Innovating in Africa: Top 10 Things You Should be Building

No one in history has been so blatantly proven wrong as Charles.H.Deull. Born on the 13th of April 1850, Charles had a stellar career; graduating from Hamilton College with a Bachelor of Arts in 1871, leading a successful legal career as a private practitioner, and eventually ending up in the New York State Assembly where he served between 1878 and 1880. However, like every other person born in America in 1850 who decided to pursue a legal career, Charles would have lived a totably unremarkable life excluding an arguably apocryphal quote attributed to him when he was the head of the US patent office; “Everything that can be invented has been invented” – Between that quote and today; we’ve seen the invention of airplanes, the internet, smartphones, TikTok and ChatGPT.

This article is the second part of a two-part series on innovating in Africa. You can read the first part on Top 10 Things You Shouldn’t be Building here.

It’s easy to dismiss Charles’s perspective as archaic and anti-innovative, however, at every point in time, there’s a tendency for people to subtly assume that the opportunity for new products that move the human race forward via increased efficiency and productivity gains no longer exists. When people think like this, three outcomes are inevitable; one, people create a thesis that the market is large enough to accommodate multiple players and therefore begin to launch copycat products; those who are eager to stand out create products that are incrementally better than existing products under the guise that their 2% increase in product value will be enough to corner the market (forgetting existing players can just reincorporate those changes into their existing product stacks and chase them out of the market), those who are too proud to copycat adopt the other two options; build products that are too forward for their time (Cova) or build products for markets that are completely non-existent (ThePeer).

Every startup is built on a forward-thinking thesis of how they think the world is going to evolve and the success of that startup is largely hinged on the prescience of their thesis, their ability to execute, or a healthy mixture of both; Paystack was built on the thesis that if they made it possible for both technical and non-technical people to integrate payment capabilities into their digital touchpoints, they could unlock consumption within the eCommerce space and expand that market, Piggyvest was built on the thesis that people would be willing to keep their hard-earned savings in a digital wallet owned by a startup with no clearly identifiable physical office and founders with little or no banking experience (a thesis I could have sworn would led that business to zero, but one that worked nonetheless). ThePeer was probably built on the thesis that digital wallets would overtake bank accounts as a funding channel for both online and hopefully offline transactions, and users would prefer a streamlined payment process to accompany that evolution, the same way Moniepoint pioneered the pay with bank transfer channel within the Nigerian market on the thesis that people would be open to leveraging bank transfers as a payment channel for both offline and online transactions (even though cards are a way better channel for offline transactions, and card tokenization on payment gateways is a much more seamless payment process), ThePeer’s thesis could have gone either way.

Some of the best companies are built on a thesis that usually doesn’t make sense when they start off but eventually finds market alignment somewhere along the line and scales beyond anyone’s imagination (see PiggyVest, AirBnB etc.), while some companies create powerful market thesis that make so much sense in the beginning but eventually flop when exposed to the realities of the market ( see B2B eCommerce companies, 54gene and how can I forget – Jumia). Developing a market-winning thesis is a daunting task that is hinged on an objective hypothesis of how the future is set to evolve and the most appropriate posture required to capture that market. For anyone intending to build a market-leading product, this is the first job to be done.

Predicting the Future

As anyone who has ever bet on Chelsea winning a match and been severely disappointed knows (see Chelsea 2:2 draw with Sheffield United) predicting the future is hard. Things can evolve in all manner of directions and unpredictable outcomes are usually the order of the day. Time is also a great catalyst for innovation; as I stated in the first part of this series; ten years ago, USSD was non-existent in our local market, most banks didn’t have mobile apps and neither Paystack nor Flutterwave had been founded, Ten years later, Segun Adeyemi’s annual map of the fintech industry in Nigeria is a testament to how much the industry has evolved over the past couple of years both on the backbone of varying founder hypothesis that went right, the existence of new infrastructure to power new use cases (neither Chowdeck nor PiggyVest would exist today if someone hadn’t cracked payment gateways) and the influx of foreign capital into our local ecosystem (more than US$2 billion raised in investor funding since 2015).

While history doesn’t repeat itself, it definitely rhymes, and understanding the most important patterns that govern innovation evolution within markets is a very valid methodology for developing a forward-looking thesis’ that helps companies position themselves for tectonic shifts within markets and capitalize on the value creation and extraction opportunities within those shifts. This article is my attempt to Identify what those shifts may look like from my vantage point ten years from now and what those opportunities may look like in material terms. 

The Three Kinds of Companies

All technology companies originate from three broad categories; hard problems, silly ideas, and wild cards

Hard Problems:

Hard problems are very obvious. Everyone knows there’s a clear problem, everyone knows solving that problem will unlock massive value creation opportunities and those who have the problem themselves are clamoring for a solution, however, no one has been able to solve those problems yet because of the inherent systemic challenges mapped to them. Hard problems (usually) require a mixture of multiple factors including competent and driven founders, an influential/powerful stakeholder network, and some other external incentive working in proper alignment for companies who decide to chase problems within this segment to succeed. Companies like Interswitch, Paystack, and Flutterwave were products of hard problems.

Silly Ideas:

Silly idea-originated companies are entities hinged on a forward-looking thesis that seems completely non-sensical to anyone with some degree of domain expertise looking at it. Founders with silly ideas tend to have an unwavering belief in their forward-looking thesis and stay the course until it eventually works. The people who back companies with silly ideas (especially at pre-seed when they haven’t started showing real traction) are either investing in the competence of the founders, actually believe in the vision, or were just plain lucky. The best example of a silly idea is PiggyVest – to think that people would keep their hard-earned money with an internet company founded by people with little banking experience is something I would have never believed would work. If PiggyVest had failed, It would be very easy to do a post-mortem and provide a comprehensive list of why their idea made zero sense.

PiggyVest worked because the founders had an unwavering belief in their thesis (which was surprisingly accurate) and today PiggyVest is one of the most successful B2C technology companies in our ecosystem.

Wildcards:

Wildcards are very simple entities. They find what looks like a simple market opportunity that isn’t, particularly a secret and other players are already building in, tinker with it to build a solution, are able to build what seems like a better product than their competitors, a strange wave of momentum becomes available, and they are smart enough to be able to ride that wave till they become market leaders within their respective market segments. Moniepoint, OPay, Chowdeck, and Moove are all examples of companies that fall under this category.

My 2034 Thesis

If I am not served breakfast anytime soon, ten years from now I should be married with kids. My kids will know a far different world from the one I am exposed to today; growing up, my father told me stories of how he received an annual N700 (US$0.5) bursary as a student of the University of Benin from the (then) Bendel government. This N700 (US$0.5) bursary was enough to sustain him for almost a year – a testament to the value of the Naira at the time and/or his spending ability. Ten years from now when I tell my kids I used to buy a loaf of bread for N180 (US$0.13), I sincerely hope inflation doesn’t make me sound like a liar.

From my vantage point, I believe there are six key thesis that will drive the next evolution of technology within the African clime:

Replicating the Financial Institution – Large Corporate entity relationship at the SME level (possibly without human agents) will unlock new value

The one thing technology has repeatedly proven itself to be extremely competent at is driving democratization. Every new technology shift has inevitably done one of three things; make a certain product or service accessible, cheaper, or better. Some years ago, if you wanted to send money to someone with a bank account, you would either call your account officer to provide the necessary documentation for you to authorize such a transaction (if you were rich) or walk to the closest bank branch (or more specifically the exact bank branch you opened your bank account with) and waste your time in a queue with people trying to do the same thing as you (if you weren’t rich). Today, everyone has access to a democratized account officer in the person of their bank mobile application and/or USSD string sitting on their smartphones.

 While credit today seems like the most veritable (and financially sensible) way to create and extract value from SMEs, every other financial institution relationship (both bank and non-bank) that exists for large corporates today will be simulated at scale for SMEs via technology. In other words, someone is going to find a way to create at-scale versions of institutional banking products for SMEs; these could include a proper insurance service (where the SMEs actually know what they are paying for), advisory services, treasury services, trade finance etc.

 All of these will not only create more economic value but also expand consumption for most of these services within our markets.

