Mobile payments are the most discussed biz opportunity in Africa and a few mobile carriers that have the capability to deploy it have earned amazing revenues, in the tunes of 100s of millions of dollars added to their balance sheet each quarter, the likes of Safricom and even MTN Mobile Money.

The question now lies on how this models even with their cumbersome paper trails and a local kiosk for remittance; happen to be extremely successful. Take for instance the solution of MTN Mobile Money. According to Mambe a friend in Cameroon, the process of sending and receiving payments entails

1. Sender Sending an SMS to MTN instructing release of payment to Recipient
2. MTN Sending an SMS to the Recipient
3. Recipient Visits Service Centre and Shows them the SMS
4. Recipient Fills up a Paper Form with his Signature
5. Service Centre Releases Payments to Recipient

The amazing reality about this process is, its considered easy and simple with all the hassles of travelling to the centres, filling up the forms and signing etc.

The question that I have to adopters of this Mobile payment solution in Africa is

1. What makes this different from normal interbank transfer? Is it the SMS notifications? Is it the availability of Service Centres across the nation?

2. How is this different from Interbank or Intrabank money transfers or even Internet Banking?

3. What is the dispersion of Mobile Service Centres across the average Africa nation in general?

4. Are traditional banking solutions really that bad, that any alternative convenient solution around would be easily adopted?

5. What’s the average cost of receiving and sending money via this Mobile payment solutions?

I am asking all this questions because I believe a mobile payment solution should address a lot of problems such as

1. Micro-payments:- I should be able to go to the barber shop or even the neighbourhood stall, or the cinema or even pay my cab fee with just my mobile phone without any paper trail etc.

2. Transaction cost:- The cost of using the mobile payment solution should be as low as 1% of the transaction.

3. Paper Trails :- Paper trails should not exist, mobile payments should be 100% electronic; sms based receipts, reusable balance at the shop next door, a wallet for every single transaction I do so I would only need to use the service centre facility, if and only if I need the cash for services that require cash. This services that even require cash should be engulfed by this solution with time.

4. Convenience and Access to Services :- I should not have to travel to the nearest Service Centre to check my balance or even Remit Payments.

5. Ease of use :- My grandma, should be able to understand how it works and how to use it effectively without hours of explanation and training. Graphical illustrations should do just great in not more than 3 Easy Steps. 1. CLICK 2.Type 3. SEND

I would appreciate if users of this solution in Africa, provide commentaries to further clarify my confusion or no confusion at all.

Yes many have tried and many have failed miserably, and many would try again and many would fail, and the race would never end, until someone figures it out.

Running a remittance or payment system goes beyond just developing a platform that enables exchange between one party to another, it requires understanding and having the necessary skill set, model and the financial backing.
Why are developers in Africa failing at developing an adoptable Internet payment gateway?

1. Lack of Finance and Accounting Background or Counsel

2. Lack of financial Capital to support their model

3. Over complicated and over bloated solution

4. Relying on traditional banking channels to facilitate account funding

5. No Proper company structure to support business model

6. Lack of Support or modules for popular shopping carts and billing systems

7. Lack of resolution system or proper support system embedded into payment gateway

8. Lack of developer tools and documentation to enable developers develop portable modules that could be embedded at devices and shopping carts

9. Cost barrier to entry or very high transaction cost.

10. Complicated withdrawal systems

11. Lack of communication channel for feedbacks during development cycle with potential customers.

12. Lack of sound business model and plan to support the solution

13. Copying other payment modules blindly and lack of proper research and feasibility study.

Do you want to solve this problem? I have a very comprehensive module that would solve this effectively. Watch out for it in my future post entitled, An Effective Payment Gateway Solution for Africa.

Most African start-ups are solo projects and that is exactly why many fail and those that don’t never grow through infancy. The reality is that there is this belief that by not fostering partnership in their business, they protect their interests against the risk of the co-partner defrauding the business.

I find this quiet disturbing because an entrepreneur is supposed to throw out such mentality when starting a business as the business itself could fail, on its own without the need of a co-partner doing anything, and such mentality in-fact exposes a business to various liabilities and risk.

