Entrepreneurship Zone: 13 June 2021: After a decade of building and investing in African companies, Emilian Popa explains why he is bullish on these five industries

Sun Jun 13 10:37:22 CAT 2021

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Entrepreneurship Zone:  13 June 2021: After a decade of building and investing in African companies, Emilian Popa explains why he is bullish on these five industries

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

Invest Wisely!

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DISCLAIMER: This report has been prepared by Bulls ‘n Bears, a division of Faith Capital (Pvt) Ltd for general information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The information contained in this report has been compiled from sources believed to be reliable, but no representation or warranty is made or guarantee given as to its accuracy or completeness. All opinions expressed and recommendations made are subject to change without notice. Securities or financial instruments mentioned herein may not be suitable for all investors. Securities of emerging and mid-size growth companies typically involve a higher degree of risk and more volatility than the securities of more established companies. Neither Faith Capital nor any other member of Bulls ‘n Bears nor any other person, accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection therewith. Recipients of this report shall be solely responsible for making their own independent investigation into the business, financial condition and future prospects of any companies referred to in this report. Other  Indices quoted herein are for guideline purposes only and sourced from third parties.

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