 The Global-Local convergence will continue growing

The provision of tools that drive increased connectivity between the world and Africa will unlock new opportunities for venture-sized returns.

o   Outward Connectivity: The increased appetite for foreign-originated goods and services amongst younger demographics will continue to increase and tools that simplify access to these goods and services will ride a tailwind of opportunities for years to come.

o   Inward Convergence: Increased migration from Africa is expanding the African diaspora. International remittance is just one leg of a multi-legged stool that could represent novel ways of economically connecting the diaspora to Africa for new value-creation opportunities.

Africa will not evolve at the same speed, but it will follow a similar trajectory

Nigeria is probably five years ahead of Rwanda, ten years ahead of Tanzania, twenty years ahead of Cameroon, and thirty years ahead of Equatorial Guinea. The opportunity to time travel within Africa to re-enact the payment ecosystem trajectory that has manifested itself in key markets and position to capture those opportunities in some of the more nascent ecosystems within the continent is an opportunity that only the most discerning long-term players may be able to capture and leverage on.

Flexible infrastructure will unlock more use cases and value-adds

The opportunity to place distributed payment infrastructure in the hands of private players may drive new vistas in market development, new products, or expanded consumer consumption. If we can make certain things possible (by just providing the infrastructure), there’s no telling what kind of use cases and solutions innovators will latch on to and unearth for subsequent release into the market and value capture.

Running asset-heavy models as a technology company is not satanic

Sometimes vertically integrating by owning your inventory and backend by being asset-heavy as against just being a technologically empowered distribution company may just be the ideal (and in some cases only) way to solve certain market problems and deepen the value of technology within those markets,

Africa will either pioneer or mimic with respect to Artificial Intelligence, but it will inevitably start with some yogababble before real value emerges.

 No one has a clear and definite picture of how Artificial Intelligence (specifically GenAI) is going to evolve, we can however deduce from available evidence where we think the largest opportunities will appear. The biggest value gain from AI is increased efficiency and productivity. The opportunity to amplify the capabilities of individual team members and enhance relative yield per employee is attractive enough to drive more firms to take Artificial Intelligence seriously.

However, similar to how the large offline retailers like Shoprite, PrinceEbeano, and SPAR have chosen to work with partners to provide offline acquiring capabilities within their establishments as against developing payment capabilities themselves, most companies in Africa will rely on third parties to provide the AI toolsets they require to amplify productivity and efficiency within their enterprises (considering AI is supposed to be a feeder into the main business they operate, not the main business itself).

AI tooling companies are where the vast majority of value will exist and there is nothing that stops Africa from taking a lead role in this new world order. Developing an “Africa-Centric Foundational Model” is not the right way to go in my opinion. Africa has neither the resources, technical skills, or business case to engage in such an enterprise.

TL;DR

Hard Problems:

1.       Lending Infrastructure.   

Unavailability of a proper lending database inhibiting the structured growth of the market, Pareto principle market equilibrium (80% of the market is controlled by 20% of the players) yet to be achieved due to the lack of a broad-based and intuitive lending database with clear default consequences, salient opportunity to unlock a lot of value within Africa.

2.       Cross-Border Payment Infrastructure

Moving money from Africa to international markets continues to be a challenge, the opportunity is not necessarily in building the product, but building the API infrastructure for other players to connect to and leverage to complete their own propositions, massive value and consumption unlock for whoever can crack this market.

3.       Frontend Insurance and Micropension Plays

Huge untapped opportunity in the insurance and micro pension market, hard problem because most of the inhibitions are consumer preference oriented, we will eventually crack the micro pension market in the next couple of years or die trying.

4.       Innovation Arbitrage

The final opportunity for companies who missed the innovation evolution in their home markets to try again, extremely hard problem because it requires strategic positioning and long-term thinking, opportunity to go back in time and reposition as an infrastructure provider within nascent but key African markets

5.       NIP 2.0

Improved version of NIP that empowers innovators to build new flexible payment use cases, reduces the need for participating banks to pledge collateral for settlement. Suicide mission for anyone audacious enough to take this on, massive upside at the end of the tunnel (if they eventually get there).

Silly Ideas

6.       SME Enablement

Empower SMEs in more ways than just credit, provide the toolset required for SMEs to thrive in an evolving world, winners already beginning to emerge in the offline segment of the market, online segment seems like a massive greenfield opportunity.

7.       International Remittance Extension

Opportunity to integrate the diaspora market with their home markets in more ways than one, provide a technology middle layer that creates automation, and empowers diasporans to do more than just funds transfers.

8.       Vertically Integrated Grocery Delivery

Positioning eCommerce players in grocery delivery to evolve from being just distribution channels to owning inventory and under-cutting the conventional market with lower prices, highly likely to produce an African unicorn

 

Moonshots

9.       Solar Energy Plays

Empower more communities with access to affordable energy, leveraging that entry point to distribute home-oriented goods financing, creating distributed energy systems, and finding ways to build energy reseller markets.

10.  AI Tooling

Provision of AI tools that empower enterprises to improve productivity within their ranks, start with one enterprise, identify opportunities to deploy AI models within said enterprise, rinse, and repeat.

 

Top 10 Things You Should be Building

Hard Problems:

Highly obvious problems with high economic upsides but massive systemic issues inhibiting efficient solutions.

1.       Lending Infrastructure

Sometime in Q3 of 2021, a friend invited me to a session in one of her communities. Since it was my first time, someone was assigned to capture my details for subsequent follow ups and (considering I had no intention of being a permanent member of that community) I never showed up again. Some months later, I got a message on WhatsApp from a loan company claiming that a person I supposedly knew had taken a credit facility from them and had refused to pay. They shared the name of this supposed person and I couldn’t recognize the name, they threatened to distribute the person’s image if I didn’t repay the loan (or something along those lines), considering I couldn’t recognize the name of this supposed borrower, I ignored the message and continued with what I was doing. Some minutes later they shared the picture of this borrower, and lo and behold it was the person that took my contact details some months back at my friend’s community.

The Greek physician Hippocrates reportedly chimed that desperate times call for desperate measures, no fintech sub-vertical exemplifies that statement better than lending.

Banks are not in the business of selling narratives, they are in the business of generating profits and creating shareholder value, so while lofty statements like “We are driving financial inclusion and banking the unbanked” may appeal to a US-based investor looking for where to create the next 10x return for his fund, such statements are largely irrelevant to bank shareholders because every one of them knows that “we are banking the unbanked” cannot buy you a 2024 Mercedes Benz G-wagon, only raw hard profits can. This is why when banks who are all driven by a single motive to maximize shareholder value choose to ignore a specific customer segment, assuming they are stupid and clueless is a very presumptuous thing to do, and presumption, in this case, can make you desperate, like all the hundreds of loan apps on the internet.

 Banks have been maniacal about their preference for salary earners and predictable income earners for consumer credit for many reasons; repeated income means banks can hedge their lending portfolio against safe borrowers who are incentivized to pay back credit facilities to unlock access to more facilities, salary earners are less likely to default, and if they do, there are automated ways to collect those funds from them based on pre-configured debit mandates on their accounts. Because the banks focused on safer borrowers (salary earners), that left what was left of the market for fintechs to compete for, however, the lack of consolidated lending infrastructure inhibited market growth and forced two outcomes; lenders began to build siloed databases of their customers and third-party ways to collect repayments from them, and for those who weren’t technically adept enough to build siloed databases, they went full on berserk and started harassing people in ways that would make even the devil smirk. I have seen images from loan companies wrongly accusing people of being armed robbers, kidnappers, being on the run, and in one case being HIV positive. People were shamed into paying until the FCCPC eventually stepped in to create order in the market by working with Google to ban access to customers’ contact lists and other data sets lenders were using to harass customers at the time.

 While this helped reduce the number of loan sharks and bad actors within the country, it didn’t solve the underlying problem – lack of credit default consequences incentivized borrowers to default on credit facilities.

 Every market eventually evolves into the Pareto innovation dynamic (80% of the market will be controlled by 20% of the players), In other words, two or three players within every vertical will likely control the vast majority of customers, revenue, and value while the rest will struggle for crumbs. This dynamic is manifest in the agency banking, payment gateway, mobile payments, and consumer savings space, and until a market evolves to that dynamic its evolution isn’t fixed or closed yet (this is why I am generally of the opinion that lending is a large market opportunity – there are many players, but the winners haven’t been defined yet). The lending market has not evolved into that yet, and the primary reason is that the infrastructure to run a proper lending business in Nigeria, get rich while doing so (and not die trying) is not complete.