Why should you have a partner in your start-up?

1. Start-up Cost Burden - Starting a business is expensive, and costs a considerable amount of money to begin, if you have a partner, this financial burden is divided so is your exposure to the risk of the business which is reduced proportionately.

2. Specialization – Your co-partner might have certain skills that complements your business model, so would you, collaborating in a partnership construct ensures that this unique contribution creates high quality products and services.

3. Backup-Runner :- What happens when you get sick? What happens when you are on holiday? What happens when you have emergencies or Gets hit by a truck? Who would handle the business and services ? Having a partner fixes that perfectly.

4. Growth Limitation - A solo run business’s growth is extremely limited. You can only do as much as a one man army. Look around you for small businesses that are more than 5 years old, and yet they are still in the same size and shape as they were before. Wonder why?

5. Accountability - If you are running a solo startup you are only accountable to yourself, hence there is high chance that you would be very indisciplined financially.

How do you form an effective partnership in Africa with or without an African?

How do you structure your partnership, so that everybody contributes effectively?

How do you structure your partnership to avoid conflicts?

I would answer this and much more in my next post titled, Forming a bulletproof business partnership in Africa.

A lot of services and products are expensive in Africa, not because the founders are not interested in the big market share. The problem lies in the cost of doing so. This post was inspired by a post on ICTWorks titled “Why African Internet Bandwidth Prices Are Still High“, in which the author drilled down on archaic business models in Africa. The excerpt is as follows

The second factor which I consider to be even more important is what I refer to as an archaic business model and business mindset. Telecommunication companies such as Internet Service Providers (ISPs) in Africa overwhelmingly rely on a small base of customers that they charge high prices. These customers (banks, large companies, multi-nationals, -collectively dubbed the “corporates,” large educational institutions, government agencies, development agencies and NGOs and a tiny number of high net worth individuals) need connectivity and are willing to pay these high prices.

This mindset still pervades the ISPs and thats why prices are still high as they “need to recoup their investments” from a small customer base. But this business model is flawed: there are millions of individual customers and small business that also need connectivity but cannot afford to pay the current high prices.

The success of mobile phone companies has taught us (and any ISP that is awake) that communication services are not the preserve of the rich and powerful. Unfortunately, the typical African ISP is unable to shift to a “large customer base, low margins” business model: drop the prices and attract a lot more customers. This is the main cause of recurring high prices.

Why are businesses in Africa locked into high margin models?

1. Cost of Capital – In a country like Nigeria, the cost of getting a loan from the bank which requires a collateral such as real estate is 25%. This loans are not upfront and they are usually what you can term credit lines or overdrafts.

2. Cost of Business Operations – The running cost of a business in a place like Nigeria is very high, because people rely on generators to power their business. A medium size business of about 10 employees spends around 500USD a month to power their business using generators, factor that to big corporations, i.e the ISPs

3. Rental Commitments- The average rental in a place like Nigeria requires 2-3 years deposit. A good business location for a small sized business would cost about 8,000 USD a year, that is about 16,000USD to 24,000 USD of the business capital tied down to rent alone.

There are much more factors that attribute to the reality of why businesses in Africa need to do all they can to ensure that their businesses reach critical mass. Unfortunately, it turns out that the archaic models work, hence the adoption.

This is just an illustration of just a little of what medium sized business in Lagos are exposed too, multiply that by a hundred or even a thousand to get the picture of what big businesses like the ISPs in Nigeria are exposed too.

This might sound very unorthodox of me, but localizing your web start-up is the way to go in some countries in Africa. Don’t get me wrong, It is not a myth that the internet creates a global frontier for your web based business, nevertheless global sales requires certain tools and experience to guarantee patronage not to talk about even a success.

It would be myopic  to underestimate the potential of your local nationwide market, with an effort to target a global market from inception. Targeting a global market from inception creates a huge burden on your small business and presents a lot of logistical challenges.

Lets take an example of your web shop in Nigeria with an inventory located in Nigeria with a global market target. Here I am assuming the shop accepts credit cards and is able to deliver its products to anywhere in the world within 7 days.

