Quote from Ndubuisi Ekekwe on June 28, 2024, 7:59 PM

These are ten things you should be building in Africa, as a startup or a young company, according to tech strategist, Maro Elias. Brace yourself as he makes his case in more than 14,000 words!

1.   Lending Infrastructure.

2.   Cross-Border Payment Infrastructure

3.   Frontend Insurance and Micropension Plays

4.   Innovation Arbitrage

5.   NIP 2.0

6.   SME Enablement

7.   International Remittance Extension

8.   Vertically Integrated Grocery Delivery

9.   Solar Energy Plays

10.  AI Tooling

 

Rated "R" for recommended. The link is here .

(This follows his earlier tome where he postulated on ten things you should NOT be building in Africa. That is available here). 

Below, we used AI to summarize the piece.

Summary

• Charles.H.Deull, a historical figure, famously declared that everything that could be invented had been invented, a statement proven wrong by the subsequent inventions like airplanes, the internet, smartphones, and more.
• The article discusses the importance of maintaining a forward-thinking perspective in innovation, highlighting the different approaches startups take in developing their market theses and the potential outcomes.
• Successful companies are often built on the foundation of a forward-looking thesis that may initially seem unconventional but aligns with market needs over time, contrasting with companies that fail due to flawed market assumptions.
• Predicting the future is challenging, but understanding market patterns and evolving technologies can help in developing a forward-looking thesis for successful product positioning.
• Technology companies typically originate from three categories: hard problems, silly ideas, and wild cards, each requiring different strategies and beliefs for success.
• The author presents their 2034 thesis, outlining key trends that may drive technological evolution in Africa, such as replicating financial institution relationships at the SME level and the convergence of global and local markets.
• The article emphasizes the importance of flexible infrastructure, asset-heavy models, and the role of Artificial Intelligence in driving efficiency and productivity within enterprises.
• The author provides a summary of hard problems, including challenges in lending infrastructure, cross-border payments, and opportunities in insurance and micro-pension markets.
• Silly ideas for innovation include SME enablement, international remittance extension, and vertically integrated grocery delivery, highlighting emerging opportunities in these areas.
• Moonshot ideas for innovation involve solar energy plays and AI tooling, aiming to empower communities with affordable energy solutions and enhance enterprise productivity through AI tools.
• A personal experience involving a loan company contacting the author about a borrower who had taken a loan using the author's contact details without permission.
• Banks prioritize profits over narratives like financial inclusion, leading to a focus on safe borrowers like salary earners for consumer credit.
• Fintech companies compete for the remaining market share by targeting customers overlooked by banks, but face challenges due to fragmented lending infrastructure.
• The lack of a consolidated lending infrastructure in Nigeria has led to issues like harassment of borrowers and a lack of consequences for defaulting on loans.
• The key components for a successful lending business in Nigeria are underwriting, disbursement, and repayment, with existing infrastructure for disbursement and repayment but challenges in underwriting.
• The author suggests the need for a consolidated database where lenders can share borrower data to make more informed credit decisions and penalize malicious borrowers.
• Despite the technical feasibility, the main challenge lies in stakeholder management and getting various financial institutions to agree to share data.
• The author predicts that solving this problem will lead to market consolidation and increased trust in established lenders over smaller, less reputable ones.
• The potential solution to the lending infrastructure problem may come from a former bank executive with strong industry relationships rather than a typical fintech founder.
• Lending remains a significant opportunity for value creation in Africa, with examples like MTN Xtratime, MTN's airtime credit product, generating substantial revenue in Nigeria.
• Cross-border payments are a hot topic in the fintech industry, with many companies claiming to offer these services by incorporating virtual dollar cards and USD account issuance APIs.
• Challenges exist in sending money out of Nigeria due to currency issues, despite advancements in technology.
• The Pan African Payment Settlement System (PAPSS) by Afrieximbank is addressing these challenges by providing a real-time payment rail for intra-African trade, using the US Dollar as an intermediate settlement currency.
• Building a cross-border payment API leveraging stablecoins could be a solution to facilitate instant fund transfers between different currencies.
• Providing accessible APIs for developers to innovate on top of the infrastructure can lead to the creation of new products and services in the cross-border payments space.
• The micro pensions and insurance sectors in Nigeria face challenges in adoption due to consumer behavior and cultural factors.
• Micro pensions, designed for the informal sector, have not met expectations with low average contributions per account.
• Insurance penetration in Nigeria is low due to cultural reasons and the perceived high cost compared to traditional practices like spiritual protection.
• Unlocking the digital insurance and micro pension market requires addressing consumer behavior challenges and could lead to significant market growth opportunities.
• Investors may find value in backing companies with quality products and teams that enter the market after it has been opened up by early movers in the digital insurance and micro pensions space.