 There are three key components required to run a proper lending business in Nigeria – underwriting, disbursement, and recollection. Underwriting speaks to your ability to verify in real-time who is worthy of a loan and who is not, disbursement speaks to your ability to process facilities to a borrower’s position and repayment speaks to collecting disbursed credit at pre-agreed intervals. The infrastructure for disbursement and repayment already exists today; NIP by NIBSS, RITS by Remita, and AutoPay by Interswitch are all potent ways to disburse loan facilities to a borrowers position, the infrastructure for repayment also exists; PSSPs are now evolving from utilizing card tokenization for repayment collections (which limited repayments to users with an active debit card) to leveraging APIs from NIBSS to build end-to-end direct debit stacks. Other players like Remita already have existing Direct Debit solutions on the market. The one part of the process that has hiccups is the underwriting bit; how do you verify who is eligible for a credit issue, and who will end up being a thorn in your flesh? Companies like Mono and Indicina have built technologies that allow lenders digitally access a borrower’s bank statement and via intelligent analysis tools verify whether the customer in question is eligible for the requested loan amount (based on his ability to repay). However, the ability to repay is only one part of the conversation, the real question is whether they are willing to pay, this Nairametric article shows that being willing to pay is not as rampant as we think it is, and lets us know that the real problem we need to solve is actually building a mutually beneficial robust database that every lender can plug into to share loan repayment data on their customers (both good and bad) that allows other lenders make more informed credit decisions based on a borrowers historical repayment history.

But we have credit bureaus, right? Yes, we do, but this article on how funny borrowers are looking for multiple platforms to collect credit from, and stories of borrowers taking loans from lioncredit to pay a facility taken from chickencredit is a testament to how this may not be working at scale yet. The fact that FCCPC-licensed lenders (for whatever reasons) are not able to both contribute and request borrower data from a credit database shows that something isn’t working optimally.

 The big opportunity in lending is creating a consolidated database where every lender can share data on their borrowers and their repayment habits, and also request data on new borrowers and their repayment habits to enable them make much more informed credit decisions and actually penalize borrowers with malicious intent.

 If a solution like this goes live, the market will start to consolidate and fewer people will patronize goatcredit and cowcredit and flock to more recognizable names like Carbon, Fairmoney, and other more structured lenders, this will eventually morph the market to follow the Pareto market trajectory principle, and I will eventually stop saying lending is a huge market opportunity.

To be very clear, this is a very hard problem to solve because this isn’t necessarily a technology problem (building the technical stack to power this isn’t necessarily rocket science), it’s a stakeholder management problem – getting DMBs, MFBs, Fintech lenders, etc to agree to share data on borrowers from their platforms with you in exchange for access to data from borrowers from other players is a daunting task, and my bet is that the person who solves this problem isn’t going to be a fintech founder wearing branded t-shirts, tweeting about things he doesn’t understand and shouting the “Build something people want” YCombinator mantra (even though his last two startups built products people didn’t want), it’s probably going to be a former bank executive with strong relationships within the fintech and banking space taking a stab at entrepreneurship with this. I don’t necessarily think domain expertise is a key requirement for building successful ventures (see Paystack, PiggyVest, etc), however, in this case, I think whoever chooses to take a stab at this will need to have that.

Someone is going to solve this problem in the next ten years, the only question is who?

Note: Lending continues to be the single largest opportunity for value creation in Africa. The largest fintech in Nigeria by revenue is not Interswitch or NIBSS, it is MTN Xtratime – MTN’s airtime credit product that serves over 77 million MTN customers and charges a 20% interest rate for airtime borrowing. MTN Xtratime generated N80.7 billion (US$ 57.6 million) in revenues in full year 2023 alone.

2.       Cross Border Payment API

No fintech term has been so popularized like cross-border payments. It’s such a sexy word; the founder of now defunct Ghanian startup Dash raised US$86.1million from investors and paid himself US$50,000 a month just by saying cross-border payments, I see too many fintechs claim to offer cross-border payments, and the latest trend in our industry now is slapping a virtual dollar card and USD account issuance API on a mobile payment application and calling yourself a cross-border payments platform (or something along those lines).

Cross-border payments generally has two legs; outward (moving money out of Africa) and inward (moving money into Africa). Because of FX scarcity, certain African countries have become like Post No Debit bank accounts (bank accounts that can receive money, but are suspended from sending monies out).

Receiving money into Nigeria is not a hard thing to do; Paystack and Flutterwave allow their merchants do this, LEMFI and Send by Flutterwave allow individuals do this, however, when you begin to think of sending money out of Nigeria, that is when you begin to see manifestations of witchcraft.

The biggest problem with sending money out of Nigeria is not the lack of technology, the biggest issue in my opinion is a currency issue.

Today, PAPSS (Pan African Payment Settlement System) by Afrieximbank is gradually solving this problem for intra-African trade by providing a real-time payment rail that allows individuals and businesses move funds across Africa and settle beneficiaries in their local currency. Before now, sending funds from Lagos to Accra (255.7miles apart) would go through two correspondent banks and probably settle in a day or two. Today, PAPSS uses the US Dollar as an intermediate settlement currency (in other words, participating banks have to keep a US dollar position with AfrieximBank for transaction settlement). However, my bet is that in the future Afrieximbank will issue its own wholesale CBDC for settlement to allow more banks and fintechs participate in the system thereby driving new use cases.

 Every day you wake up and look in the mirror, you need to ask yourself, what am I doing with my life? If you have the skill set required, I think building a cross-border payment API that allows fintechs and even banks move funds from Nigeria to foreign countries is something you should definitely spend your time doing.

 Building this rail is a hard problem, and while I am not a crypto aficionado, I think stablecoins may be a great way to execute this.

 Leveraging crypto for settlement, a provider can enable users move funds instantly between multiple currencies by leveraging this “stablecoin infrastructure”.

There are many ways to design a system like this, but my best bet is having some kind of easily accessible and widely accepted cryptocurrency (USDC/USDT/EURT) act as a bridge between a not so widely accepted currency (NAIRA/CEDIS) and a widely accepted one (USD/EURO/GBP) may just be the way to go.

To be very clear, I know this exists in some form or the other today – Hellicarrier (formerly BuyCoins) pioneered this some years back, and my guess is that most startups promoting cross-border payments are leveraging systems similar to this, however, I have not seen a publicly available API a fintech can plug into to begin to offer services like this at scale.

My thesis is that if you just build the infrastructure required for this to operate, and expose those APIs to developers to tinker around with, people will find all kinds of use cases to build on top of said infrastructure and make you (the API provider) very rich and similar to how Paystack initially started with a payment gateway and then evolved to provide disbursement solutions (riding on NIP), card tokenization features, virtual account funding, and issuance, I believe just providing the infrastructure and listening to users inform your product development process will probably unearth new products and services and unlock massive consumption opportunities within our markets.

The revenue model can also be tinkered with – a standard transaction fee on processed transactions, and a monthly subscription fee for customers processing transactions above a certain threshold may be the ideal way to go.

 This is the next frontier, and I believe whoever is able to solve this problem will unlock massive amounts of shareholder value for investors.

3.       Frontend Insurance and Micropension Plays

 The laws of Physics are the underlying foundation for understanding how the world works. You don’t necessarily have to like them, you don’t have to agree with them, and as a matter of fact, you may even hate them, however, be that as it may, it is in your best interest to not only obey them, but to advise those who are close to you to do likewise. You may not like gravity, you may hate the fact that humans can’t just leap off the ground into the sky and you may be irritated by the fact that if you throw a ball into the air it comes back down, regardless, how you feel is largely inconsequential, if you go to the top of a tall building and jump while claiming to not believe in gravity, not only will the irrevocable law of gravity pull you down at 9.8m/s2 to your death, the devil will laugh at you in utter disbelief as he welcomes you into hell. Consumer behavior within emerging markets is not too different.

