, more affordable talent, and the fact that consumers with less disposable income in such markets are more receptive to trying out new affordable solutions. “Pre-emerging markets offer a great opportunity to build a great product that can then be shipped to emerging markets. The opportunity to build a great product comes mainly from the following key realities in pre-emerging markets,” he added. Despite the vast number of opportunities and advantages of building in frontier markets, they also come with their set of unique challenges. For Mugovi, these include inflation and unstable currencies, lack of potential investors, regulatory bottlenecks as well a small market size. “It’s difficult to build a great business in a single pre-emerging market. This is a problem we knew from day one, and we have always had a multi-country strategy that is paying off. We developed Cashlinq with ISO standards that make it easy to connect in any country easily. For instance, in Zambia, we connected to the national payment infrastructure within 3 weeks,” Mugovi told TechCabal. On the future of emerging markets in Africa For Mlambo, the future of pre-emerging markets lies in the continent’s ability to address the challenges that entrepreneurs building in these markets face. One way to do this, he adds, is to make it easier to facilitate intra-innovation between pre-emerging markets. “There needs to be greater care placed into supporting cross-country entrepreneurship between such markets. This will prevent the replication of efforts when startups are trying to scale between these markets. There needs to be harmonisation with regards to regulations, and other factors to make it easy for startups to operate in more than one such market,” Mlambo told TechCabal. He believes creating incentives for entrepreneurs to build in such markets would also go a long way. These can include funding as well as business education opportunities for aspiring entrepreneurs. Mugovi adds that to ensure success when building in pre-emerging markets, innovators need to leverage the aforementioned advantages while also using the lean startup model to manage costs and build a startup that will survive with or without venture funds. “I think pre-emerging entrepreneurs need to understand how investors function and avoid ridiculous valuations just because they are similar to a start-up in Kenya which raised those figures. Pre-emerging markets have more risk and if that reflects in valuations, I think the investors might even get more ROI in these markets and they would be more interested,” he added. Additionally, to address the lack of investments issue, he believes leveraging the diaspora could go a long way in helping startups secure funding to seed and scale their innovations. “It’s easy for a Zambian in the USA to invest in a Zambian start-up because they are more likely to understand the problem, impact, culture, etc. At Cashlinq we received our initial investment from Zimbabweans in the diaspora and the process was easy because some of the risks that foreigners will be afraid of are just an imagination far from the truth,” he concluded. With pre-emerging markets making up the majority of most markets in Africa, the value that can be unlocked by entrepreneurs who tackle these markets is large. One remaining stumbling block is the numerous challenges cited above, which can be addressed through collaborative efforts between founders, government, investors, as well as the diaspora. Did you enjoy this article? Then click this link to register for Moonshot and check out our fast-growing list of speakers coming to the conference!
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- August 21 2023
Next Wave: Known for financial services, Mauritius wants the tech brand
Cet article est aussi disponible en français <!– In partnership with –> <!–TopBanner First published 20 August 2023 Having a concentration of mature technology players but very little startup activity is precisely why Mauritius makes my list of interesting technology ecosystems to review. It is easy to dismiss Mauritius’s technology arena as simply a corporate IT and business process outsourcing world instead of a startup ecosystem. But that perception has too many blindspots. The island nation may house more business process outsourcing firms than what qualifies as a startup. But it is certainly not a laggard. It has just being too concerned with regular business administration, its bread and butter, versus pursuing innovation on its shores. And it knows this. Hosting some of Africa’s largest IT infrastructure players is a flex, but Mauritius wants more. And it wants this “more” to extend and enable its robust financial services sector. Mauritius is one of Africa’s richest countries. But it did not start out that way. In a paper published seven years before Mauritius secured independence from colonial Britain, James Meade, the Nobel Prize-winning British Economist described Mauritius as an “outstanding example of a mono-crop economy”. Like Meade, Trinidadian-British