• Innovation arbitrage involves taking successful initiatives from advanced markets and implementing them in less developed markets to ride their growth trajectory into the future.
• It is a long-term strategy suitable for companies with a forward-looking market outlook, emphasizing the importance of understanding and adapting to a market's existing trajectory.
• Jumia's approach to eCommerce in Africa is cited as an example of innovation arbitrage, highlighting the importance of considering healthy unit economics and market adoption.
• Interswitch is praised as a successful example of innovation arbitrage in Africa, particularly in Uganda and Sierra Leone, where they are driving digital payment plays and infrastructure development.
• The concept stresses the need for infrastructure plays over easily replicable frontend products to establish a competitive advantage and position for future growth.
• The text also discusses the challenges of premature market expansion in Africa for startups, emphasizing the importance of deepening plays within core markets before expanding across multiple countries.
• NIP 2.0 is proposed as an updated version of the NIBSS Instant Payment (NIP) rail in Nigeria, aiming to democratize access, improve reliability, and enable new innovative use cases.
• The development of NIP 2.0 presents challenges in converting deposit money banks (DMBs) from the existing NIP system and ensuring reliability to gain market acceptance.
• Two potential methods for developing a resilient NIP 2.0 system are discussed: an intra-bank settlement infrastructure system and a blockchain infrastructure play.
• Building NIP 2.0 is seen as a significant opportunity for fintech companies to expand their market presence and create new opportunities within the digital payment ecosystem.
• SMEs are crucial to the economy, with a significant presence in Nigeria and across Africa, contributing to GDP and employment.
• Many individuals engage in side hustles alongside their primary jobs, recognizing the importance of multiple income streams.
• Economic challenges like currency devaluation and business closures are prompting more people to consider entrepreneurship out of necessity.
• SME enablement companies play a vital role in providing tools and services to support small businesses, both offline and online.
• Offline SME enablement focuses on in-person services, with companies like Moniepoint and OPay well-positioned to cater to this market segment.
• Online SME enablement targets businesses operating primarily through social media channels, offering a consolidated product stack tailored to their needs.
• The international remittance market is growing, driven by opportunities for remote work and cost-cutting measures by foreign companies.
• Companies like Grey, Fincra, and Leatherback are well-placed to capitalize on the trend of offshoring technical roles to African talent.
• The diaspora market presents opportunities for innovative financial services, such as investing in local economies and facilitating digital transactions between host and home countries.
• The future of the international remittance market may involve closer integration between diaspora markets and home countries, enabling new revenue streams and business models.
• GoLemon, an eCommerce platform founded by former Paystack employees, facilitates online grocery shopping and home delivery, tapping into a market where people seek to avoid the hassle of physical grocery shopping.
• While current grocery e-commerce models focus on distribution, there is potential for startups to deepen their involvement in the value chain by possibly owning farm infrastructure to offer products at discounted rates, thereby expanding the market.
• Amid Nigeria's food inflation, there is an opportunity for B2C eCommerce grocery players to drive consumption by integrating backwardly and potentially owning parts of the farm infrastructure.
• The solar energy market in Nigeria shows promise due to rising petrol prices and the potential for solar-powered homes to reduce electricity costs, presenting opportunities in selling solar panels, creating distributed solar ecosystems, and exploring energy reselling.
• AI tools are seen as a key area for tech success, with a focus on developing core competencies, understanding market trends, and avoiding overhyped narratives like "yogababble" in the industry.
• The future of AI evolution in Africa may lie in building market-winning products by focusing on practical applications within enterprises, such as automating routine support tasks for banks to improve efficiency and productivity.
• The path to success in AI tooling in Africa may involve targeting large enterprises rather than SMEs, leveraging initial successes to expand services and iterate based on user feedback.
• Fraudsters in the fintech ecosystem employ various techniques like phishing and social engineering to defraud users, with losses amounting to millions in Nigeria in 2023.
• A proposed solution is a fraud consortium that aggregates fraud data to flag fraudulent entities, making it difficult for scammers to replicate successful fraudulent transactions across multiple platforms.
• The FX Repatriation Engine aims to facilitate the repatriation of funds for foreign investors in Africa, potentially addressing liquidity challenges faced by investors like Blackrock.
• Implementing clear regulatory guidelines and utilizing crypto rails can help unlock a billion-dollar market opportunity and reduce pressure on regulators.
• Small-scale payments, particularly in developing markets, are dominated by cash transactions, presenting a significant challenge for digital payment systems.
• Creating a robust micropayment system, especially targeting the transportation sector, could revolutionize small-scale transactions and unlock multibillion-dollar opportunities.
• Innovating in Africa offers entrepreneurs and businesses a unique opportunity to leverage the continent's evolving landscape and build impactful businesses across various sectors.