 There are battles you fight, and there are battles you ignore, and when innovating within emerging markets, it is in your best interest to go with the tide (i.e. prevailing consumer behavior) than to swim against it. Too many businesses have been sacrificed on the altar of innovation by thinking they can force human behavior within a market to align with their thesis. While consumer preferences and orientation can change over time (the move from pay on delivery to paying online), it is usually a slow process, and building a thesis hinged on a forced and premature assumption that your marketing expense will shift consumer behavior is a long shot, and one that may cost you dearly. Multichoice understands this very well and is aligning with the gradual migration away from cable TV to streaming via the launch (and aggressive push) of Showmax within Nigeria.

The Micropensions and insurance space are the next battlefield for a push like this.

Micro pensions

Let’s look at the data; There are broadly two pension schemes within Nigeria – The contributory pension and the micro pension scheme. Contributory pensions are statutory payments employers are mandated by law to make on behalf of their employees. The element of mandatory has its impact – there are presently 10,280,956 RSA holders in Nigeria today, and the total value of Pension funds and assets within Nigeria is roughly N19.66 trillion (US$14Bn). At the other side of the table is the starved cousin of contributory pensions – Micro pensions. Micro pensions were designed to cater to the informal sector by making it possible for them to plan for their retirement without relying on structured employment. The informal sector within Nigeria makes up 65% of Nigeria’s GDP and represents 80.4% of employment within Nigeria, but as large as that market is, it has failed to live up to its expectations, there are roughly 126,941 micro pension holders in Nigeria (80.1% of them coming from a single PFA) with total pension contribution of N791,574,202 (US$565,410). Which indicates an average balance of N6,235 (US$4.45) per pensioner. In other words, the average micro pension contribution per account is not enough to buy a carton of Indomie.

Insurance

Insurance is a unique business. For one, insurance solves a real problem; a lot of Nigerians are one health emergency, fire outbreak, or family disaster away from complete ruin, and having an insurance plan is a key way to hedge against bad things like that happening, so it should be obvious that people would embrace Insurance, however, it isn’t. The Insurance penetration rate within Nigeria is about 0.5%. The insurance business model is designed to collect a premium from you on a monthly (or otherwise defined recurring) basis with the hope that if nothing happens to you, they get to keep your money, and if something happens to you they pay the full cost (after taking you through a deliberately arduous process of proving that they are actually liable to cover the costs). The problem is paying N10,000 (US$7.14) a month to insure your shop from a fire disaster is much more expensive than buying anointing oil, drawing the cross on your door, and pleading the blood of Jesus over your shop every morning. Few people want to live their lives with the fear that something bad could happen to them and very few people are willing to pay a monthly premium to secure themselves in the advent of that happening. The vast majority of insurance consumption in Nigeria today is either mandated by law (third-party car insurance), distributed via corporate entities (staff health insurance), or self-initiated cause it just makes sense (small-scale health insurance). There is an inherent cultural reason why people do not use these services at scale and solving that problem is a huge market opportunity.

 To unlock the digital insurance and micro pension market isn’t just a technology problem, it is a consumer behavior problem, and whoever is able to break that market will inadvertently open the floodgates and unlock massive consumption within the insurance and micro pension market (two markets with ample market growth prospects). Insurance is a no-brainer to me, but micro pensions still feels dicey because I do not think the incentives for the informal sector to adopt it are clear enough (pensions are basically long-term savings plans to help you survive when you’re retired). Two things will happen in the next 10 years; someone will find a way to crack this market and unlock consumption within the micropension space, or we will eventually concludeconclude that micropension may not have a clear use case and quietly shelf it aside for something else.

 If I were an investor looking into this space, I would not back the company trying to crack this market, primarily because the risk is too high (we have no idea who is going to win or if anyone is going to win at all) and even if they do eventually crack it open, there is no guarantee they will own the market. Africa is filled with companies that opened markets but didn’t claim them – Jumiafood opened food delivery but Chowdeck claimed it, Interswitch opened payment gateways but Paystack claimed it,, etc.

 My best bet is to back the first runner-up who goes into this vertical with a quality product and team (after the market has been opened up), and a clear strategy to build a compounding distribution strategy that helps them win.

 I believe there is a huge market opportunity within digital insurance and micro pensions. Solving that problem is not a technology problem alone, but I believe whoever is able to solve that problem, unlock that market (and hopefully own it), will be able to unlock massive value for investors and all shareholders involved.

Note 1: Playing in this space will require an operator to hold a PFA license.

Note 2: Exit prospects here are pretty high – anyone playing here who scales phenomenally will probably get acquired by a local bank pretty quickly.

Note 3: The PFA business model has some similarities to the consumer savings play except the money stays with the PFA longer and withdrawals are less frequent.

4.       Innovation Arbitrage

The 1985 sci-fi movie Back to the Future is such an interesting movie. For starters, it shows how differently we have evolved compared to what the future was supposed to look like. According to the movie, In the future (2012), we were supposed to have flying cars and hoverboards, instead as of today (2024) we have TikTok, Smartphones, and just very recently Generative AI.

Life is a moving train that never stops and never crosses the same place twice, if that is the case, then time (not money) is our most valuable asset as humans, and if that is true (which it is), then time travel (the ability to stop/rewind/reverse the train) is the most valuable superpower anyone can have.

Unfortunately, neither Elon, Sean Carroll, nor Lisa Randall has been able to build a time machine yet, so we have to make do with what we have, and the closest thing to time travel right now is innovation arbitrage.

Innovation arbitrage as the name implies is going to advanced markets that are in the future, taking initiatives that have worked there and going to replicate them in less developed markets. This is markedly different from just copying and pasting products across markets, it’s about understanding the trajectory of a market and placing products that fit that pattern into the market so you can ride their growth into the future. Innovation arbitrage is a delicate business strategy that if done well can result in huge value creation and extraction, but when done poorly can lead to huge capital destruction major reason being that innovation arbitrage is remarkably expensive.

 Innovation arbitrage is usually a long-term play and can only be a strategy in the arsenal of companies with a 5/10/20 year market outlook and not companies who want to raise money, build products, and just run on vibes. In a way, Jumia looks like a kind of innovation arbitrage – they took the eCommerce initiative from Western markets and came to replicate it in Africa, however, their approach was a bit lopsided, instead of trying to gradually disseminate the concept of eCommerce into the minds of people from a healthy unit economics perspective, they decided to force the market to adopt eCommerce via blitz scaling and massive discounts while ignoring their core unit economics. The result of this was that they succeeded in actually creating a mental frame of mind within select African markets that adopted eCommerce, but they left the market open for other players who could learn from their mistakes (pay on delivery, unnecessary discounts, poor product delivery timelines, etc.) to build better products and capture their market.

 The most important thing to consider when building an innovation arbitrage play is that you cannot force a market to follow your own thesis or plan, you can only influence and adapt to its existing trajectory. For instance, Kenya is already too mature for innovation arbitrage from a payment perspective to find any real expression. Back in 2008, when MPESA was just taking shape and people were beginning to embrace mobile payments, it would have been suicidal to build a 10-year innovation arbitrage play centered on debit cards dominating that market. The end of that ill-fated initiative would have been massive capital destruction and a head of African expansion probably losing his/her job.

 If a Tier 3 African market has already shown mobile money adoption (Tanzania, Zambia, Cameroon, etc.) your goal should be to catalyze that trajectory via infrastructure and products that help evolve that market into the future, not trying to force cards or (in some cases) bank driven real-time payments on them, the market may not adopt that.

 I think Interswitch is one of the best examples of innovation arbitrage in Africa; they are building disparate digital payment plays across two African markets; Uganda and Sierra Leone. In Uganda, Interswitch is driving interoperability across banks by onboarding multiple banks on its digital payment network. Sierra Leonne is also another interesting market, with just 8.7 million people and an internet penetration rate of 21.2%, Sierra Leone may not look like a compelling market, but Interswitch today provides switching services to six of the thirteen commercial banks in the country. As the Sierra Leone market begins to grow they can leverage their infrastructure positioning to begin to distribute no-brainer services they have seen work in Nigeria within that market.

 To be very clear, Innovation arbitrage is not a short-term play, it isn’t invest today and reap rewards in 2/3 years, it takes long-term positioning and planning and a commitment to stick with specified markets till they mature and begin to birth substantial rewards. Most innovation arbitrage plays are also “infrastructure plays”. It’s not about building frontend products anyone can replicate (and outcompete via marketing) when they begin to identify the opportunities within that market, it’s about building infrastructure products that give you a strong hedge against competitors and a springboard to launch new products and solutions from.

