Intra-African Business Platforms for Change

PART OF THE GROWTH CROSSINGS SERIES

A report from The Economist Intelligence Unit

Intra-African business Platforms for change

Commissioned by

Intra-African business Platforms for change

INTRODUCTION

Trade among African countries remains well Better access to the Internet will enable the rise below potential, though the continent’s largest of digital technologies that allow companies economies have increased the share of their and individuals to find new ways of overcoming exports that stays within Africa over the past shortfalls in physical infrastructure. As these two decades (see chart, below). The largest elements come together, we will start to see African source of capital investment in the chain reactions. Perhaps this is why some people continent—South Africa—was only the eighth in Africa seem boundlessly optimistic about the largest investor in 2014, trailing behind the likes continent’s growth potential: they can see the of France, Greece, the United Arab Emirates and various components of the economic engine China, according to fDi Intelligence. falling into place, they feel the pent-up desire for speed and they are sitting with their foot poised For intra-African trade to take off, a number over the accelerator. of things need to happen. More power supply is needed to support transportation This Economist Intelligence Unit report, which is and communications infrastructure. Better sponsored by Standard Chartered Bank, features transportation, in turn, will support the roll-out case studies on six African businesses, some of electricity and communications networks. young and others established for decades. All are

Intra-African trade: coming up, but well below potential (% of all exports going to Africa)

100

0 Kenya Nigeria South Africa 1994 2014 Source: IMF Direction of Trade Statistics.

Intra-African business Platforms for change

expanding their value chains within and between telecoms providers transform their service African countries. The first three have been delivery models, and in so doing is accelerating actively involved in developing infrastructure the modernisation of public- and private-sector and connectivity in power, transportation and supply chains in Southern and East Africa. the Internet, work of fundamental importance Kenyan agribusiness and FMCG giant Bidco to African economies. The final three are Africa is using digital platforms to add visibility creating digital platforms and modern supply- to its value chains from end to end, as East chain management systems that allow companies African agribusiness responds to the challenges in the continent not just to overcome the of supply-chain efficiency and responsibility challenges of their operating environments, brought by European competitors. but even in some cases to leap-frog the developed world. The EIU is deeply grateful to each of the individuals who gave their time to be interviewed for this report. In alphabetical order according to Part 1: Power, transportation their surnames, they are: and Internet Fitsum Abady, managing director, Ethiopian Kenyan cable manufacturing firm East African Cargo (Ethiopia) Cables is laying down the hard wiring to connect East Africa’s businesses, infrastructure hubs and Peter Arina, CEO, East African Cables (Kenya) homes. Ethiopian Cargo, the continent’s largest freight carrier, is establishing new logistics hubs Irene Charnley, CEO and founder, Smile for intra-African trade and investing in smaller Communications (Mauritius and South Africa) aircraft, in order to serve the growing demand for short-haul express distribution. Mobile Daniel Huba, East Africa managing director, Internet technology firm Smile Communications Mezzanine (Kenya) is providing the basis for the digital economy to thrive in four African countries. Tunde Kehinde, founder and managing director, Africa Courier Express (Nigeria)

Part 2: Digital platforms Vimal Shah, CEO, Bidco Africa (Kenya) for modern supply chains Jacques de Vos, managing director, Mezzanine Consumer logistics company Africa Courier (South Africa) Express (ACE) is creating lower-risk routes for local and international e-commerce firms to enter Nigeria and distribute products securely to a growing range of mobile African customers. South Africa-based Mezzanine is helping

2 © The Economist Intelligence Unit Limited 2016

Intra-African business Platforms for change

PART I: POWER, TRANSPORTATION AND INTERNET

Infrastructure and logistical weaknesses study in 2009 found that every 10% increase continue to dampen business activity in Africa. in broadband penetration increased GDP per It is common for businesses to be hampered by capita by 1% on average.1 Finally, a study by inadequate and unreliable access to electricity, InterVISTAS Consulting in 2007, commissioned while most intra-African trade still relies on by the International Air Transport Association roads of varying quality, and rail and air services (IATA), calculated that each 10% increase in remain limited. The most developed trade routes international air services led to around a tenth of are those connecting Africa’s coasts and the a percent increase in GDP. rest of the world. For instance, intra-African air cargo represents just 6% of the continent’s total. The three companies featured in this section are Internet access, particularly mobile Internet, has helping establish networks and carriers that been spreading fast from a low base, but many other companies can use as the basis for their people in rural areas remain unconnected. own growth.

