African startups raised a cumulative $726 million last year, a 300% increase from 2017 number. Across sectors, investors are trusting entrepreneurs to redesign the architectures of African economies by using emerging technologies to improve productivity and in the process deliver huge returns. It is a Cambrian moment where startups are emerging in all forms and varieties, providing services and products, and in the process fixing market frictions even in impervious hitherto industries like logistics, healthcare and agriculture.
Indeed, across the continent, we are witnessing a transformation where ambitious and pragmatic young people, armed with digital skills and new business models, are unlocking the enormous opportunities mobile connectivity has unleashed. With barriers of entry, into most sectors, radically reduced, through cloud computing services, knowledge has assumed a premium position as a factor of production. So, from the lagoons of Lagos to the rainforests of Cape Town, from the beautiful hills of Cairo to the grasslands of Bamako, there is an entrepreneurial explosion in Africa, and it is unprecedented. Powered by microprocessors, accessed via the cloud, that knowledge is being transmuted by pieces of codes, into bold solutions, eating everything on its path.
Three decades ago (i.e. the 1990s), African entrepreneurs created most of the current new generation of banking institutions. Then mobile telephony arrived at scale in 2000s, being followed in 2010s by mobile internet. The decade of 2020s will be the digital utility decade as immersive connectivity and mobile devices will unlock new domains in commerce, across markets, as startups pursue transformation of industries. From energy to healthcare, agriculture to logistics and even financial services, Africa is being economically restructured by the combinatorial powers of digital technologies to arrange, re-arrange and make sense of atoms and bytes. I have written in Harvard Business Review the promises in agriculture and healthcare before.
Specifically, Africa’s logistics industry has been growing over the last few years, buoyed by massive urbanization, population growth, increased demand for imported finished goods, rising exports of agriculture commodities and other unfinished goods, and fledgling industrialization of most key markets. The industry, which we have estimated at $220 billion market size, is broadly divided into air, maritime, road and rail. The road logistics at $157 billion is the largest, and growing at 8% annually, with ecommerce a noticeable growth anchor.
In this sub-sector are startups like Kobo360, Lori Systems, Zido, and Copia, a Nairobi-based logistics-ecommerce combo, among others. Most of these new species of logistics companies do not own trucks, vans and the hard assets usually associated with logistics entities. Rather, they focus on building all-in-one logistics platforms that aggregate end-to-end haulage operations to help cargo owners, vehicle owners and drivers, and cargo recipients achieve an efficient supply chain framework. By doing that, they attain new logistics equilibrium, delivering higher operational efficiency and transparency while reducing overall costs. Asset-light, highly technology-enabled, from data analytics for pricing and scheduling, to GPS navigation systems for tracking, they are winning customers across the continent.
The business model is based on aggregation which Uber had pioneered for city taxies. Unlike many years ago where millions of dollars would have been required to build datacenters, today, young people with visions simply find new territories, orchestrating demand and supply, via platforms, engineered on codes, hosted in the cloud. For merchants, manufacturers, and producers, supply chain frictions are reduced as disparate systems, devoid of order, are transformed into ones fully integrated with deep visibility and transparency. Amazon AWS, Microsoft Azure and local players like Layer3Cloud make ideas to markets to happen within weeks.
Before these digital logistics startups, cargo owners like agribusiness, FMCGs, manufacturers and distributors would call agents and street urchins to look for trucks on the streets for them. With digital tools, cargo owners can now schedule trips ahead of truck positioning for loading within few hours, and from the pickup to final delivery, a cargo owner will have visibility on the trip status of their goods. And being end-to-end logistics, the platforms ensure that trucks have goods to pick on reverse trips, boosting the vehicle utilization rates which drive higher returns for truck owners and more incomes for drivers. That ability to make sure trucks do not return empty, but carry things on reverse, is why truck owners, drivers, and shippers have become fans.
These improvements, anchored on emerging digital tools, have resulted to the evolution of new industrial systems, facilitating the process of socio-economic developments. We are witnessing new domains on information exchange, and business transactions which are largely cheaper and more efficient, seeding efficiency in production and business processes at unprecedented productivity gains. It is changing supply chain which is at the heart of commerce, even as major African cities become knowledge-based economic structures and information societies, comprising networks of people, organizations and state agencies that are linked electronically, and in interdependent relationships.
As these digital logistics companies expand into rural areas, century-old agribusiness friction will go. Before now, the overriding thesis is that Africa must build local storage facilities to eliminate harvest wastes – a challenge in rural areas with no grid power. But pilots we have run in Kobo360 have shown that warehouses are unnecessary if produce can be morphed into hubs and transported to cities or factories for processing within days. With micro-aggregation connecting people, bikes and vans, linked to the macro-platform with big trucks, farmers harvest within a specific time-window, and all produce are paid and shipped out. We have removed the stress of finding new markets, empowering farmers to focus on farming, knowing that no waste is possible under Kurfman (Kobo Urban Rural Feeders Micro Aggregation Network) which also supports SMEs in urban areas to reach new markets and territories.
Yet, despite the optimistic exuberance across Africa on the promise of digital technologies, critical enablers remain sub-optimal. In the logistics sector, the number of available trucks is severely inadequate, implying that even when there is demand-supply matching, lack of trucks injects shocks at the equilibrium. It is a challenge these companies cannot fix with codes or apps, and which will require involving governments to offer incentives for more truck assembly plants in Africa towards advancing supply chain. If trucks are readily available, logistics costs will drop, especially in the rural areas, and that means welfare of many citizens will improve. Yet, the entrepreneurs are not waiting, using digital tools to pool investors together in funding new trucks to improve their businesses. They see a positive continuum where new challenges will meet ubiquitous and intelligent digital systems as they sojourn in this 21st century Cambrian moment which is changing African economies.------
Register for next edition of Tekedia Mini-MBA (June 22 - Oct 22, 2020) here. Four months, online, and costs $140 or N50,000 naira .