 A lot of new winners will emerge across the African continent in the next 10 years, and some of them will be as a result of long-term innovation arbitrage plays.

Thoughts on African Market Expansion

 This section is a poor corollary from the previous section, but is nonetheless an important point to make if I am to avoid intellectual dishonesty.

 There are very few things I value more than people who do not play optics and are genuinely honest about the state of the markets they operate in, and that’s why I absolutely love this interview with Odun Eweniyi (COO of PiggyVest) on how she thinks about market expansion.

 Almost every startup describes itself as solving an African problem. The reason is simple; Investors want to fund “African Businesses” because the upside of building an African business seems larger than building a business focused on just one or two countries. The challenge with this mindset is that a lot of startups are forced to expand prematurely to keep up the narrative of being pan-African and showing their investor’s workings. The reality is that expanding across Africa is much harder than most people think and in fact, may not even be the best business decision to make if you’re being rational.

 There are many startups today subsidizing business divisions in other African markets that are loss-making with no hope of making revenues instead of focusing on deepening their play within their core markets. This is why when those startups get into a financial pinch, the first thing they do is close those loss-making and unprofitable country divisions that were not market-viable in the first place.

 If your home market is Nigeria, you are better off deepening your play within Nigeria than jumping to set up subsidiaries in multiple African countries that may never even generate any reasonable revenues for you (all in the bid to say you are active in so, so and so countries). If you cannot survive in Nigeria, it’s a longshot to believe that Uganda, Kenya, or South Africa hold better prospects for you (markets where you are not Indigenous, have no core on-the-ground competence, and maybe building a product that’s at odds with that markets development path). Most of the largest fintechs in Nigeria with African-wide presence still make the vast majority of their revenues from the Nigerian market. There are very few tech companies founded in another African country that have a play in Nigeria (where there are already existing market players) that have any significant dominance. There’s a reason why OPay decided to open its second African market in Egypt instead of Ghana, Kenya, or Tanzania.

 Deepen your play within your home market (where the vast majority of your advantage is) and expand thoughtfully into markets where you can either have an advantage from the get-go (whether they are within or outside Africa) or play a long-term infrastructure game (innovation arbitrage) that can create massive upsides in the future. The idea of setting up shop across multiple African countries to create a perception of a broad-based African play is anti-thesis to true value capture. Know this and know peace.

5.       NIP 2.0

 The opportunity to build out a competing rail to NIBSS Instant Payment (NIP) still very much exists today. For starters, it is important to note that NIP is a resilient product. While there are definitely incidences of it failing and consumers being unable to process transactions between banks, for a real-time infrastructure rail that processes more than 300 transactions a second on average, I don’t necessarily think NIP is a deficient product. I have written in the past about why we should definitely explore having an alternative rail to NIP, so I won’t go into too much detail here, however, I do believe that with the projected growth of digital payments within the Nigerian ecosystem, and the new use cases we believe will begin to spring forth in the next decade, having one single infrastructure player powering that whole ecosystem puts us at a disadvantage of some sorts, and this is where the opportunity for NIP 2.0 comes in.

 For starters, NIP 2.0 is not just a competitor to NIP, it is an updated version of NIP. There are multiple real-time payment rails within Nigeria from companies like Interswitch, Remita, and eTranzact, however, most of these rails are utilized as fall-back options to NIP.

 NIP’s advantage comes from two key factors; distribution – all deposit money banks by design adopt it for real-time payment disbursement, the second is product reliability, the product actually works. While there are multiple competitors within the Nigerian market, the distribution part of their moat has made it remarkably difficult to disrupt them. However, NIP still has its challenges; it is a bank-led rail, meaning every participant on the infrastructure who isn’t a licensed deposit money bank (DMB) would need to find a licensed DMB to partner with to be able to process outbound and inbound transactions via NIP. NIP’s pre-settlement model (where the banks by design hold a collateral position at the CBN’s position for daily transaction settlement) means that every direct participant on the NIP rail must stack a significant amount of money as collateral for transactions being processed on behalf of its customers and partners.

 NIP 2.0 is a democratized and improved version of the NIP rail that allows everyone to have direct participation access to the network, post-settlement arrangements (reduce the need to commit collateral) and allows multiple new innovative use-cases built on the same rail (i.e pull payments, redesigned QR capabilities, etc.) to be developed.

 The company that builds NIP 2.0 will have two big challenges at hand; one will be to wrest the DMBs (who still collectively control the largest digital payment volumes) from NIP and the second will be to guarantee reliability. Converting DMBs is a hard (and ultimately difficult) thing to do due to their commitment to NIBSS, however, if new varied use cases begin to find massive adoption within consumer and merchant ecosystems, the banks will either be forced to push NIBSS to develop similar capabilities or begin to adopt this NIP 2.0 rail as a second routing channel when transactions of that nature occur. As NIP 2.0 begins to grow and prove its resilience, the banks may become open to routing more transactions towards that rail as against the core NIP rail because of its value proposition.

 NIP 2.0 will make it possible for companies like PiggyVest, Kuda, and Moniepoint to process real-time payments directly without relying on any sponsor bank arrangements and/or being a victim of a sponsor bank’s core banking infrastructure failure. I think there’s a lot of value in having a system like this within our ecosystem.

 In my opinion, there are two main methods for developing a resilient NIP 2.0 play; one is developing and running an intra-bank settlement infrastructure system across all banks. Similar to what certain fintechs do today where they keep collateral positions across multiple banks (or have arrangements with them) so that when their customers want to credit a beneficiary within that bank, they can debit their settlement position within that bank and credit the beneficiaries directly via the banks core banking system. Since transactions processed via this method are not routed through NIP, but via the bank’s intra-bank channel (which is basically a ledger update within the bank’s core banking application), this would be a highly resilient system that would be more resilient than NIP. However, this system has its own drawdowns – the provider would need to be a licensed switching company with a subsidiary that owns a funds holding license, and the provider would also need to either be able to commit billions of Naira in funds or have an overdraft arrangement with the various banks on this proposed network, that would allow them process inward and outward transactions without being boggled down with committing funds. The main challenge with this approach will be how to process reconciliation on transactions processed via those rails daily.

 The second play will be a blockchain play, similar to what Zone is trying to do today via its blockchain infrastructure, creating a blockchain network that allows users and banks to exist on a node with money being transferred via a locally hedged stablecoin that can then be converted into Naira within the bank’s position. A blockchain infrastructure play can help with managing all participants on a single network, merging clearing and settlement into a single process, reducing the need for participants to hold funds for end-of-day settlement, and creating a platform for innovators to build new real-time payment use cases within our market.

 Building NIP 2.0, a modified and improved version of what exists today is a huge opportunity for discerning fintechs to leverage to expand their market and create new market opportunities.

SILLY IDEAS

Ideas that look highly impractical but eventually gain widespread adoption because a factor no one foresaw aligned effectively.

6.       SME Enablement

After the gospel of lending, the next fintech-oriented gospel I am apt to preach is that of SME enablement, and there’s a very good reason for that;

According to the IFC, there are at least 44 million MSMEs in Sub-Saharan Africa. SMEs are the lifeblood of every economy. In Nigeria alone, the informal sector contributes more than 65% of GDP, the informal sector is comprised largely of small business owners whose individual value may be minuscule, but who collectively as a whole hold massive economic power. The vast majority of Nigerians are also highly involved in the SME space, and SMEs are collectively the highest employer of labor within a lot of African markets, Nigeria inclusive. This is also why there is a huge market for “loan sharks” within Nigeria, it is relatively easy for salaried employees to get credit facilities from their banks because a clear record of consistent inflows exists in their favor, on the other hand, a small business owner with random and unpredictable inflow patterns will probably struggle to convince a bank to issue them a credit facility. However, being an employee and a small business owner is not a mutually exclusive concept, a good number of salaried employees have read Robert Kiyosaki’s Rich Dad Poor Dad and have made up their minds they will not be the poor dad, this has inadvertently led to more employees having more than one source of income or in more common terms a side hustle. Some people see that side hustle as a means to an end (something they intend to go into full-time at some point), while some consider their side hustle to be an income augmentor. Be that as it may, the thought process is still the same, having an alternative source of income, is pertinent, and if you’re not a software engineer working for two Nigerian companies and an international one, starting a small business seems like the most reasonable thing to do.