It is well understood that improvements to physical and Internet infrastructure can help East African Cables: boost economic development. The African Lighting up the continent Development Bank has estimated that lost growth as a result of poor infrastructure amounts East African Cables has been producing electrical to around 2% of GDP each year. A World Bank cables and conductors for local use since 1966,

Infrastructure development indicator Sub-Saharan Africa World (developing)

Electricity use per person (kWh), 2012 511.9 3,064.5

Internet users per 100 people, 2014 19.2 40.7

Percent of global air cargo 1% 100% (measured in revenue-tonne km), 2013

Sources: World Bank; Boeing World Air Cargo Forecast, 2014-15.

1 World Bank, Information and Communications for Development 2009: Extending Reach and Increasing Impact, June 2009.

Intra-African business Platforms for change

weathering changes to the region’s political has been subdued in the last three to four and economic environment for half a century. years,” explains Mr Arina. He believes that Market liberalisation and rapid economic growth East Africa is poised for a decade of very rapid in the region have been mixed blessings for the industrialisation and growth, but not necessarily firm. The enormous opportunities created by in manufacturing. “Agriculture, technology and East African regional integration and associated services are on the cusp of a take-off.” infrastructure have been tempered by fierce competition from China and India. East African The people who have reliable access to power Cables appears to be navigating the situation on a daily basis are still a clear minority in the with some success: revenue increased more region of 3.5m of Kenya’s population of 44m, than six-fold from Ksh800m (US$7.9m) in according to Mr Arina. To address this, the 2004 to Ksh5bn (US$49.3m) in 2014. Kenyan government has committed to adding 5,000 megawatts of extra power over 2013-2017, and despite some obstacles to achieving this Hungry for power target, a number of projects are underway.

Peter Arina, recently-appointed CEO of East Africa Cables, believes that the firm’s Positioned to supply East Africa competitive edge stems from a deep understanding of the needs of both the With one or two well-placed hubs, it is now region and individual clients. Operating in possible to supply large swathes of East Africa. a region that is crying out for more electric Even with a complete reliance on trucking for power doesn’t hurt either. Mr Arina outlines intra-African logistics, transport does not what is driving demand for electrical represent a significant hurdle or cost to East infrastructure in East Africa. African Cables. “The next two years will position us strongly for the future,” says Mr Arina, who is “The growth is coming from three main pinning his hopes on the railway project between sectors. First of all, small-scale retail, Mombasa and Nairobi set for completion in late where individuals and SMEs are investing 2017, as well as the Kenyan government’s plan to in commercial infrastructure. Secondly, the build 10,000km of roads. general contractor business, which is mainly involved with infrastructure for commercial East African Cables’ production hubs are in and industrial complexes, including big Nairobi, Kenya and Dar es Salaam, Tanzania. infrastructure developments like airports. From there, they use a network of distributors Lastly, utilities—rolling out the electric grid.” and agents to supply South Sudan, Rwanda, Notably missing from this list is manufacturing, Uganda and Burundi. Yet outbound logistics are despite East Africa’s economy being more slow and the firm is still struggling to manage diversified than many other parts of the schedules and clear large inventories, hampering continent. “The Kenyan manufacturing sector expansion into Central Africa and elsewhere.

4 © The Economist Intelligence Unit Limited 2016

Intra-African business Platforms for change

East African Cables has found that rather than economies of scale, improve quality and leverage establishing new plants, it makes sense to focus their existing supplier base. It has just finished on consolidating its two existing production upgrading its copper manufacturing facility in hubs. This allows the company to achieve Nairobi, more than doubling production capacity

Intra-African business Platforms for change

from 300 to 750 tonnes a month, and the Turning on the lights—and the gadgets priority for 2016-2017 is to increase aluminium and copper capacity in Dar es Salaam. It “In terms of the opportunity and in terms hopes this consolidation will position the of the mission, what can really bring change firm to take on competition from imports as to Africa is power,” says Mr Arina. Barack Obama, well as from newer facilities sprouting up in the US president, recently said that Africa Kampala and Uganda. needs “light where currently there is darkness” to lift people out of poverty, and Mr Arina wholeheartedly agrees.2 “Access to power Challenges: counterfeits and subsidised enables education, manufacturing—everything competition is dependent on this.” By providing cables, his firm is actively enabling this very access. Mr Arina’s top concerns are what he perceives as Ironically, power is the firm’s second-highest unfair competition from Chinese and Indian cable cost after materials. imports, and the problem of counterfeit goods. “The governments of China and India subsidise Perhaps most critically for the future, East manufacturing for aluminium and copper African Cables is providing the basis for the products, and this disadvantages us. We would spread of digital technologies, which are like a level playing field,” says Mr Arina. The playing an increasingly important role in Kenyan government has already responded to people’s lives and businesses. Mobile money industry pressure, by introducing a requirement has spread like wildfire throughout Kenya, for 40% local inputs to major construction but digital transactions are only possible projects, but according to Mr Arina, this is widely if you can find a spot to charge your mobile flouted by the large Chinese contractors that phone. But Mr Arina is optimistic about the dominate the local infrastructure scene. direction of his company and the continent as a whole. There is an interesting tension in the relationship between African cable manufacturers and Chinese investment. Chinese investment is Peter Arina is CEO of the engine behind East Africa’s infrastructure East African Cables. development. China’s Exim Bank funds 90% of He is a graduate of the Kenya’s rail project, for instance. This means University of Nairobi with Chinese firms are not only driving demand for a Bachelor of Commerce electric power and related infrastructure, but degree. He has previously improving the transportation infrastructure worked with Safaricom as the Chief that East African Cables relies on for distribution Commercial Officer and General Manager across the region. Yet, Chinese imports present as well as at Unilever Kenya as a Customer one of the top threats to local cable companies. Development Director. For now, this is a necessary trade-off.

