There is a lot of hype surrounding Africa’s nascent technology scene today. As all shrewd investors know, it is often best to avoid the wisdom of the crowd. The louder the hype, the more bearish one should go and vice-versa. Of course, this is not an exact science but it is more often right than wrong.
This hype has led to a lot of unrealistic expectations and it is unfortunate. A few weeks ago, Naspers shut down its online business directory, Mocality in Nigeria and Kenya to much dismay. Many were shocked. They were shocked as well when mobile advertising company, InMobi shut down its Africa office. The truth is that they needn’t be. Winning in tech in Africa and elsewhere has never and would never be an easy race. The situation is further compounded in Africa where weak systems and marginal digital advertising markets make it even more difficult to make money online. Anyone looking to make a quick buck will be sent scampering. Everyone else brave enough to wait things out has no choice but to enjoy the ride, for better or for worse.
Africa is young and growing – a market filled with boundless opportunities for long term investors. The length of time required for success is unknown but in the meantime, the ride would be bumpy. These are simply growing pains and nothing more. Ultimately, only the patient will survive.
Investors and entrepreneurs building tech companies are essentially banking on two things – exponential growth in the earning potential of the average African and massive increase in the availability of the Internet to more and more Africans over the next decade.
The economic growth numbers of many African countries and the increasingly decreasing costs of bandwidth prices show that these are good bets. However, the time horizon might be extremely long or short depending on how quickly these bets materialize. In a sense, their actualization should be viewed best as a journey where the absolutes should not be as important as the growth rates. Questions such as how quickly is Africa’s middle class growing should be explored. By all indications, this number continues to accelerate with the sweet spot being Africans with a per capita daily consumption of between $2 – $20 according to the African Development Bank (AfDB) with the AfDB giving the caveat that about 60% of Africa’s middle class are vulnerable and face the constant possibility of dropping back into the poor category.
This highlights how much of a journey the African growth story is. African countries would have to continually grow year after year until there is a clear and thriving middle class. Along the way, robust infrastructure (payments, broadband, transportation & logistics) e.t.c. would need to be built to allow for substantial monetization to support online business models. Then there is the issue of building the local digital advertising market into one that is a lot more mature and that can support advertising based online businesses. Some of these issues are being tackled by a myriad of firms, but as we can see with the recent shutdowns, it is still early days.
However, we live in the real world where companies and entrepreneurs have to hit certain revenue targets to stay afloat. Inevitably, the long term winners would be companies with a near endless amount of financial runway to support their businesses for the long haul or technology entrepreneurs with such lean overheads that near term revenues convert to mostly profits.
Both classes of people/companies have one factor that they are not concerned with – time. The best way to view the experience is as a journey. It is a once in a lifetime opportunity to be a part of what would arguably be one of the fastest economic transformation stories that the world has ever seen. Instead of participating in this growth story as a hit and run driver would, the only way to succeed is by patiently going all in – an incredibly risky but potentially high rewards proposition.