writer Vidiadhar Naipaul saw no prospects for a country where only “sugar cane and sugar cane ending in the sea” was the only source of economic activity. In order: (1) Painting by Raouf Oderuth showing indentured Indian labourers arrive Mauritius (Licence CC BY-SA 4.0) (2) Painting by Raouf Oderuth (Source: Wikipedia). (3) Port Louis at night (Source Wikipedia – CC BY 2.0) GIF by Abraham Augustine In 1968, when it gained independence, Mauritius boasted a stunning per capita income of only $350. The majority of the population were indentured workers who had come from India to work in the plantations after the abolishment of slavery in the 1830s led to a labour shortage. Creoles—mostly descendants of former slaves, Franco-Mauritians (the small class of French-descended land-owners) and a tiny Chinese minority made up the rest of the population. For Naipaul, writing his 1972 essay, The Overcrowded Barracoon, Mauritius was a volatile hodgepodge not destined for greatness or even middling. Today, the per capita income in Mauritius is just over $10,000 (or about $23,000 in purchasing power parity terms). One of the highest in Africa. From sugar to “pan-African tech” center The startup funding amount bellies what is possible. | Infographic: Ayomide Agbaje — TechCabal Insights. From an economy built on sugar and textiles exports and tourism, Mauritius is now synonymous with financial services. But it also has a strong manufacturing sector (courtesy of aforementioned suger and textile industry) and is a significant business outsourcing hub in addition to hosting a luxury real estate market. With 87% of the country covered by high-speed internet and a smartphone penetration that rivals that of any other African country at ~80%, the country is clearly not a greenfield. But there is a difference between using technology and creating it—or at least hosting the people that create it. To this end, there is no shortage of government-run or designed “digital economy” or “digital innovation” programs. There is a central bank digital currency in the works. A fintech promotion agency and a regulatory sandbox targeting blockchain applications. A revamped research council known as the Mauritius Research and Innovation Council (MRIC) is also in a race to fulfil its mandate to search for and fund innovative ideas in robotics, blockchain, AI, and cloud computing. And no, that mandate predated this year’s AI frenzy. This tech ambition is not exactly new. It started in earnest 22 years ago. In 2001 construction started on Ebène Cybercity, a 64-hectare technology park to serve as the centre of the country’s then fast-growing IT sector. IT in the early 2000s was telecoms, subsea cables, data centres and such like. It is also home to AFRINIC, the regional internet registry for Africa and the Indian Ocean region. But in 2001, when the idea of tech hubs or even smart cities as the larger versions are known today, was not in the lexicon of most African governments. But Ebène Cybercity was not designed to make Mauritius attractive to a technology ecosystem from across Africa. In 2001 most African countries were just at the beginning of the mobile telephony boom curve. Instead of a tech park, Ebène slowly became the house of many of the financial services firms in Port Louis that struggled with traffic congestion in the capital city. Especially as the financial services sector began to take off and dominate the business profile of the island. Partner Message Did you know that you can embed financial services with SeerBit Alpha? No??? Well now you do! Say goodbye to developmental stress and hassles, and launch your fintech products faster when you build with SeerBit Alpha. Click here to learn how you can add fintech to your product As a technology ecosystem profile begins to mature in Africa, Mauritius’ leadership and policymakers are seeing an opportunity to redefine the island by making technology one of the country’s economic descriptors. A few stumbling blocks to clear Over the years, successive governments in Mauritius have pursued an economic diversification program so that no one economic sector is too much of an Achilles heel. But some of that reform agenda has lost its steam. In addition, the crowded marketplace of business process outsourcing firms is gaining a reputation for bait and switch tactics that is weighing heavily on investor and entrepreneur interest. Especially younger and typically naive investors and entrepreneurs unfamiliar with navigating high finance. This market for fees contrasts sharply with the type of environment that can foster startup activity. The result is that while the financial services sector is still going strong, it is also losing what competitive appeal—even if only slightly—it might have had years back, to places like Dubai. So much so that even Mauricien corporate services firms are increasingly setting up outside to serve clients through other financial hubs. Partner Content: Read how Kippa’s founder and president,
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