2 Reuters, “Obama plan to ‘Power Africa’ gets off to a dim start”, Nov 28 2014.

6 © The Economist Intelligence Unit Limited 2016

Intra-African business Platforms for change

Ethiopian Cargo: picture in coming years. Mr Abady expects intra- Connecting inland regions African flights to be one of the fastest growth areas in the coming years. 2017 may see the Air freight has the potential to play a much establishment of a single aviation market, greater role in enabling intra-African trade. without national restrictions on which routes Africa accounts for just 1% of global air cargo an airline can offer. This ambitious goal was despite being home to around 12% of the supposed to have been achieved after 44 African world’s population, and despite hosting many countries signed the Yamoussoukro Decision agribusinesses that could benefit from better on aviation market liberalisation in 1999, but transport of perishable goods. Even when speed most countries have yet to fully implement it. is not critical, the lack of dependable overland Mr Abady’s optimism is more a result of the transportation infrastructure in Africa’s interior economic, trade and population growth means that air transport can fill a gap. As much occurring across the continent. as mobile technology is helping overcome the shortage of fixed-line Internet, airplanes can fly Manufacturing is now a key driver of air cargo over difficult terrain hobbled by inadequate rail growth within Africa, according to Mr Abady. His links, frequent roadblocks and political unrest. Yet firm’s menu of cargo has expanded from fresh unlike mobile technologies, air freight services agricultural produce into leather goods, textiles have been relatively slow to grow. and other processed products. Multinational manufacturing firms wishing to extend their Fitsum Abady, managing director of Africa’s operations within Africa will likely add to this. largest cargo carrier, Ethiopian Cargo, which For instance, US-based manufacturing giant has been providing air freight services since the GE is establishing a hub in Addis Ababa to 1970s, laments this trend. “The volume of our assemble medical equipment, which Ethiopian cargo business in Africa is insignificant,” he says, Cargo will distribute across the region. citing a number of reasons from protectionism and political turmoil to inadequate handling facilities and ICT systems in airports. “Many places in Getting into position for African trade growth Africa lack fully-integrated multi-modal transport systems. For instance, if you land goods in Togo’s Mr Abady points to two main ways in which port, it is difficult to transport them overland by Ethiopian Cargo is adapting its operations to truck to the airport for pick-up and distribution to meet the growing demand for intra-African trade. inland countries.” The first is to follow what he called a “multi-hub” strategy, establishing new bases in key locations to serve each region of Africa. Until around 2010, A single aviation market? Addis Ababa was the carrier’s single African hub, and served as a gateway between Africa and Ethiopian Cargo, like its sister passenger airline the rest of the world. But one hub in Africa is no Ethiopian Airlines, is preparing for a very different longer enough, and Ethiopian Cargo has since

Intra-African business Platforms for change

established a West African hub at Togo’s Lomé- Ethiopian Cargo is also changing its fleet to Tokoin Airport, in partnership with private adapt to growing demand for intra-African airline ASKY, to serve Western and parts of routes. Until recently, its main assets were Central Africa. An opportunity arose in 2012 large Boeing-777 aircraft, designed to ship to establish a third hub, serving Southern Africa, large quantities across long distances, when Ethiopian Airlines stepped in to manage the to Asia, for instance. Under the carrier’s newly-formed Malawian Airlines. An interesting “Vision 2025” plan, it intends to purchase feature of both these moves was that they only four medium-range Boeing 767-300F aircraft became possible after the dominant local airlines for flights between East and West Africa; (Air Afrique in West Africa, and the former national and four smaller Boeing 737-800 freighters, carrier Air Malawi) fell into liquidation, breaking suitable for regional distribution within the hold of local protectionism. Ethiopian Airlines East and Central Africa. These smaller vehicles owns a significant stake in its partner airlines as are capable of landing on the short runways, well as operating them through management which characterise many airports in Africa. contracts. The firm is now looking to establish a Mr Abady explains that international hub in the Democratic Republic of Congo and has logistics firms, which want to extend their become a strategic partner to Rwanda’s recently- express delivery services, are driving much established national carrier. of this demand.

