Archive for the ‘South Africa’ Category

How social networks can share the cost of technology – An innovative payment plan

The original Prepaid Economy project grant from the iBoP Asia Project required me to design a payment plan for a shared community asset based on the exploratory user research on households managed their finances on irregular and unpredictable incomes. For the first time since I started looking into this space back in 2008 I’ve come across the use of this conceptual business model in the wild.

A successful South African entrepreneur who made his millions by selling computers in townships came up with an innovative variation of such as business model. Here are the details:

He soon realised the power of Stokvels, an informal savings pool or syndicate, in which money is contributed in lump sums on a rotational basis for family needs. Luvuyo clustered the teachers in groups of six where they contributed $35 every month. Within six months of starting the scheme, each teacher had their own computer.
He says you need to understand your business’s unique challenges to become a successful entrepreneur.

“We’re trading in Khayelitsha, where the employment rate is 60% and there’s no money. You need to be very smart in terms of how we get money and get people to pay. Some of the people coming for our services are dependent on social grants from government. They save that money for themselves to get a computer and better employment,” he says.

The Rise of the African KINGs

The Abraaj group announces yet another African investment fund, one which emphasizes the following:

The sectors include consumer goods and services, consumer finance, and resource and infrastructure services in the core countries of Nigeria, Ghana, Côte d’Ivoire, South Africa and Kenya

While South Africa tends to be de facto in most continental investments, note the choice of the other four countries. Rewritten, we get Kenya, Ivory Coast, Nigeria and Ghana. Or, as was noted earlier, KINGs.

Watch this space.

Questioning Convention: Comparison Metrics for Competitive African Markets

Taking the question of appropriate and relevant metrics by which to assess competitiveness (rather, attractiveness) of the emerging African consumer markets further, I decided to dig up some analytical infographics to compare and contrast their approaches.

Urbanization is a current favourite, and here are two similar looking visuals from two different perspectives. The first is Knight Frank’s report on real estate opportunities on the continent, while the second is from PwC’s African section of the WEF Global Competitiveness report.

urban growth knightfrank

Knight Frank 2015

urbanization (2)

PwC 2015

Leaving aside the question of whether Dar es Salaam will show greater than or less than 120% growth in the next 15 years, here’s a clear indication of how choice of metrics impact outcomes. Granted, PwC selected countries on which to focus, thus the cities they list differ from Knight Frank’s, and each report has a different emphasis. Otoh, should there be a difference of ~ 10% in growth estimates for Nairobi, for instance, or Ibadan? No wonder these reports lead many to decry the quality of statistics and data from Africa.

Anyway, the point isn’t to debate whose method was better or if Dar will be the fastest growing capital on the continent or not. Until the dust settles down in the current scramble for African reportage, its best to take multiple sources of data into consideration and triangulate on the most reasonable estimate.

Questioning Convention and Convenience

The point is to ask if the conventional way we approach assessing the size and value of a market opportunity might itself need to be questioned when it comes to the African market?

For decades, South Africa was the closest thing to a developed economy south of the Sahara and until last year, the largest and strongest of all. This led to it becoming the de facto frame of reference through which to evaluate the others. PwC’s report shows this heritage in these analytical charts which compare regional (and continental) economic powerhouses of Nigeria and Kenya against South Africa.

NG pwc

kenya pwcIn today’s world, you’re highly likely to be looking at Nigeria in West Africa and Kenya in East, if you’re looking at Africa at all. What you’d want is a means to compare the two, or more, rather than compare each against a third country whose operating environment you may not be familiar with.

PwC countries

This choice of metric – the lens by which they assess competitiveness – seems to make sense at first glance. But is it helpful in any way, shape or form to any organization without experience of the South African context by which to judge the relative rankings of the others?  South Africa’s historical economic development lends itself to favourable rankings on the conventional metrics used for a globe spanning index while much of the others fall behind in contrast.

Yet they are distinguishing themselves in unique ways, contradicting what the metrics seem to imply – we saw the same challenge, in different form, with the E-commerce readiness index proposed by UNCTAD. South Africa’s current economic trajectory as compared to projections for either Kenya or Nigeria (or quite a few of the others) is quite dismal and the outlook gloomy, quite unlike the healthy exuberance of these two – compare SA’s 2.1% with Kenya’s 6.2% or Nigeria’s 7.3% – like I said, I’d be wanting to compare these two against each other, and maybe Ghana or Ivory Coast or Rwanda etc .

Is it time to think about developing metrics that better reflect the complexity and potential of the African operating environment?

Mapping global seasonality: national times of abundance and scarcity?

Connecting some dots made me think of this exercise. If national governments are increasingly looking at ways to bridge the informal economy with the formal, in order to provide more inclusive benefits to their citizens and at the same time there’s an increasing focus on providing inclusive financial services to those outside of the formal economy, then why don’t the overly large global institutions consider mapping national seasonality as a way to track regional abundance and scarcity?