Consumer behavior also aligns with this thesis. In the last 12 months, a weakening Naira, skyrocketing energy prices, and a worsening business environment have pushed a lot of FMCGs operating within Nigeria to close shop, closing shop ultimately leads to furloughing of staff. Most of these employees will either try and get new jobs in adjacent or non-adjacent industries, leave the country, or start-up small businesses. Either way, there’s a market trend that more people are going to begin to embrace entrepreneurship – not necessarily because they want to, but because they have to.

 Note: I am not an irrational optimist, and I am fully aware that the macroeconomic conditions of the country are pushing more SMEs out of business as data from ASBON indicates, however, I am still of the opinion that the SME market is still a huge market with significant opportunities for consumption unlock.

For everyone who will embrace the entrepreneurship path, they will need tools to prosper and this is where SME enablement companies come in. I believe that this market is divided into two segments; offline and online plays.

The offline play largely involves companies who deliver services to their customers in person; this is where boutiques, supermarkets, hair salons, etc. will fall into. I am honestly of the opinion that Moniepoint, OPay, and other companies with existing agent banking plays are better poised to capture this market segment – they have the incentive, resources, and distribution to do so, and will in all likelihood flex their muscles here to create more value for their shareholders. Regulation today is trying to delineate agency banking and merchant acquiring services – the Central Bank of Nigeria’s most recent regulatory document on Agency banking, creates guidelines for implementing this, but enforcing it has been really difficult. Be that as it may, most of these companies will in all likelihood deepen their product offerings within this vertical to keep and capture value within this customer segment.

The real question however is; what does an SME enablement product stack actually look like? I think it will be a democratization play, taking high-value offerings that were only available to the largest corporates and making them available to SMEs in a distributed manner, leveraging technology rails in a way that makes it plausible to do so from a profit margin perspective. Beyond just credit, this product stack may carry offerings like insurance, trade finance, treasury management, etc., and will help SMEs in the offline space to deliver their services in a much more effective and efficient way, while creating value for all stakeholders involved.

The second play will be the online play; online small business owners will include those who deliver their goods and services primarily via the internet; this would involve those who sell hair, shoes, courses, etc. The online market is a huge one with multivariate sub-markets, but for the purpose of brevity (and to avoid rambling in an inconsistent way) I will stick to those in the social commerce market.

Social commerce encompasses business owners who sell products primarily via social media channels, these channels are usually Instagram, Whatsapp, Facebook, Twitter, etc. My younger sister runs a business in this space, and the day I saw her PiggyVest balance was the day I realized that selling hair and shoes on WhatsApp is actually a lucrative business. On a side note, social commerce is a very antithetical market – considering that trust issues drove pioneer e-commerce companies like Jumia to adopt pay-on-delivery channels, it is really unfathomable that today people buy products from random people on Instagram and Whatsapp, pay online for those services, and “believe” that those products will be delivered to their houses. In fact, food delivery companies like Chowdeck do not even offer a pay-on-delivery option, if you don’t trust them, you can carry yourself to Chicken Republic to buy your Refuel Pack yourself!

The online play will involve creating a consolidated product stack that makes sense to this market vertical – ideally this stack should have a logistics component, considering how important logistics is to this market vertical.

As far as I’m concerned, this is a greenfield market – I haven’t really seen any firms that have a really strong position in this space, companies like Bumpa, and the like seem to be building something here, but I’m not sure how that is panning out so far. There’s a company called Midddleman that seems to be building something interesting for this vertical (I don’t know the founders or any of their employees personally), that I’d personally be interested in listening to their founder’s thesis on where they see this market evolving. Beyond that, I think this is an untapped opportunity in itself.

 My thesis for this market is threefold;

• One or two startups are able to crack this market and create a consolidated product offering for SMEs in the social commerce space that allows them to receive payments intuitively, access credit, savings, and other services that will be worth the salt for them.

• Meta pours sand in everyone’s garri (Nigerian term for disappoints everyone) by partnering with a local BaaS provider and providing these services themselves (most social commerce occurs on their platforms, so they have the distribution to make that happen)

• Nothing happens, and we’re still having this discussion 10 years from now cause no one is able to execute on this effectively due to inherent systemic or customer preference issues (a highly unlikely outcome).

 I believe that the SME enablement market is a huge market vertical, and anyone able to crack that market open either offline or online will be able to create and extract massive value in the next 10 years.

7.       IMTO Plays

I am not a gullible person. Surprisingly so, I’ve never been a victim of a Ponzi scheme (escaped MMM and Racksterli), never gotten involved in any funny investment project, and I’m the least likely person to buy an Altcoin that has no clear utility value. I was however scammed in my fourth year in the university by a white person I did a couple of writing projects for, and that has had an indelible effect on me.

As Nigeria becomes more integrated with the global economy, new opportunities for transferring money from foreign countries into Nigeria will continue to emerge. Today, there is a booming remote work economy within Nigeria (technical talent based in Nigeria, working for foreign firms and earning in foreign currency), and unsurprisingly so, fintechs have emerged out of the woodwork to provide tools (foreign domiciled virtual accounts) to empower these target audiences to operate effectively.

There’s a reason “my foreign client” was willing to ignore all the writers in the United States and hire me (a Nigerian undergraduate student at the time). It wasn’t because he liked me, or he figured I was the best writer, it was because he could underpay me, and I was more than happy to be underpaid. Minimum wage in the United States is US$7.25 (N10,150) per hour. Minimum wage in Nigeria is N187 (US$0.13) per hour (dividing N30,000 by 160 working hours a month). I was offered N4,500 (US$3.21) per 500-word article, which based on our content frequency arrangement culminated into N140,000 (US$100) a month. For an undergraduate student at the time, that was a lot of money, for an American, working at McDonalds (US$1400 (N1,960,000) a month) would be a far better bargain. But I didn’t care, not only was I happy with the role, I was so happy with it that if he had decided to double my compensation, not only would I have worked extra hours, I would have written the Bible for him if he asked me to.

As more foreign companies begin to look for ways to cut costs within their organizations, the idea of offshoring non-sensitive technical roles to an African-based developer for half the price seems like a short to medium-term solution to the problem (that is till an engineer builds the AI agent that will fully automate his role lol). This is why I am generally bullish about companies like Grey, Fincra, and Leatherback, there are a lot of market trends that can move in their favor in the next couple of years and ultimately expand their market. I personally think there’s an opportunity to provide an end-to-end stack for this market  – find and train the engineers, outsource them to foreign firms, and manage the payment leg of their compensation. There are standalone solutions in each category, but no end-to-end player I am aware of. It would be however much easier (and smarter) to backward integrate here (move from just training and deploying talent to managing their payments too) than to forward integrate (move from just providing the payment rails to training and deploying talent). But I digress.

The international remittance market is set to grow exponentially over the next 10 years. Governments across Africa are also playing a pivotal role in expanding this market. People are so tired of their governments, that they have decided to “leave the country for them” and find other countries to go to. An increase in the African diaspora is directly proportional to an increase in the remittance market, and with the way people are “escaping” their home countries, that market is set to continue to expand.

There are two kinds of people in the diaspora – those who are gone and gone for good, and those who still want to keep in touch with their home countries. For those in the second category, we have limited their interaction with the local economy to sending money home. I think some of these diasporans want to invest in their local economies without relying on middle-men family members who can be untrustworthy sometimes. Is there a future where beyond just sending money home, a diasporan can start a business, fund operations in his host country’s currency, and manage it completely digitally? Is there a future where a diasporan can buy a property online in Africa with a consolidated platform and pay in his host country without the need for unnecessary middlemen (and not get scammed or catfished)? Is there a future where a diasporan can leverage interest rate disparities between his host country and home country to offer funding capital to PROPERLY VETTED SMALL BUSINESSES IN HIS HOME COUNTRY at competitive interest rates? Is there a future where a diasporan can leverage his FX earning potential to operate as though he lives in his home country with technology acting as a trustworthy and efficient middleman?

I think in the next 10 years we’re going to get bored from earning arbitrage fees from International remittance transactions and start looking for ways to closely simulate the diaspora market to their home markets to leverage their purchasing power in new and creative ways while unlocking new revenue opportunities and business models.