8 © The Economist Intelligence Unit Limited 2016

Intra-African business Platforms for change

Pressing for change Fitsum Abady has been Ethiopian Cargo is not alone in its push for a managing director for better air links. International tech firms are Ethiopian Cargo Services traversing the continent, searching for airports since January 2014. His amenable to their digital solutions, while responsibilities include all airline associations such as AFRAA and IATA are Ethiopian Airlines cargo pressuring governments to introduce open skies related activities worldwide. Prior to his policies. “What makes us lucky is that we are on a current role, Mr Abady worked as area continuously growing continent,” says Mr Abady. manager for the Indian sub-continent and “In the coming years, we’ll see a huge change South-East Asia, including Bangladesh, in all aspects of Africa’s business environment, Sri Lanka and Nepal and representing from the infrastructure we rely on to the systems Ethiopian Airlines in all areas of sales, we use. Globalisation will have a higher impact— marketing, finance and operations as well this is mandatory for Africa. We have to create as administration. connections with the rest of the world.”

Smile Communications: report which found that for every 10% increase in Leaping to high speed broadband penetration in developing countries, there was on average a 1% increase in GDP per Smile Communications was a pioneer of 4G LTE capita. For every 1% increase in broadband technology for high-speed mobile Internet. penetration, employment is projected to increase It owns and operates networks in Nigeria, by 0.2% to 0.3% per year. Africa’s vast expanses Tanzania and Uganda, where 4G access is of land and difficult terrain hamper the spread firmly entrenched, and will launch in the of fixed-line Internet, making mobile Internet Democratic Republic of Congo later in 2016. a necessity rather than simply something Irene Charnley, CEO and founder of Smile, “nice-to-have”. explained how she has had to adapt her company’s business model and expansion “This guides governments’ national broadband strategy to Africa’s needs and realities. strategies,” says Ms Charnley. Nigeria, for instance, has set a target for a five-fold increase in broadband penetration in 2012-2017, and is Pick a product that Africa needs aiming for 20% to 25% penetration. This means that Smile’s vision is aligned with government There is little doubt that the spread of broadband objectives and the regulatory environment. has a huge impact on African economies. Ms “This is very stable and very clear,” in most of the Charnley points to a widely-cited World Bank countries in which they operate, Ms Charnley says.

Intra-African business Platforms for change

Infrastructure is a promising investment terms of mobile connectivity. “In South for Africa, but many still consider mobile Africa, you can only get superfast Internet broadband a high-risk venture. To succeed at home,” says Ms Charnley. “In Nigeria, as a telco provider, Smile needed to establish you can arrive at the airport, get into the a footprint as soon as possible, the firm’s car, and when you get stuck for two hours biggest challenge to date. Its founding in Lagos’ traffic, what do you do? You watch shareholders provided enough start-up capital a live soccer game on your mobile.” Yet the to get the ball rolling, and once licences practical applications of Smile’s efforts had been obtained, they launched a major extend far beyond mobile video. Africans funding drive in 2013. In September 2015, can now get medical scans sent off to Smile announced that it had raised US$365m another part of the world for an expert in debt and equity funding. Virtually all of to review in high definition, and receive this multi-facility funding was sourced diagnoses remotely. It is precisely Africa’s from intra-African export-import banks, lack of basic infrastructure and resources development banks, private banks and that makes mobile Internet so useful for investment corporations. A minority came solving everyday challenges. from developed countries’ export credit agencies. “The funding we raised has allowed Having grown its technologies out of open- us to more than double our coverage over the source (OS) software, Smile is now investing last several months in each of our countries,” back into the OS community. They are in regular says Ms Charnley. touch with a group of developers in Europe and the US who are keen to hear about Smile’s experiments. “Our experience gained of A blueprint for reliability innovating in the 4G LTE space can be replicated and helpful in developing markets as well as In order to ensure that quality, reliability and the developed world,” Ms Charnley says. security standards don’t vary, Smile produced a “blueprint” of best practice. It establishes standards for all aspects of rolling out a network, Irene Charnley is CEO of from the equipment to branding and routes to Smile. Prior to starting market, to which all of Smile’s country-level Smile, she held multiple operating companies must adhere. “This ensures executive positions that in Nigeria you’ll get exactly the same at MTN Group and was experience as in Tanzania or Uganda,” says Ms instrumental in the full listing of MTN Charnley. This leap into the unknown, trialling a Holdings through M-Cell Limited. Before nascent technology in Africa’s emerging markets, her time at MTN, Ms Charnley was executive has produced some surprising results. The cities director at the industrial conglomerate, in South Africa, the continent’s most developed Johnnic Holdings. market by most standards, now trail Lagos in