Rather than applying existing metrics which result in a significant portion of the population slipping between the cracks, there is scope to develop measures of assessment where it is known that incomes are irregular, and tend to display seasonal patterns. This mapping need not be too granular in the first instance, even at country level it may be of help as another layer of information over the various surveys conducted.

India, for example, has long known the linkage between the state of her monsoon season and that year’s economic performance, even for organizations and people who are not directly connected to the land and its produce.  Recently, I did something similar for Kenya, mapping the ebb and flow of local income in three different regions and was able to arrive at a rough estimate for a nationwide time of abundance – a peak sales season, if you will.

Highly industrialized nations have detached themselves from the land and the natural seasons, thus the impact of the rains or the dry season on economic activity are barely perceived. In emerging economies and still developing nations where a greater proportion of the population is rural based and food security more vulnerable to weather changes, these elements can influence national GDP or consumer durable sales.

Whether its segmentation of rural markets for companies or policies of financial inclusion on a global scale, I believe this additional layer of information has the potential to provide some crucial nuances to information currently being analyzed, and found wanting.

Why South Africa should not be the entry point to reach Africa’s emerging consumer markets

This post is about something I’ve been musing upon for some months now, ever since my 2011 project which took me around rural and small town Kenya visiting with a variety of cyber cafes. Since then, many other well respected Kenyan professionals that I’ve spoken with, either in person or online, have confirmed my suspicions that my conjectures are valid.

South Africa is not the best place from which to enter the emerging consumer markets of Sub Saharan Africa.

This was the strategy touted for Wal-Mart when they bought into their foothold earlier last year. That once the “African consumer experience” was gained in South Africa, they could leverage that knowledge to expand northwards to other major urban metros. I beg to disagree, most strenuously.

While I’ve yet to gain first hand immersion experience in West Africa, I do have the exposure to both urban and rural markets, particularly lower down the income stream in South Africa as well as in East Africa, via Kenya. That first observation alone triggered the thinking behind this post today – the market days in rural Kenya are considered to be little different from those in rural Tanzania or Uganda, and market towns dotting the landscape are familiar to travelers across the region.

This does not exist in South Africa. There are no organic societies in rural South Africa, where farmers and pastoralists have lived their way of life for eons, nor do people point out their grandfather’s banana trees or his third wife’s kitchen on the sprawling family homestead.

South Africa, particularly rural South Africa, is an artificial construct. Homelands were created some 60 or 70 odd years ago and not simply the kind of land clearing that was done in the Settler Country of East Africa either but deliberately carving out the least fertile land with the scarcest amount of natural resources. A simple drive through the Eastern Cape will show you odd clusters of homes with no natural resources nearby to give rise to any reason for their existence unlike the naturally emerging population clusters near rivers and farmland as can be seen elsewhere. Few in rural South Africa can claim with the pride of the Swahili in the north Coast that the coral block home in Lamu has been in the family for over 500 years.

Education is another area where there is a huge difference. Adult black South Africans who were schooled for the most part prior to the fall of apartheid have experienced only the truncated ‘bantu education‘ crafted specifically for them, unlike the Kenyans for example, who have always had access to the same curriculum and programs as any other resident of their country. While there are many more such differences, society and education are the two most critical.

This matters. A lot.

This difference in history and reason for being influences so many consumer choices, buyer behaviour and mindset of the people that if a company bases their Sub Saharan market entry strategy on their South African experience, there is a danger that they will be taken by surprise when they expand to other regional markets.

Here are some snippets as food for thought extracted from recent news articles:

Historically South Africa was designed as an appendage of Europe , with Africans as cogs in the wheel. The other Africa was sold to local blacks as inferior and the countries best avoided. It is still not unusual to hear black South Africans refer to other African countries as “Up there””. Xenophobia has become synonymous to South Africa. But things are gradually changing as other Africans become better known with time and as other African countries join the success list, politically and economically.

South Africa, well steeped in racial history had always sought to identify with the first world, while the first world itself have re-discovered Africa’s massive potential. That outlook has seen the Zuma administration join the economic grouping Brics and the G20 to the neglect of a strong African economic union.

Black South Africa woke up belatedly to discover that the flights from Johannesburg flying North to the rest of africa was filled with white South africans freed from the shackles of apartheid , busy taking adavantage of massive opportunities that had opened up in a growing Africa. MTN South Africa, has made a fortune in Nigeria. Its shareholders are largely white.There are more than eighty South African companies registered in Ghana.

And more to the point, this comment “South African companies find it hard to rule Kenyan market” in an African forum puts the challenges forth a little more bluntly while another recent article clearly states:

Dapo Okubadejo, who is a partner and the head of financial advisory services at KPMG, said: “There is a huge problem with SA companies; they come with a huge big brother attitude. In Africa people see them as being not flexible and this creates a lot of sensitivity,” Okubadejo said. He added that it was a mentality that affected investments.

