change or die

Africa’s innovators VS the virus

By Aubrey Hruby

Posted on April 21, 2020 09:11

Nigerian filmmaker, Niyi Akinmolayan who created an animated video to educate kids on coronavirus, works on his laptop in his home, amid the spread of the coronavirus disease (COVID-19), in Lagos
Nigerian filmmaker, Niyi Akinmolayan who created an animated video to educate kids on coronavirus, works on his laptop in his home, amid the spread of the coronavirus disease (COVID-19), in Lagos, Nigeria April 17, 2020. REUTERS/Temilade Adelaja

Africa’s young companies will be hit hard by the coming recession: but they also provide a route out of the slump, argues @AubreyHruby Africa’s PE and VC industries have greatly matured in the past few years, with Africa-focused PE firms fundraising $1.7bn in the first half of 2019

In March, the United Nations Economic Council for Africa (UNCEA) estimated that Africa would lose half its GDP, with growth dropping from 3.2% to 2%.

Africa’s exports revenues from crude oil could fall $103bn, and falling oil prices will hit many of the continent’s economic powerhouses like Nigeria, which originally benchmarked its budget against a now far-too-high $57 a barrel.

South Africa, already in recession, began a 21-day lockdown on March 27th, after experiencing its first coronavirus death and a rapid up-tick in infections.

As much of the world grinds to a halt, Africa is no exception.

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In a region already constrained by limited capital, the impending recession will harshly hit Africa’s young companies resulting in devaluations and few, if any, immediate profitable exit opportunities.

However, despite the obvious economic hardships ahead, African companies will also play a key role in the continent’s recovery.

While still nascent, Africa’s PE and VC industries have greatly matured in the past few years, with Africa-focused PE firms fundraising $1.7bn in the first half of 2019.

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With a need for new innovation to tackle the crisis and shifting demands in consumer behavior, investors can look to three sectors that are poised to continue growing throughout and after the pandemic: business-to-business software (B2B), creative industries, and health tech and ed tech.

Over the past year, African investors have increasingly shifted focus to business-to-business (B2B) companies over business-to-consumer (B2C) companies, as the B2B model often lends itself to higher profitability and avoids many of the consumer behavior and logistics pitfalls that B2C companies face.

As individuals and the workplace increasingly turn to online solutions as a result of social-distancing requirements, companies that enable digital operations will benefit both during the pandemic and after due to newfound familiarity.

Traditional B2B software solutions will see increasing adoption in Africa, like Seamless HR, a Nigerian HR tech company that calls itself the “Workday of Africa,” and provides a digital platform for everything from hiring interviews to automating payroll and eliminating check or cash payments.

B2C turned B2B players like GlooPro, that pivoted from same-day grocery delivery to an e-procurement company for large scale enterprises, or Tuta-me, that went from offering tutoring services to individuals to offering learning programs to corporations, also stand to benefit as companies look to move further online.

On the back-end, B2B and B2C payments solutions platforms are likely to find continued success in facilitating both company and individual consumer transactions who will increasingly look for cashless options to avoid possible coronavirus spread on bills and coins.

With 45.6% of the world’s mobile money transactions already taking place in Africa and 41% of VC funding going to fintech in 2019, the current pandemic is likely to only accelerate innovation and adoption in the sector.

The Kenyan government worked with Safaricom to implement a fee waiver on small transactions on its mobile-money product M-Pesa, and the Ghanaian government lowered “know-your-customer” requirements to allow individuals to open bank accounts with the main digital payments providers. The pandemic is sure to drive wider adoption of contactless solutions.

Africa’s creative sectors may also be a ripe home for investments in the coming year. Africa’s creative industries already generate $4.2 billion in revenue and Nollywood, Nigeria’s film industry, accounts for about 2% of Nigeria’s GDP.

In Kenya, the music industry’s revenue is expected to rise from $22 million in 2017 to $32 million in 2021. With concerts cancelled and film productions halted, consumers will turn to music streaming services, like Simfy Africa, and media distribution companies, like iRoko Partners, to access Africa’s growing digital creative continent.

READ MORE Three ways investors can grow Africa’s creative industries

While too high mobile data and broadband costs have hampered the full potential of the creative industries, the pandemic has sparked a public push to lower Africa’s data costs, with asks from organizations like the Independent Communications Authority of South Africa to do so.

The pandemic is also likely to accelerate online delivery in two sectors that require skilled and trained personnel: health and education.

From verifying drugs to virtual doctors appointments and tracking patients records more accurately, health tech is positioned to fill many of the gaps of an under resourced healthcare system.

WHO’s Africa regions accounts for just 1% of the world’s financial resources for health, and according to Partech health tech accounted for just 9.3% of venture funding in 2019. As the pandemic strains Africa’s medical community, governments will increasingly look to local, innovative solutions to continue various containment, mitigation, and treatment options.

Delivery of health services post-Covid in African markets will be increasingly digital. Like health, the similarly under-resourced education sector will likely require a prolonged shift to remote delivery.

With high student-to-teacher ratios across the continent, such as 38:1 in Nigeria, Africa’s edtech solutions are a natural fit for governments that already can’t support more teachers and schools and are looking to enforce social-distancing measures.

The covid crisis is changing consumption patterns, reshaping business and fast-forwarding some industry trends. While the economic impacts will be severe in the short and medium term, investors are sure to find opportunities in the companies adopting most effectively to these new market realities.

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