10 © The Economist Intelligence Unit Limited 2016

Intra-African business Platforms for change

PART 2: DIGITAL PLATFORMS FOR MODERN SUPPLY CHAINS

The three companies featured in this section have year, mobile phone access in Africa between all significantly benefited from the improvements 2009 and 2014 grew faster than anywhere else in African infrastructure over the past decade. in the world. Ensuring lively competition in the For ACE and Mezzanine, their businesses simply telecoms sector will therefore become a matter would not exist without the rapid roll-out of of importance to policy-makers. Until now, mobile Internet connectivity, as well as related reducing prices and improving services have technologies such as mobile payments. In turn, been the main drivers of competition. In the these two young, digital firms are providing new future, it may be about ensuring that one firm platforms to enable more efficient logistics, does not have excessive control over people’s supply-chain management and service-delivery access to essential healthcare, education and models. Long-established consumer-goods business services. firm, Bidco Africa, has enthusiastically adopted mobile-based platforms to modernise its agricultural production methods and supply- Africa Courier Express: chain management. The digital technologies Lower-risk routes into West being developed and tested by all three Africa’s consumer markets companies enable much better insight into supply chains and current and potential customer bases in parts of Africa that were formerly all M-commerce opportunity knocks but inaccessible. As such, they hold enormous potential to reduce risk, which is crucial to E- and m-commerce are coming of age in Africa, encouraging more local and international firms driven by a convergence of factors. First, the to invest beyond Africa’s seaboard cities. demographics are favourable: overall population is expected to continue to grow, adding more The digital economy may still be small in Africa, than a billion people between 2010 and 2050, but it is growing at a dizzying rate. In 2014, the according to the Population Research Bureau, a value of software and IT services projects in US non-profit organisation. This is also a young Africa grew by 72%, according to fDi Intelligence. population with particularly fast-growing urban The uptake of digital services is driven by the and middle-class segments. Second, mobile rapid rise in mobile phone use. At over 14% a Internet access is spreading at an impressive

Intra-African business Platforms for change

pace: a 2014 survey of four African economies very new to the market, allows ID-on-delivery. commissioned by Deloitte found that around For secure advance payments, ACE leveraged one-in-five young people (aged 15-24) had existing e-transaction services, but given the low used a mobile phone to buy goods or services. public trust in pre-payment, it also developed Finally, a range of supporting technologies its own platform for accepting digital payments and businesses has emerged to facilitate e- on delivery—thereby gaining customers and and m-commerce, from virtual currencies reducing the risk of en-route loss or theft of cash. and tailored transaction platforms to firms Every package is insured, and thanks to real-time specialising in warehousing, logistics, digital tracking, the head office always knows marketing and customer service. who touched each item last. Mr Kehinde sums up the approach, common to many digital start-ups Nevertheless, the operating environment for in the continent: “We built our technology with e-commerce remains fraught with difficulties. Africa in mind.” Jumia recorded a net loss in 2014. Tunde Kehinde was one of its founding CEOs, and in launching his latest venture, Africa Courier Express Frugal partnerships for a tight financing (ACE), he decided to tackle one of the biggest environment challenges facing e-commerce firms in Africa: logistics and delivery. Many tech firms in Africa have to learn how to be profitable, or close to it, from day one, because the pools of capital available to them are not Technology built for Africa nearly as deep as in Silicon Valley or London. Financing generally also comes at a much higher When delivering a package to a customer, a cost. “I think that this lack of capital has led to courier typically has to run a gauntlet of poor people getting really creative with their tech, to quality and unsafe road networks and navigate reach the point where they are making money unclear addressing systems to locate his target very quickly,” says Mr Kehinde. house. Questions around the security of payment systems, reliability and timeliness make winning “Our philosophy in general is partnership,” the customer’s trust particularly challenging. explains Mr Kehinde. “Our core competencies “The customer will give you one chance,” says are technology and last-mile delivery, and Mr Kehinde. we keep these as much as possible in-house. But where we can partner with others, such One by one, ACE set out to tackle these as for customer service or accounting, we do challenges through its digitally-managed so. It’s clear that this industry has unlocked goods-delivery system. GPS technology—only opportunities for people in adjacent markets.” introduced to Nigeria around three years Business partnerships minimise ACE’s fixed ago—was integrated into its platform to guide payroll costs as well as other responsibilities, delivery drivers. Facial recognition software, also such as staff training.