Okubadejo cited Telkom’s failure to establish itself in Nigeria as an example.

I am making this point clearly now because it is a matter of concern, particularly when there are enough barriers to understanding the emerging African market opportunity that exist for global multinationals as it is.

South Africa is an offical BRICS now and certainly considered the most sophisticated economy on the continent, but it is no longer the largest as Nigeria rapidly snaps at its heels nor representative of the consumer culture that may be prevalent across the rest of the region.

Business model innovation, with caveat

About 3 or so years ago, there was much fanfare about the impending launch of Airtime Airlines, a South African venture that planned to offer a whole new way to purchase flights. One could use airtime minutes and buy tickets immediately or save up towards its purchase over a period of 6 months by sending small increments of airtime as and when available. This was certainly an exciting development in a region of the world which has taken the lead in pay as you go business models – from prepaid rural electricity to the ubiquitious cellphone – but it never took off and crashed before its first flight.

Today I came across an even more exciting concept – the merger of a basic solar power kit to provide lighting and the prepaid mobile phone. Econet Wireless, the Mauritian telco has launched the Solar Home Power Station through its energy subsidiary Econet Solar.

The product contains a SIM card – the same as those used in cell phone handsets – which enables the device to communicate with the cellular network and in turn makes it possible for the customer to pre-paid for energy usage, in the same way that they currently pay for airtime on their cell phone.

Upfront costs are indeed a barrier for many who manage on irregular income streams from a variety of sources and the prepaid or pay as you go business model has successfully demonstrated its relevance and value to this great majority of the world’s population.

The only other downside as far as I can tell at this moment with the little information available is whether the customer will end up owning the product after some period of time or will it always be leased to them and activated only through perpetual payments?

Secondly, unlike a phone which still permits incoming calls when there is no cash for a top up, what use will this kit be if the family goes through a tough time where little cash may be available?

There are pros and cons to this model but imho it is only when such models are launched and tried over time that we will be able to evaluate which nuances need tweaking in order for such to work, unlike the airlines which never took off. The press release states the product will be trialed and then released commercially in early 2012.  One hopes that it will indeed be so…

Welcome to Bazaaristan: global informal economy being recognized

Street Vendor, Mombasa, Kenya (Photo credit: Niti Bhan)

Across the globe, 1.8 billion people — a quarter of the world’s population — work off the books each day. They are paid in cash for the goods they sell and the services they provide, and due to their ubiquity, there’s a word for these merchants in nearly every language. As Robert Neuwirth reports, in French colonies, they’re known  as débrouillards — self-starters, entrepreneurs, all outside the bureaucratic system. They might be vendors selling revolutionary goods in Egypt’s Tahrir Square, Nigerians selling mobile phones, or the guy down the street hawking flowers on the corner. Whoever they are, they work in the world’s fastest-growing economy: System D.

As Neuwirth writes, System D, slang for “l’economie de la débrouillardise,” is the crucial blackmarket, providing opportunities where the regulated global economy has failed. Its value is estimated at roughly $10 trillion, meaning, as Neuwirth points out, that, “If System D were an independent nation, united in a single political structure  — call it the the United Street Sellers Republic (USSR) or, perhaps, Bazaaristan —  it would be an economic superpower, the second largest economy in the world.” The Organization for Economic Co-operation and Development (OECD) predicts that two-thirds of the world’s workers will be employed in System D as soon as 2020. ~ Via Foreign Policy magazine

Observations: Rural BoP and the cash economy

Investment or Independence?          Photo Credit: Goverdhan Meena

Across the board, the particular characteristic that most stood out during my conversations with the rural populace in India and The Philippines, as well as prior experiences elsewhere, was their undeniable pride in their degree of self reliance, and thus, their level of independence from the formal or cash based economy.

Over and over, people would proudly point to assets like firewood, livestock, kitchen gardens etc and emphasize that these resources were “free” and didn’t need to be purchased for cash, often in the same breath pointing out how everything needed to be bought if you lived in the city. Whether it was a nanny goat kept just for milk for morning tea or an extra sack of rice held back from the harvest sales, there was a distinct sense of achievement for every penny that didn’t have to be spent.

This trait of minimizing the need for actual cash money also cropped up in other patterns of behaviour including the storage of wealth in the form of ‘kind’ or ‘goods’ (that could be liquidated if required); cashless transactions, from the simple to the sophisticated; and the rapid conversion of cash received into goods or “kind” (livestock for example).

All of these behaviours imply a challenge for businesses seeking to serve rural populations effectively since their relative lack of liquidity places them in a challenging position as future customers. While some initiatives are being put into place in order to deal with just this situation, few, if any, are currently applicable to more mainstream purveyors of consumer products and services. While one could conceivably begin to address the challenges of designing payment plans for those with irregular incomes, what happens when you add a tendency to shun liquidity to the mix?