I believe there is a future where a Nigerian in the UK can invest in Nigeria (or any other African country) in an automated and structured way into businesses, products, or instruments of his choice and receive returns in his host currency. If regulation permits, the international remittance market will expand significantly in the next 10 years from just a “funds transfer market” to a platform for integrating diaspora markets with their home countries.

8.       Vertically Integrated Grocery Delivery

As a statement of fact, I will never bet against Elon Musk, Donald Trump and a Paystack employee. I do not think it wise to bet against people who have a track record of doing impossible things (Elon), are plain lucky (Trump), and know how to execute (a Paystack employee). This is why when I heard that four (not one, two, or three) Paystack employees had come together to launch a startup called GoLemon, I figured it was definitely something to look into.

GoLemon is an eCommerce platform that makes it possible for people to buy groceries over the internet and have them delivered to their homes. Companies like PricePally are some of the early players in this space who already make it possible for people to buy groceries via eCommerce. When I was in University, I had to cook, and I absolutely hated going to the market, shuffling through people who smelled like fish, meat, chicken, vegetables and tomato was (and is) not a delightful experience at all, and if I could afford it at the time, I’d definitely pay someone to do that for me. I think there’s a market (not quite sure how big it is) for helping people buy groceries without having to go to the market physically. I first heard of PricePally from a female friend who uses them to buy groceries which I think is a good thing (if you’re in B2C, I think it’s better to first hear about you from a real customer than from a Techcrunch fundraise article).

Right now the grocery e-commerce play is primarily a distribution channel – empowering people to purchase groceries without having to visit a market, however, I think there’s a unique opportunity for startups to go deeper into the value chain to extract more opportunities for themselves and expand that market.

For starters, Nigeria is going through massive food inflation, going to an open-air market right now is like a magic show – the prices of staple foods look at you on the counter with an expression that says “Now you see me, now you don’t”. I do not particularly understand why food inflation exists – Yam doesn’t know what is dollar or FX, Yam doesn’t know what is interest rate, and Yam doesn’t know what is fuel price, all Yam knows is if you put me in the earth and water me well, after a specific period of time, I should provide yield of some sort.

I am not an expert of any kind in Agritech, but what I will say is B2C eCommerce grocery players may be able to unlock massive consumption within that market vertical by choosing to backwardly integrate by owning some parts of the farm infrastructure themselves. Instead of just relying on farmers, they could build the farms themselves and distribute those products via their mobile applications at significant discounts than what is obtainable in the market. This huge price differential will definitely drive massive traffic to their platforms allowing them to leverage that to begin to gradually percolate the concept of buying groceries over the internet, similar to how JumiaFood and now ChowDeck are gradually making people see ordering food over the internet as a normal thing or how Uber has made jumping into a random strangers car for a two-hour ride seem pedestrian.

There may be systemic issues behind no one doing this all these years, but I believe that anyone who can find a way to distribute groceries digitally at a distinguishable price differential from what is obtainable on the market will unlock consumption within the groceries market (which in my opinion is a far larger market than any standalone eCommerce category today).

Distributing groceries digitally at marginal price differences is great, but I believe that the market will only expand exponentially when ordering groceries digitally becomes far cheaper than physically going to a market to get them. I’m not particularly bullish on B2C eCommerce, and I don’t think being a unicorn is (or should be) the gold standard for measuring a successful technology venture in Africa, but I am of the opinion that whoever can build this will build Africa’s first eCommerce unicorn on the sheer size of food consumption within Africa’s economy. 

WILDCARDS

Simple market solutions that get a single part of their proposition stack right, catch a momentum wave, and ride that wave to the top of the food chain.

9.       Solar Energy Plays

I try not to get excited by tech news, so none of the energy startups have raised yada yada yada news generally means anything to me. However, in the local market where I live (Nigeria), there are enough forward-looking indicators to prove that we may be on the cusp of an evolution to solar-powered homes, and whoever is able to capture that market will unlock massive value.

For all intents and purposes, I generally think of myself as a rational optimist. I believe there are opportunities everywhere – but if I see a bar of gold on the floor in a busy intersection, I’m not going to just pick it up and assume that everyone around me is stupid and cannot recognize opportunity, that’s a very presumptuous way to think, and most people that think that way usually end up in trouble (and by trouble I mean the complete dissipation of capital).

The big question to ask is whether the renewed interest in solar energy is a fad that will pass away or a sustainable zeitgeist companies can build market-leading propositions on. I think it’s the latter.

Macroeconomic indicators show that in the long run petrol prices within African markets with a history of subsidizing petrol will probably spike. Some years back It was common to purchase petrol at N65 (US$0.046), today, petrol retails for N650 (US$0.46) (depending on the petrol station you patronize). To be fair, compared to global economies, petrol is actually cheaper in Nigeria, however, that example is synonymous with comparing Apples to Oranges. Petrol sells for US$0.95 (N1,330) a liter in the United States, in Nigeria, it sells for roughly N650 (US$0.46) per liter. The average annual income in the US is US$37,585 (N52,619,000), in Nigeria, it’s about 1,800,000 (US$1,285). 100 liters of petrol represents 3.6% of the average Nigerian’s annual earnings. It represents  0.25% of the American’s.

 There are three key opportunities I see within the solar market vertical:

One; selling solar panels to households who want to reduce the cost of electricity consumption, and reduce money spent on fuel. The one-off cost of selling a full solar installation is a bit pricey for most Nigerians, and this opens up a solar lending market proposition – allow users to set up solar grids in their houses and pay instalmentally. The real opportunity here is finding ways to extend that credit relationship from just solar panels to white goods within the household. If you can deliver on a credit play for a solar panel, a lot of households may begin to trust you when they need to replace other household items, and that creates a new closed credit market for solar players to capitalize on.

Two is distributed solar ecosystems. While Michael can buy a solar installation to reduce his petrol and electricity consumption costs, Wale who owns a small barbing salon somewhere in Ikeja cannot afford to, but he still needs cheap electricity. So there’s an opportunity to build small-scale solar grids that service local jurisdictions of certain sizes and charge users a SaaS fee based on energy consumption (that is cheaper than what is obtainable today). This is like building a mini-electricity grid serving a small section of the populace.

The third opportunity speaks to energy reselling. The best opportunities in Africa stem from ideas that allow people to earn money from your product. POS Agents, dispatch riders, and Uber drivers are all testaments to this. I don’t know how many dispatch riders are in Nigeria today, but there are more POS agents in Nigeria today than there are human beings in Mauritius.

Allowing people to contribute the excess energy their solar systems generate to earn some extra cash will drive some unique incentives for more people to acquire more solar panels and installations. The thinking will be very clear – it can pay for itself. I think finding a way to drive this will definitely open up the solar market and really expand what is possible within those markets. I don’t think the regulatory framework and/or infrastructure for energy reselling exists in Nigeria today, so this is a wild card, but there’s a chance this could come alive in the next 10 years.

Except regulatory capture begins to occur in this space (big businesses with significant exposure to petroleum revenue begin to lobby for regulations that stymie the solar industry), I think solar is a huge market opportunity that can create outsized outcomes for discerning investors.

10.  AI Tools

 For anyone who wants to succeed in tech, there are three key skills you must cultivate; one is a core competence in the field you’re in (i.e product management, frontend engineering, UI/UX, etc.), two is the ability to understand trends, evolving consumer behavior and regulatory direction as key inputs into defining where the market is evolving to and three is the ability to spot and ignore yogababble.

According to the Urban Dictionary, Yogababble is spiritual-sounding language used by companies to sell products or make their brand more compelling on an emotional level. In simpler words, Yogababble is basically saying many things without actually saying anything, and nowhere is that more rampant than in tech.

A good number of people/companies in tech want to sound smart, and knowledgeable and overamplify their importance and the best way to do this is to make small inconsequential things look really important and/or to overamplify the value of a nascent technology stack without really identifying a clear and practical path to execution. I read an article some months back where the author said that “the mixture of blockchain technology and AI will improve customer experience (paraphrased”), a statement I’m quite certain that if asked to elaborate, the author would probably struggle to provide any meaningful explanation.