12 © The Economist Intelligence Unit Limited 2016

Intra-African business Platforms for change

The rise of firms that support specific functions, how to navigate the operating environment. from customer service and accounting to ACE is managing the Nigerian supply chains of a warehousing and delivery, has interesting US retailer that did not want to take the risk of implications for international retailers and establishing a physical in-country presence, but other service providers looking to reach African saw opportunities for expansion nonetheless. customers. It is now possible to extend supply chains into some African markets without ever setting up a bricks-and-mortar presence or Reaching out employing permanent staff on the ground. Local partners are likely to have a much more nuanced From its launch just under three years ago, ACE understanding of what consumers expect and has expanded to five cities across Nigeria, and

Intra-African business Platforms for change

Mr Kehinde reports that business is growing taking operations to neighbouring Ghana and the healthily in all of them. In fact, the firm has vibrant consumer market of Kenya. grown in every month but two since it started. It now has around 500 business clients and has expanded to serve more sectors, branching Bringing African m-tech to the West out beyond non-necessity consumer goods and fast food into “must-have” products and Partnerships with international retailers are services. These range from pharmaceutical likely to feature prominently in ACE’s future prescriptions to insurance policies and loans expansion. Much of this interaction, however, —a portfolio that helps explain ACE’s robust will take the form of African know-how going growth in oil-dependent Nigeria during a abroad, rather than the other way around. For time of low oil prices and economic downturn. example, the company has been speaking to a The demand for basic goods and services that German supermarket chain looking to acquire are convenient and affordable is huge. For a African mobile technology products, for use business such as ACE, growth is less about in their home market. Mr Kehinde is optimistic waiting for more people to achieve higher about the potential for exports of African incomes than about reaching out to those who technology. “I think this will be the next wave for have the means but not the access to buy the African businesses, because there’s world-class things they want or need. technology here, whether in mobile payments, e-commerce or logistics. As well as expanding ACE’s business to date has been concentrated within Africa, we plan to export software across in Nigeria’s main cities, but this may not be the world.” the case for long. Mr Kehinde describes this change: “Thanks to our tracking software, we have good data on where demand is Tunde Kehinde is the co- coming from, and the heat map of e-commerce founder and co-managing around the country is getting wider and wider director of ACE. He also outside of Lagos, reaching into smaller towns. founded Jumia.com, an This is because Internet access is increasing online retail store, where all the time, access to smart phones is he helped grow the business from five increasing all the time, and more e-commerce employees to close to 1,000 employees firms are becoming active. In terms of how serving customers all over Nigeria. Prior to big the market could be, globally e-commerce Jumia, Mr Kehinde co-founded Bandeka. tends to range from 2% to 7% of GDP, so in com, an online dating platform identified Nigeria alone it could potentially be a US$10bn by Forbes as one of the hottest tech start- plus market—it’s around US$600m now.” While ups in Africa. He holds a degree in Finance reaching out to Nigeria’s unserved consumers from Howard University and an MBA from will be the focus for ACE in the coming year, Harvard Business School. further down the line Mr Kehinde is considering

14 © The Economist Intelligence Unit Limited 2016

Intra-African business Platforms for change

Mezzanine: Transforming Mezzanine has developed a commercially-viable service delivery models model for mobile service delivery and supply- through mobile tech chain management that is sustainable well beyond any individual aid project. South African tech platform Mezzanine allows mobile network operators to embed To achieve its goals, Mezzanine works in close additional services into mobile phone voice partnership with mobile network operators. and data packages. It is currently eyeing The latter are able to take advantage of their the agricultural, healthcare and education existing infrastructure and client base to sectors hungrily. Its approach is already implement services at minimal cost, while common in the international development gaining opportunities to expand their revenue community in Africa, with systems for streams. South African mobile network operator, mHealth and other basic services leveraging Vodacom (a subsidiary of UK-based global the continent’s high mobile phone usage telecoms group, Vodafone) recognised these to reach those in need. As many African potential benefits. Four years ago, it bought a countries move away from aid and toward majority stake in Mezzanine. The first big venture market-based solutions to ending poverty, beyond South Africa was East Africa.

Intra-African business Platforms for change

Mezzanine in East Africa: Scaling up a talent in South Africa, as well as local knowledge development project on the ground in East Africa.