Context

In recent years, the African business landscape has witnessed a surge in innovation and entrepreneurship, particularly within the fintech sector. Fintech, short for financial technology, encompasses cutting-edge solutions that revolutionize how financial services are delivered and accessed. This wave of innovation is driven by a confluence of factors: rapid technological advancements, evolving consumer preferences, and the pressing need for financial inclusion in emerging markets like Africa. As digital payment solutions and fintech startups proliferate across the continent, there is a palpable shift towards market disruption and adaptation in response to changing dynamics. The rise of eCommerce platforms and online service providers further underscores the importance of leveraging technology to address challenges while seizing opportunities in this dynamic landscape.

Amidst these developments, key themes such as infrastructure development for sustainable growth and the impact of technology on traditional industries come to the fore. The evolution of AI (Artificial Intelligence) and blockchain technologies holds immense potential in transforming sectors traditionally resistant to change. However, navigating regulatory frameworks remains crucial for fostering fintech innovation while ensuring consumer protection. Moreover, as Africa grapples with economic challenges necessitating entrepreneurial endeavors for progress, understanding market consolidation dynamics alongside competition within the fintech industry becomes paramount. Looking ahead, there is optimism surrounding continued growth prospects for fintech companies in Africa alongside increased investment in infrastructure projects and tech startups—ushering in a future characterized by sustainable practices and inclusive economic development.

Counterarguments

In examining the assertions put forth regarding innovation, business success, and market dynamics, it becomes evident that a more nuanced perspective is necessary to fully grasp the complexities at play. While historical statements about the limits of invention have been proven wrong time and again by unforeseen advancements, it would be premature to assume that all possibilities have been exhausted. The notion that successful companies are solely built on forward-looking theses oversimplifies the multifaceted nature of business triumphs, neglecting crucial factors like timing, execution, and competitive landscapes that significantly influence outcomes.

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Moreover, proposals such as market predictions based on evolving technologies and consolidated lending infrastructure solutions may encounter substantial hurdles in practice. Predicting market trends with certainty remains a formidable challenge due to the inherent unpredictability of economic landscapes. Similarly, while initiatives like shared borrower databases aim to enhance credit decisions and trust in lenders, they face intricate challenges related to data privacy, regulatory compliance, and stakeholder cooperation that cannot be overlooked. These counterarguments underscore the importance of approaching complex issues with a critical lens and acknowledging the intricacies involved in navigating innovation and business landscapes effectively.