Kinfolk features articles from individuals across the globe whose perspectives we consider significant. Our aim is to make the process of establishing enduring technology businesses more accessible for African founders and leaders.
This blog post by Stephen Deng discusses the growth of the tech industry in Africa, particularly in Nigeria's fintech ecosystem. While there are debates about whether the sector is overheated, the post argues that there is still untapped potential for digital progress in the continent. It introduces the concept of Side A (digital ubiquity) and Side B (physical ubiquity) in the tech industry, with Side B focusing on supply chains, logistics, and last-mile fulfilment. The blog post highlights the opportunities in building Side B businesses, such as improving efficiency and pricing power within existing value flows. It also mentions B2 trends to watch, including social commerce, dark stores, cloud kitchens, and agent-based services. The blog post concludes by emphasizing the importance of leveraging emerging market tailwinds and aligning embedded services with income growth in Africa.
Tech in Africa has hit escape velocity. In many ways, the capital inflows into the continent’s ecosystems have matured more in the last year than in the previous five years.
With such growth naturally comes the debate, especially when it comes to Nigeria’s fintech ecosystem. Some warn that the sector is overheated, given broader macro trends. Others counter with the idea that, as a discount on the future, we are just getting started. The polarizing nature of record-setting valuations won’t be contained to Nigeria — this is coming to a market near you.
At the end of 2020, we wrote about the Frontier Blindspot, a phenomenon when investors and others overestimate the speed of digital progress in Africa while underestimating the progress brought on by the continent’s builders. While the abundance of capital, valuations, and resulting expectations have likely reduced some of that underestimation of African founders, we are unconvinced that the needle on digital progress has been fundamentally shifted.
Also, an article originally written by Wang Huiwen (translated by Tao Huang), co-founder of Meituan Dianping, one of the largest on-demand delivery platforms in the world with approximately 570M paying users, wrote that if one had to categorize the “internet industry,” you could split it as follows:
Wang looks at technology platforms and splits the approach between Side A, which favours digital ubiquity, and Side B, which tends toward physical ubiquity. If you apply this chart to most African economies, a snapshot of the addressable market for Side A would be a sliver, while Side B would take up the majority. The reason covered above is that fully digital experiences are either inaccessible, unaffordable, or don’t cover the primary consumption needs of those in the bottom 95%.
Side A is how most imagine tech startups and where ecosystems in digitally ubiquitous countries have traditionally been pushing the envelope. Side A is social media, SaaS, where fintech is most comfortable. Side A has been immortalized by the post-dot-com bust and rise of Silicon Valley and its well-deserved reputation worldwide. But then again, you can’t eat Side A.
And so we come to Side B. Here, Wang splits Side B into two further breakouts:
B1 companies are distinguished by their understanding of supply chains, SKUs, and pricing.
B1 pioneers in Africa include companies like Twiga Foods and Sokowatch. Wholesale logistics startups like Lori Systems and Kobo360 and shipping startups like SEND and Sote all fit within B1. More recently, we have seen startups that aim to digitize inventory management, accounting, and other backend processes for small retail in Africa, another push into B1 inspired by startups in Asia like Khatabook and BukuWarung.
And there’s plenty of upside to building B1 businesses. B1 touches most of the “real” economy because it leverages technology to improve the efficiency of existing value flows and, in doing so, reorganizes pricing power within those flows. Its focus is on flattening supply chains and delivering better prices, selection, and customer service.
However, B2 companies are defined by location-centricity, a physical network of merchants, and timely last-mile fulfilment. If B1 empowers brick-and-mortar retail in Africa, then B2 is its disintermediation.
B2 is physical ubiquity, and it’s very familiar to parts of Africa because the clear, pioneering example of B2 on the continent is mobile money. This human ATM network disintermediated the brick-and-mortar bank branch. Mobile money networks offer:
Location-centricity— an agent on every corner
The physical network of merchants — or agents
Timely, last-mile fulfilment — provides on-demand financial and, increasingly, other services.
Most critically, mobile money is compounding like crazy. Beyond mobile money, physical ubiquity offers incredible upside for a much broader base of stakeholders in the digital economy. An ecosystem that enjoys physical ubiquity is a hyper-market creator. It asks everyone, “If you could deliver anything to anyone, what would you sell?” Importantly, this is a question that can be answered by every restaurateur, “mom-and-pop” shop owner, and smallholder farmer in the country, in contrast to the question digital ubiquity offers, which is: “If you could deliver any software or content to anyone, what would you build?”
While nascent, there are B2 trends worthy of close attention, including:
Social commerce is the buying and selling of goods and services over social media or networks, currently on WhatsApp and Instagram, and the digital and physical infrastructure that supports these sellers.
Dark stores are delivery-only retail warehouses that hold inventory and enable hyper-quick (<1 hour) last-mile fulfilment.
Cloud kitchens — internet and delivery-only food brands that cater to local tastes and pricing.
Agent-based services — an extension of the mobile money agent model to include a hub of e-commerce, and logistics, among other benefits.
Like a tech stack consisting of cloud storage, enterprise SaaS, digital payment APIs, and others flattens the time and cost it takes to spin up a software company, B2 companies do the same thing to the time and cost it takes to start a retail business.
Physical storefronts to social media profiles and agent networks
Signage and billboards to omnichannel CRM
Kitchens and warehouses to on-demand dark spaces
In-house delivery to third-party logistics (3PL)
As Side B startups hit their stride, they’ll create a bridge for fintech founders to build for the mass market today— certainly not the entire bottom 95%, but likely enough to justify venture-level returns. It’s already starting with agent networks and B1 companies aggregating small merchants, but it will only compound as B2 companies open up further opportunities in physically ubiquitous markets.
Instead of being free or subsidized, embedded services will align with income growth. Earning a margin on income generation is sustainable in Africa, and it is time for African founders to leverage emerging market tailwinds to their advantage.