Mezzanine entered the East African market in 2012 as a partner in an agribusiness development The implications for businesses with value project undertaken jointly by Vodafone, USAID chains in Africa and the non-profit Technoserve. It originally intended to create a mobile-based supply-chain This emerging model of service delivery and system called Connected Farmer. This enables supply-chain management presents significant farmers to make and receive payments, access opportunities to multinational firms looking to financial services such as micro-insurance and extend or improve management of their African e-money loans, and interact directly with local operations. “Long-term supply-chain security and multinational agribusinesses—all using means understanding what is happening from their mobile phone. From the perspective of the level of the farm, through to the coop, and on agribusinesses, it allows them to manage their to the store,” says Jacques de Vos, Mezzanine’s supply chains more efficiently and reduce the managing director. risks associated with cash payments. Over 2012- 2014, the consortium piloted the Connected They can also reach out to a much larger range Farmer platform in a range of agricultural value of either suppliers or customers. Their reach chains in Kenya, Tanzania and Mozambique. is limited only by the spread of mobile phone access, which already extends into most parts Daniel Huba, Mezzanine’s East Africa of urban and rural Africa and is expanding every managing director, spearheaded the transition year. For example, only 800 farmers signed up to from experimental aid project to a scalable take part in a Mezzanine-backed dairy farming business model. “In late 2014, based on the trial in East Africa, but this number rose to 2,000 results of the pilots, local telecoms firms after just one year. The ease with which MNCs can affiliated to Vodafone—Safaricom in Kenya, collect and analyse data mean they can manage and Vodacom in Tanzania and Mozambique— these value chains much more efficiently and at started asking how they could embed these much lower risk. services as a product.” This was new ground for the network operators, and it was agreed that Mezzanine should establish a team within Future applications Safaricom to manage the process. Mr Huba describes Mezzanine’s Kenyan team as the Having established bases in Southern and East “foot-soldiers”. They go out to discover exactly Africa, Mezzanine hopes to do the same in West what end clients need, while the South African Africa, though its ambitions are not limited to tech team develops tailored digital solutions Africa. The platforms that it develops are equally according to their colleagues’ specifications. In applicable in other parts of the developing this way, the firm utilises the computing science world where mobile phone use is high, but fixed

Intra-African business Platforms for change

Internet access is lagging. “We’ve just started and dependability in the service. Africa’s small delivering services in Indonesia, for a large companies are good at grasping exactly what is Vodafone client, and we’re interested in Asia’s and isn’t needed, what you can charge for and other emerging markets,” says Mr De Vos. what you can’t.”

Mezzanine plans on continuing to focus on the basic services that rural communities need in Jacques de Vos is the agriculture, healthcare and education. However, CEO of Mezzanine. Since as the big mobile operators come to view each 2005, he has started four sector as a different vertical business area, this technology companies, model of service delivery is likely to spread to and he continues to serve other parts of the economy in the coming years, on the boards of these companies in a particularly in East Africa. Other tech SMEs will be non-executive capacity. Mr De Vos started looking to carve out roles for themselves in this. using mobile technology as an enabler for Mr De Vos explains the advantages that these increasing the accessibility to government local firms can bring to partnerships: “Smaller services in early 2006 and have since companies are willing to spend time and effort developed and deployed mobile solutions understanding a niche area very well, in order for several African countries. to deliver just the right amount of flexibility

Intra-African business Platforms for change

Bidco Africa: Modernising regions from which it sources. It can then agricultural supply chains work with farmers, in conjunction with seed and fertiliser suppliers, to ensure that the Bidco Africa, founded as a garment manufacturer most appropriate crop varieties are planted in 1970, is now one of East Africa’s largest in properly irrigated soil. manufacturers and distributors of fast-moving consumer goods, sourcing from more than 30,000 farmers, operating in 16 countries. New competitive advantages Its focus is on edible oils and related products. Vimal Shah, the firm’s CEO and son of its founder, Some of East Africa’s successes have led to Bhimji Depar Shah, is bullish on the prospects unwelcome tensions with the rich world. for Africa’s agribusiness sector and consumer Agribusinesses are a case in point. The region’s market: in early 2015, he announced the flower industry, largely viewed as a threat to intention to quadruple Bidco’s sales between European agricultural interests, suffered under 2015 and 2020. import restrictions applied under pretence of poor working conditions. According to Mr Shah, however, East African agribusinesses have From agriculture to agribusiness demonstrated an ability to rapidly adapt to this challenge. By adopting more efficient farming To achieve such rapid production growth requires methods, from precision farming to forming a concerted effort not only to source from more clusters focusing on a single product type such as farmers, but to ensure that these suppliers flowers, many producers have been able to raise are producing as efficiently as possible. As Mr wages (which still remain well below European Shah notes, this requires a more professional, levels) and improve conditions while still information-driven approach to farming. maintaining a significant cost advantage.

