Africa’s Best Sectors For Technology-Enabled Investments In 2018
Recent advances in technology are creating scalability for sub-Saharan African investments, with technology-enabled businesses well-positioned for growth.
Acting as a catalyst and enabler to business, investors are finding that technology-enabled solutions can alter the trajectory of consumer access and affordability for many companies in sub-Saharan Africa.
This piece looks at the best sectors for technology-enabled investments in 2018.
The energy and technology sector is a no-brainer. Technology has effectively underpinned the survival of oil & gas companies and power companies in the last few years as prices soared and competition flourished in developed markets.
It should come as no surprise that technology-enabled energy solutions in sub-Saharan Africa are at the forefront of creating and sustaining power resources across the region. M-Kopa, for example, secured approximately $80 million from investors, including Stanbick Bank, Norfund, FMO, and CDC, to finance its expansion in its pay-as-you-go (PAYG) home solar energy business.
The growth in the pay-as-you-go space within energy is undeniable, with little to slow it in the near term. Sub-Saharan African consumers’ preference for M-Pesa and mobile money (particularly compared to the West’s love for credit and debit cards) is noticeably forcing digitally connected logistics companies, including some of Uber’s competitors, to use cash or M-Pesa as a medium of currency.
Pay-as-you-go energy sources are also providing access to power for those at the bottom of the pyramid and improving energy usage for those at the middle and top of the pyramid, with solutions such as pay-as-you-go cold storage.
With many sub-Saharan African families buying groceries for shorter increments (i.e, 1-day to 5-days), families can store food and veggies in pay-as-you-go powered refrigeration on an as-needed basis (which is a welcomed outcome to energy conservationists, investors, and entrepreneurs alike).
Digitally connected transport is not new in sub-Saharan Africa. Companies, such as Uber, are addressing the transport chaos in the region and filling the public transportation gap in many large sub-Saharan African cities.
Its growth, with operations in more than 15 African cities, has spurred competition from local startups, such as Taxify in Kenya, South Africa and Nigeria. The same energy is spilling over to logistics, with technology being utilized to transform truck and related transport and distribution across sub-Saharan Africa.
Lori Systems, for example, is building a logistics platform to optimize truck utilization while minimizing waste and cost. Delivery Science, for example, aims to help companies manage and monitor their distribution assets across sub-Saharan Africa, including products, customers and people.
In addition, AgroCenta is managing logistics for farmers through an online platform. A few startups are exploring the opportunity for pay-as-you-go warehousing, as large scale and long-term warehousing contracts are a mismatch for small and medium-sized enterprises (SMEs) across sub-Saharan Africa.
Mobile money is also a no-brainer in this context. The first category on this list—energy—depends on mobile money and payments. Mobile money, such as M-Pesa in Kenya, transformed how the banking sector operated in sub-Saharan Africa, quintessentially (and rightfully so) leapfrogging the brick and mortar model known to many developed markets.
As many Westerners complain about the lack of technological advancement with banks on managing their money (i.e., poor identity checks, lack of speed in service, etc.), many sub-Saharan Africans are celebrating some great advancements in their financial services.
That said, much more is required to upgrade the financial ecosystem. Technology in this space is vital to bringing significantly more sub-Saharan Africans online and into the financial network.
The low number of banked individuals—less than 45 percent by some estimates across sub-Saharan Africa—speaks to the opportunity for growing participants and revenue. And as more consumers come online in the financial services space, the doors for strengthening their access to other necessities, such as those mentioned here (i.e., energy, logistics, education, etc.), will open.
Greater advances can also be made in remittances for sub-Saharan Africa as well as other emerging economies with many countries significantly dependent on the movement of cross-border money from citizens working in Europe, Asia, and the Americas to their home countries.
Value is also found in companies’ greater ability to collect data on lending, credit, and money management across all levels of incomes, consolidate the data, and utilize the data to better advise companies operating in those regions.
Sub-Saharan African leaders have made great efforts to boost access to basic education.
More than 32 million children of primary-school age and more than 25 million adolescents are not in school in sub-Saharan Africa, according to United Nations Educational, Scientific and Cultural Organization (UNESCO).
Even those in school speak to their want for improvement in quality and facilities. The introduction of laptops and iPads into the classroom has drastically altered how teachers think about educating young students, as well as how administrators spend resources, especially when access to physical books are limited and cannot exactly be mass imported.
For example, doctors are utilizing iPads to teach students from Ethiopia to the Gambia on how to diagnose patients and make recommendations in the absence of a large source of medical books. Mobile trainings are becoming replacements for online training and additives to in-classroom teachings.
The next growth in this space will be technology-enabled solutions that reach a greater portion of the sub-Saharan African population, especially those in rural areas where physical facilities (and teachers sometimes) are lacking.
This space has not necessarily gained the momentum in the technology space. But the need in the space for technology-enabled solutions is irrefutable, as one entrepreneur described it with his focus on digitalizing government records.
Many sub-Saharan African governments struggle with overseeing the tax collection and management process, with many inputs and outputs done by paper. Digitizing, however, is not the end-all-be-all in this equation with budgeting, accounting and other necessary functions a priority for tech entrepreneurs.
Kurt Davis Jr. is an investment banker with private equity experience in emerging economies focusing on the natural resources and energy sectors. He earned a law degree in tax and commercial law at the University of Virginia’s School of Law and a master’s of business administration in finance, entrepreneurship and operations from the University of Chicago. He can be reached at email@example.com.