All the K.E.N.G.S. men
Let’s get the embroidery out of the way. Africa is the next next frontier. VCs are gravitating to the emerging economies of the continent. It’s a great time to be an African entrepreneur. $____ (enter most recent headline grabbing number here) billions have been invested this year, a kajillion % increase YoY, MoM, DoD.
Don’t let my facetious tone fool you. I genuinely think this is a good thing and will be incredibly impactful in developing some amazing businesses, BUT (you saw it coming) I think there is a problem here. The lion’s share of funding has been funnelled into Kenya, Egypt, Nigeria, Ghana and South Africa — colloquially referred to as the KENGS. The KENGS have sound macroeconomic indicators, conducive-ish regulation, burgeoning innovation ecosystems and a cohesive narrative for their national brands. The KENGS make sense, however, I believe many of the other 49 countries in Africa make a very compelling case going forward.
I’m a big fan of DFS Lab and the rigorous analysis and perspective they provide for a lot of what is happening in Africa’s tech scene (if you don’t know them — check them out!). One of the concepts they have previously discussed is the idea of the Frontier Blindspot which is defined as:
“when investors and others overestimate the speed of digital progress in Africa while underestimating the progress brought on by the continent’s builders.”
My interpretation of this is that those on the outside looking in overvalue customer acquisition and blitzscaling tactics or Side A of the internet industry while undervaluing the foundational work of building physical ubiquity or the Side B of the internet industry. This concept of the two sides of the internet industry as it applies to Africa is excellently described and explained once again by DFS Lab as interpreted from the original concept defined by Wang Huiwen and how this applied to China.
In simple terms Side A is using the internet for digital transactions and digital goods (SaaS, FinTech, Content) and Side B is using the internet as an enabler of digital transactions for physical goods (Marketplaces, Logistics, Supply Chain).
“If you were to apply this chart to most African economies, a snapshot of the addressable market for Side A would be a sliver while Side B would be take up the majority. The reason is…that fully digital experiences are either inaccessible, unaffordable, or don’t cover the primary consumption needs for those in the bottom 95%.”
I don’t want to just regurgitate DFS Labs (they are brilliant thinkers though)— one last quote below that I think should be plastered across every Silicon Savannah archetype co-creation space:
“Side A is social media, SaaS, and where fintechs are most comfortable. Side A has been immortalized by the post dot-com bust and rise of Silicon Valley and its well-deserved reputation around the world. But then again, you can’t eat Side A.”
Now this concept of creating physical ubiquity requires a medium to long term horizon and is ideally suited to benefit from venture capital’s growth oriented mechanics. The KENGS. are not particularly different from the rest of Africa in that Side B businesses are likely to be the larger segment of the new economy, however, I believe that there has been a subliminal bias towards Side A thinking in where capital is being deployed. The KENGS at surface level have the most developed digital consumer set and the amongst the highest absolute levels of digital access.
Of course, internet penetration isn’t the sole guiding metric of Side A businesses but it is an important one. The KENGS represent the highest internet access rates in Africa and skew TAMS and SAMS in their favour. The businesses that have been funded are a mixed bag but generally the pattern is clear — focus on businesses that are building out physical distribution through either marketplace or agent models and then hedge on a large number of ‘new market’ businesses that can leverage this physical distribution — i.e. FinTech, Payments. While this is very much Side B oriented one could argue the rush on pure, asset-light FinTechs could be pre-emptive as the foundational work of creating physical ubiquity has not been done.
The private actors who are closest to having reached some level of physical ubiquity are the Mobile Network Operators (MNOs) and we all know that they love opening up access (sarcasm intended). MNOs are going to fight tooth and nail to protect their walled gardens and at least for the short term (as long as they can hold out) will be major barriers and active detractors to Side A businesses (while also actively gaslighting us through flashy accelerator/incubator/innovation hubs that are more style than substance).
As the righteous warriors of freedom(lol), startup founders are on a race to displace the institutionalised protectionism of the digital economy through building Side B. This is difficult work that many will fail at. Especially given Side B exists in the interstitial space between atoms and bytes and just like the MNOs, the generational dynasties of trading businesses that punctuate our economies are also going to put up a big fight.
Circling back to my point — I believe that the concentrated investment and venture capital in businesses on a quest towards physical ubiquity in the KENGS is going to make it more expensive and inversely more difficult for any one player to achieve true physical ubiquity. This isn’t necessarily a bad thing, a market of markets ensures we won’t easily revert to unfair competitive practices, however, it does mean that the one winner takes all narrative of many of the Side B darlings is unlikely.
I argue that the next wave of capital that flows into Africa should have a more balanced distribution between the KENGS and what I’ve dubbed the Superfrontiers. In the near term it is going to be a lot easier to asymptote physical ubiquity in the Superfrontiers and therefore validate the thesis of Side B driving Side A as a method to build out brand new industries and creators of value.
As per my definition Superfrontiers are:
Markets that which would generally be categorised as Tier 2 countries in terms of absolute population size and GDP. These markets do however have some of the highest positive GDP growth projections and urbanisation rates. These are markets which are often mentioned as tough to do business in but in reality have more business that can be done.
Many of these markets looked at through the lens of long term macroeconomic indicators have a very positive outlook. High levels of urbanisation, high single digit to double digit growth, the energy of youth and relative political stability. Some of these markets are outliers but what they lack in political stability they make up in market size. Side B building in these markets is more enabling given the incumbents of physical ubiquity do not feel like they under siege yet.
There is less concentration of institutional capital flowing for new players to put up a real fight. The hype hasn’t inflated valuations and made captive talent more expensive. Most importantly in my opinion, many of these countries have a unique regional sphere of influence to enable outward growth whereas the KENGS tend to be more insular and have less Pan-African social capital. Probably because hater gonna hate, but it is what it is.
The path to market leadership and achieving any real progress on creating new digital economies that will have impact will be likelier in the Superfrontiers. If we want to validate the new levels of interest in Africa and test the hypothesis of physical distribution creating the rails for digital products we must move beyond the KENGS. To make it clear — I’m not arguing for a redirection of capital from the KENGS but an increase in the total capital allocated.
Unfortunately, the Superfrontiers are not plugged into the hype machine and do a very poor job of rationalising their case.
This is my attempt at making this case for why they can be more than KENGS.