“If you look at what agriculture has traditionally been in Africa, it has consisted of poor farmers Reducing risks through technologies with no direct link to the market and little information on farming methods, crop selection, The breakneck growth in precision farming would pricing or demand—for many it has been a casino not be possible without the equally-rapid rise business,” says Mr Shah. “What we’re now saying of mobile phone access. “Everything is going is: stop being a farmer, and start being an agri- digital now,” says Mr Shah, “and this is ending businessperson.” To this end, Bidco is working the information asymmetry we once had.” Bidco’s to encourage its suppliers to use more precise resources and counsel on precision farming, as farming techniques using technology. It is well as market information, are all available to doing so by gathering banks of information— farmers on digital platforms. Information also mapping out soil quality and pH, water type flows in the opposite direction, meaning that and other factors for each block of the rural both sides have much greater visibility on supply,

Intra-African business Platforms for change

demand and prices. This direct connection to rotate crops throughout the year, thereby between producer and buyer also leads to reaping steadier incomes. When it found that safer, more reliable contracts. Having advised many producers were struggling to find markets a farmer on which crop they should grow, for this additional produce, it decided to buy all Bidco then offers to buy a pre-agreed amount the crops itself. “This way, we offer our producers at a pre-agreed price, as long as the quality is fully-assured supply chains,” says Mr Shah. This right. Electronic payments also reduce the risks then helps the firm attract more suppliers. of delay or theft.

It takes time to establish trust in these new Adapting to the changing tastes of an systems, says Mr Shah, so Bidco is working to information-driven society build more secure relationships with suppliers in other ways as well. Through its digital extension Technologies are not only changing Bidco’s programmes, it is encouraging agribusinesses operations, they are also affecting the

Intra-African business Platforms for change

aspirations, tastes and behaviour of end high quantity goods, it makes sense to localise customers. Together with urbanisation and production wherever possible. “To export goods the rise of the middle class, which are driving from here to Egypt or Libya is not competitive demand for processed food and personal care because my freight costs to and fro would be too products, the Internet is changing everything high, so we try to produce nearer to where the about African consumer behaviour. “There are a demand is,” says Mr Shah. lot of thought leaders out there now,” observes Mr Shah. “Consumers see stories online, for The other challenge, according to Mr Shah, instance about the negative health impacts is unfair competition from businesses in the of sugar, and that informs their decisions. You informal economy, where taxes are not paid and have to adapt your range of products and their smuggling is rife. As one of the continent’s most nutritional value to the changing demand.” successful players in the formal economy, it is perhaps not surprising that Bidco would like to Mr Shah believes that thanks to the Internet, see the government clamp down on the many younger people in Africa are now growing up in smaller players in the informal economy that can a different paradigm and are more empowered undercut it on price. But the emphasis, says Mr consumers as a result. Where a few gatekeepers Shah, should not be on making life more difficult used to control access to goods and services, for small businesses. “We need to reduce the and could charge extortionate fees on the side, enormous number of different taxes and duties online shoppers can now tap into multiple supply that people pay, and make policies that are chains—and there is no scope for additional conducive—not an impediment—to business.” charges at the last minute. “With online shopping you cannot hide your prices, so power has gone from the seller to the buyer. If they Vimal Shah is CEO of don’t like your product, they’ll buy somewhere Bidco. In addition to that, else. It also increases their bargaining power. Mr Shah is a member of Youngsters are very savvy.” the 3GF (Global Green Growth Fund) Advisory Board and the Tony Elumelu Foundation Navigating the remaining challenges Advisory Board. Until April 2015, he was the chairman of the Kenya Private Sector In the next few years, Bidco will continue to Alliance-the apex private sector body in focus on the open markets of East Africa—Kenya, Kenya, and is a former chairman of the Tanzania, Uganda, Burundi and Rwanda. From Kenya Association of Manufacturers there, it wants to expand north to Libya, Egypt and the East African Business Council. and Sudan, and south to Djibouti, Mauritius, He holds a BSc. Business Administration Madagascar, Zambia and Zimbabwe. The main from United States International challenge it faces in reaching new markets University Africa. is logistics, and given its focus on low value,

LONDON 20 Cabot Square London E14 4QW United Kingdom Tel: (44.20) 7576 8000 Fax: (44.20) 7576 8500 E-mail: [email protected]

NEW YORK 750 Third Avenue 5th Floor New York, NY 10017, US Tel: (1.212) 554 0600 Fax: (1.212) 586 0248 E-mail: [email protected]

HONG KONG 1301 Cityplaza Four 12 Taikoo Wan Road Taikoo Shing Hong Kong Tel: (852) 2585 3888 Fax: (852) 2802 7638 E-mail: [email protected]

SINGAPORE 8 Cross Street #23-01 PWC Building Singapore 048424 Tel: (65) 6534 5177 Fax: (65) 6428 2630 E-mail: [email protected]

GENEVA Rue de l’Athénée 32 1206 Geneva Switzerland Tel: (41) 22 566 2470 Fax: (41) 22 346 9347 E-mail: [email protected]

Whilst every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd. nor the sponsor of this report can accept any responsibility or liability for reliance by any person on this report or any of the information, opinions or conclusions set out herein.