Entrepreneurship Zone: 10 September 2020: After a decade of building and investing in African companies, Emilian Popa explains why he is bullish on these five industries

Thu Sep 10 13:14:23 CAT 2020

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Entrepreneurship Zone: 10 September 2020: After a decade of building and
investing in African companies, Emilian Popa explains why he is bullish on
these five industries

 <http://www.zb.co.zw/> 

Investor and entrepreneur Emilian Popa has been doing business in Africa in
various capacities for over 10 years. He launched online clothing retailer
Zando in South Africa; started Jumia in Nigeria; founded the Naspers-backed
Africa Internet Accelerator; did a stint as CEO of Groupon South Africa; and
then spent four years investing in growth-stage tech-enabled companies
through the DiGAME venture capital fund. He is currently the co-founder and
CEO of Ilara Health, a Kenya-based diagnostic solutions company.

While Popa has witnessed great business success stories over the past
decade, he has also seen several ventures not performing according to
expectations. In a recent interview with How we made it in Africa, Popa
revealed the industries in Africa he is most bullish about.

1. Distribution

Popa likes African tech-enabled companies with strong physical distribution
components to their business models. Because of underdeveloped
infrastructure and inefficient supply chains in many African countries, it
is not enough to merely build the technology platform; companies also need
some kind of physical operations in place.

“Building technology on top of non-functioning infrastructure is very
difficult,” he says. “I strongly believe that the businesses which work best
are the ones where you build some kind of distributed infrastructure and you
put technology on top of it.”

He gives the example of Twiga, a Kenyan company that sources fresh produce
directly from farmers and delivers to hundreds of small urban shopkeepers
who place their orders through a mobile platform. “They found a way to
distribute a product into a completely disorganised retail market.” Popa
explains that upwards of 90% of retail sales in most of sub-Saharan Africa
is through informal channels such as markets, kiosks, table-top sellers and
street hawkers.

“Twiga found out that bananas in Nairobi are more expensive than in London.
Why is that? It is because there were six, seven people between the farmer
and the seller in the street 
 What Twiga does is it literally buys from the
farmers and sells directly to the seller in the street [though a] purchasing
and ordering platform and bringing efficiency into the process,” Popa adds.

Another example is Sokowatch, an East African B2B e-commerce company which
enables informal retailers to order products from suppliers such as Procter
& Gamble and Unilever via SMS or mobile app and receive free same-day
delivery. This makes it easier for shopkeepers to source goods and helps
manufacturers ensure their products are consistently available to consumers.

2. SME lending

Throughout Africa, there are numerous small- and medium-sized enterprises
(SMEs) which generate stable revenues but don’t have access to finance. “I
see a massive opportunity for lending; but SME lending rather than consumer
lending,” he says, adding that consumer lending is risky because of the
absence of adequate credit ratings in many countries, high customer
acquisition costs and a large number of competitors.

Popa points to Sokowatch, which has a financing component as part of the
business even though, strictly speaking, it is not the core offering.
Leveraging historic purchasing data, Sokowatch evaluates retailers to
provide them with access to credit and other financial services. Models such
as these, where the lenders have a degree of visibility of a company’s cash
flows, greatly reduces the risk of default.

3. Transportation

Popa is enthusiastic about tech-enabled transportation and mobility
solutions, and highlights Egypt’s Swvl (pronounced swivel) as a standout
company in this space. Through the Swvl app, commuters can book fixed-rate
affordable bus rides on the company’s bus route. It is not an on-demand
service like Uber: pick-up and drop-off points, as well as times are fixed.
Users book a seat in advance and track the minibus’s position. It is a more
comfortable and reliable alternative than the present public transportation
system. Swvl partners with bus owners and drivers who sign up with dedicated
Swvl buses to provide the service. As Africa’s cities continue to balloon
because of urbanisation, Popa expects demand for innovative mobility
solutions such as these to increase.

Technology is also being used to make the transportation of cargo cheaper,
quicker and more efficient. The logistics sector in many African countries
is largely informal and fragmented. The existing capacity of logistics
providers is not fully utilised and some routes are underserved. Trucks
frequently carry loads smaller than their capacity over long distances. This
makes economies of scale difficult to achieve which keeps logistics costs
high.

Nigeria’s Kobo360 and Kenya’s Sendy are two promising companies that address
these and other headaches faced by cargo owners and transporters, according
to Popa. Both companies have Uber-like models that link independent truck
owners with people requiring cargo transportation services, through a
digital platform.

4. Electricity

It is estimated more than 640 million Africans – or about 60% of the
continent’s population – do not have access to reliable and affordable
grid-connected electricity. Popa is enthusiastic about the business
opportunities this situation presents and highlights the off-grid
pay-as-you-go (or PAYGo) solar energy industry as one of the innovative
solutions to Africa’s electricity troubles.

Prominent companies in this nascent industry – which has provided
electricity to millions of rural and low-income households in recent years –
are M-Kopa Solar, PEG Africa, Lumos Global and Zola Electric. Although there
are differences in their respective offerings, the packages generally
comprise a solar panel and battery with accompanying appliances such as
light bulbs, torch, mobile phone charger and radio. Some even include a
digital television. These companies typically allow their customers to pay
for their solar systems in instalments, often through mobile money. In the
case of M-Kopa, sensors on the equipment enable the company to regulate
usage based on payments received. If a customer stops paying and runs out of
credit, the system is shut down remotely.

Popa cautions while the PAYGo solar electricity business model looks good on
paper, it is similar to consumer lending and therefore presents risks. With
unpredictable earnings, low-income households often don’t have the means to
cover all their commitments. “People need to pay for food, for rent, for
school, for the kids, for health. The question is: where in the order does
electricity fall?

“It’s a great, impactful and potentially profitable business, but the
collection [of payments] may become difficult 
 Nonetheless, it’s still
something I believe in 
 and one of the solutions to the lack of electricity
infrastructure.”

5. Healthcare

Despite a shortage of quality healthcare in many African countries, Popa
says there are remarkably few start-ups operating in this space. During his
time at investment fund DiGAME he looked at over 500 companies, but only a
handful focused on health-tech. “Healthcare is difficult,” he says. “But at
the same time, if one identifies a sustainable and economic model in
healthcare, it can be super impactful and also super profitable.”

For his current company, Ilara Health, Popa spotted an opportunity to
provide affordable revenue-generating diagnostic equipment to private
clinics and pharmacies situated in low- to middle-income neighbourhoods in
Kenya. As informal businesses, these establishments typically have little
access to finance to pay for the equipment outright. To overcome this
challenge, Ilara has introduced a financing option which permits them to pay
for the equipment over 24 months. Similar to the M-Kopa example mentioned
above, Ilara’s devices are connected to a technology platform which allows
the company to turn off the devices if a client doesn’t pay.

He adds that many of the successful tech-enabled companies in Africa don’t
just do one thing. They have multiple businesses in one business: there is a
product to distribute, with financing to make the product more affordable
and a technology platform on top of it all to streamline the process.

Focus on the basics

Ultimately, Popa believes companies that will flourish concentrate on
consumers’ basic requirements. During an economic downturn, people still
need to move, eat, send money, see a doctor and use electricity. “Businesses
which serve those basic needs are the ones which will have a much bigger
chance to survive and thrive.”-Howwemadeitinafrica

Emilian Popa

INVESTORS DIARY 2020

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Companies under Cautionary

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