Web3, NFTs and the blockchain were potent yogababble targets some years back, the latest yogababble target right now is AI, specifically GenAI. Everyone is telling stories of how GenAI is going to change everything and they’re right. Still, the over-amplification is making people ignore standard innovation evolution processes and make quick (and in some cases poorly thought out ) steps that are anything but value-accretive. When OpenAI launched ChatGPT, and started providing APIs for developers to play around with, the first thing people did was launch “GPT wrappers” and parade them on the market as the next big thing, some of these companies also raised funding and everyone thought they were the next big thing until OpenAI launched its GPT Store and most of those companies found themselves in a precarious situation. The real reason this happens is most people are oblivious to how AI is going to evolve and what the real market opportunity and use cases will look like, I am however of the opinion that building the AI use cases of the future may not necessarily occur in silos (i.e founder sitting in a garage envisioning how the technology will evolve), I think a much more high contact approach may just be the way to go.

The Igbo’s are a tribe in the southeastern region of Nigeria I admire a lot. Igbo businessmen have one common trait that I find very admirable – they are very comfortable doing “unsexy businesses”. Their framework for evaluating opportunities is very simple; can this generate money, and can it scale? If the answer is yes, they will do it. Igbo entrepreneurs aren’t concerned with storytelling or trying to posture, their major concern is can I make a profit and can I expand this business?

Tech entrepreneurs in Africa have become obsessed with chasing sexy enterprises. Everyone wants to raise capital and appear on Techcrunch with matching company tees, standing in Akimbo and sharing how their company has grown 500% YoY in revenue (even though we don’t know where they grew from and what they have grown into).

Sometimes trodding the boring path is how to build lasting enterprises and a lot of successful (and profitable) technology companies in Nigeria actually followed that route while building (see Moniepoint). There are many Tier 3 Banks in Nigeria today that may not have the technical competence to implement and innovate the way they’d like and the opportunity to provide services to those banks is something a lot of people will ignore  – it will probably make you cashflow positive. Still, it won’t get you into TechStars, won’t get you on Techcrunch/Techcabal and more importantly, it won’t give you bragging rights amongst your fellow founders, but it’s a path that holds a lot of opportunity and promise.

My thesis is that whoever is going to lead the AI evolution in Africa is going to build a market-winning product by threading that path. Sit down with a Tier 2 bank and help them automate the lowest-hanging fruit for AI right now. Support. Train a model on the company’s customer support email repository and allow it to work on mundane support tasks so that agents can focus on more complex issues that require human effort and reasoning. Most companies have some routine support requests that they believe should be automated away, and I think that is the first opportunity to target.

If you can help a bank automate parts of their support function, you already have a foot in the door, and that will allow you to look from within what kind of opportunities exist for AI to improve efficiency and productivity within that organization, and that creates more opportunities to deploy AI solutions to solve real problems within the bank. Banks have good back channels, so the minute what you’re doing starts creating real results for your first client and people start talking about it, word of mouth will create opportunities to provide similar services to other banks and allow you to continually enrich the quality of your product via user feedback. Eventually, you can begin to provide APIs that extend these capabilities to other smaller companies to leverage (and learn from their experiences to continue to iterate).

I believe the core opportunity in AI will be around AI tools for enterprises to drive productivity, and If you want to build a successful AI tooling company in Africa, you shouldn’t start by offering solutions to SMEs, you should focus on large enterprises.

Honorary Mentions

Things I thought should be in the list but I didn’t find space for.

Fraud Consortium

Fraud is one of the biggest challenges within the emerging fintech ecosystem today, as a matter of fact, according to SBM Intelligence, more than N17.67 billion (US$ 12.6 million)  was lost to fraud in Nigeria in 2023 alone. Scammers employ multiple techniques to defraud unsuspecting users – from phishing attacks to social engineering to outright system compromise, depending on the sophistication of the scammer involved. Fraudsters also tend to work in cohorts – if one group executes a certain technique on a specific fintech/banking platform and it succeeds, they just take the same approach and begin to replicate it on multiple other platforms. The sad thing is they succeed, and they succeed primarily because there is no information sharing within fintech and banking platforms. A fraud consortium will aggregate all fraud data into a single database that allows all users to flag fraudulent entities via a single API call. With a consortium of this scale, a fraudulent transaction might succeed once, but it becomes extremely difficult, if not impossible, to replicate on another platform. This is because the user would be flagged as fraudulent and blacklisted.

I’m not particularly sure what the commercial model for this would look like, but I think this is a play that NIBSS is well positioned to make due to their position amongst banks and amongst fintechs who by design must use them to achieve financial interoperability.

FX Repatriation Engine

This is similar to the cross-border payment API option I mentioned earlier – allowing foreign investors moving funds into Africa (especially to countries with weak currencies) to move those funds back to their home countries without depleting the Central Bank’s scarce foreign exchange resources. Allowing airlines, infrastructure investors, and even venture investors to repatriate the return of their investments in a timely and efficient manner is a multibillion-dollar market opportunity depending on how the business model for this play is structured. Blackrock is reportedly closing its US$ 400 million iShares Frontier fund due to liquidity challenges in some of the markets they invest in (including a handful of African markets).

Crypto rails can solve this problem to some extent and people already offer this in some ways today. However, someone has to sit down with the regulator to expatiate in very clear terms how this is not only a net positive to the economy but a way to reduce FX pressure on the regulator, draft clear regulatory guidelines on how to operate this and issue licenses to entities desiring to play in this space. This is a huge billion dollar African wide market opportunity that will not just have a massive impact on local economies by unlocking more investment capital into those countries, but will make the builders and backers exceptionally rich. You need a founder with an extensive network within banking and regulatory circles or a startup supported by someone with that kind of experience.

I believe that ten years from now someone will crack this market, and whoever does so will unlock massive value for themselves.

Micro Payments

One of the most widely shared stories within fintech circles involves an interview with a card scheme executive. When asked who their biggest competitor was, the executive replied, “Cash.” and they weren’t lying. The biggest competitor to any digital payments play is cash, and defeating cash is about taking its most potent stronghold – small-scale payments.

Small-scale payments represent the vast majority of transactions that occur within developing markets, and moreso are the largest stronghold for cash because of their nature. Moving to a fully digital economy will involve creating dominant micropayment plays that can genuinely challenge cash in the environment it operates. Small-scale transactions are generally transactions below N1,000 (US$0.71) that occur within the informal market economy and by design happen in cash (it is very rare to see a transaction of N300 (US$0.21) happening via electronic payments), micropayments will rival this by creating use cases that make it plausible for a payer to make a N300 (US$0.21) transaction for a bus ride or a biscuit digitally.

A proper micropayment play will be ecosystem-oriented, and the most potent sector to target is the transportation sector. In the local transportation sector today, digital payments are not accepted as legal tender, only cash is, in fact, depending on the conductor’s mood (and the amount of Shepe he has taken that day) alluding to paying for a bus ride with a bank transfer may get you insulted (at best) or dragged out of the bus with insults (at worst).

That entire ecosystem is drenched in cash and building a micro payments play for just the Lagos transportation ecosystem is a multibillion Naira opportunity. More than N123 billion (US$ 87.8 million) is generated annually from bus transportation in Lagos. Creating a system that takes into account the incentives of all stakeholders (the Oga’s at the top, drivers and bus park operators) and designs systems that allow them to view collections occurring at the parks in real-time (The Oga’s at the top), receive their funds immediately and access other ancillary services as a result of visibility into cashflows (drivers), and execute split payments at source to make sure all parties are settled at point of transaction (bus park operators) is one of the ways to go.

The ancillary opportunities solving this for transportation in Lagos alone can create are phenomenal. With a system like this, a provider can use data on drivers’ earnings to underwrite them for credit facilities and collect repayments in tidbits as customers pay them for rides as against making bulk sum payments on a specified due date. In fact, a provider running this can choose to play a double play by losing money on transaction fees and earning revenues on credit issuance to a unique database of over 75,000 drivers in Lagos alone.

To be very clear, this is a very hard problem, this is not a technology problem, this is a stakeholder management problem, and solving this problem can (and will) unlock a lot of value for anyone who is able to take this head-on.

Conclusion

Innovating in Africa presents a unique and exciting opportunity for entrepreneurs and businesses alike. The continent’s dynamic and rapidly evolving landscape is ripe with opportunities across various sectors for discerning builders to leverage on to build highly consequential businesses. Recognizing and concentrating on these opportunities is crucial for successfully building in Africa.

Inspired By The Holy Spirit