I am also assuming that the products cost you about $10 USD from your supplier, and you want to sell it at a 10% mark up price for $11USD. I am also assuming that the credit card gateway you are using charges about 2% per transaction, and your per unit shipment cost comes to about 40% of the cost price of your product.

This makes your total selling price of the product to come up to $15.20 USD. You would realise that, for every product costing you 1 dollar,you would end up selling it for about an approximated 52% above the cost price per unit, whereby I am assuming that you provide free shipment for your products. Now would that make your products very costly? Yes?

So what should web based shops in this locations do?
Web based Shops in a disadvantaged location should focus on their local nationwide market. This would allow them to create enough volumes, which thereby could allow them to benefit from overhead cost reduction through the law of economics of scale. By localizing you would be able to understand running a business on the internet, learn from certain mistakes, experiment with certain  with a much lower cost in a more controlled environment. In the future you could always consider expanding to the global frontier, and all the experiences gained from the local market would come in handy.

Economies of scale, in microeconomics, are the cost advantages that a business obtains due to expansion. This are factors that cause a producer’s average cost per unit to fall as output rises. : Wikipedia

Do you have a localized or a global web based business in Africa?
Tell me your story through your commentaries.

Yes she is..The time magazine (March issue) had an interesting coverage on Investing in Africa with a case of a bank in Togo “Ecobank”. Ecobank employs 11,000 people and has 620 branches in 26 countries with an excellent balance sheet of $8 billion dollars, and not only that, it actually makes money in the current world economical crisis; it made a whooping 32% profit in 2007 amounting to $104 million dollars and its up 47% this year.

Why is Africa the perfect destination for investment today?
1. Africa’s average annual growth from 2004 to 2008 according to the IMF is more than 6%, which is better than any developed economy.

2. According to the world bank Africans living on $1.25 a day or less dropped from 59% to 51% from 1996 to 2005, and has decreased further.

3. According to the February Issue of AllAfrica Journal, two Oxford University economist by the name of Collier Paul and Witney Schneidman wrote in an advisory to President Obama during his campaign and I quote “Africa, usually the poorest performing region in the world economy, is now likely to be among the best performing”.

I could go on and on with references, which beats the point.  It seems that Investors from China are the only investors actually flocking to Africa for business opportunities. This is acknowledged by the fact that trade between Africa and China has grown to an average of 30% in the past decade, topping $106 billion last year.

The rest are busy either saving Africa from poverty and sickness through pumping money into ineffective aid programs or watching Africa with Scepticism. This needs to change, as Africa is open for business.

Do you think, Africa is the best place to invest now?
Let me know through your commentaries.

Can you purchase any product you want, from a local online shop in Nigeria?

This question popped into my head yesterday, and I decided to “Google” out of boredom on things a Nigerian in Nigeria can actually buy on the internet from a local internet shop  and get it delivered at their doorstep the following day or even days later. The revelation was very disappointing. I came across only one, and the old ones I featured in my post titled “E-commerce key player’s in Nigeria. are all dead.

I “Googled” for Electronics, Clothings, Shoes, Perfumes, airline tickets, Cinema tickets, Movies, and even Food. I would like to cover all the aforementioned categories.

The criteria is :-
1. The Online shop must have a product.
2. The Online shop must have a working shopping cart.
3. The Online shop must accept any form of payments.

Electronics
Buy Right according to their website is a subsidiary of Pragmatic Technologies Ltd, and evolved from ComputerPort and Xtaples both of which were founded in 2001 as Nigeria’s first online computer and office supplies stores respectively.

BuyRight product line includes, Computer Products, Personal and Home Electronics, Fashion, Sports Equipment, Personal Health Equipment, Toys, Office Supplies and Vehicles.

Buy Right Accepts Interswitch etransact and bank payments, and also delivers ordered products nationwide using DHL express

Do you have an Online Localised store in Nigeria?
Let me know by commenting, so I can Introduce it in Online shops in Nigeria Part 2

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I become very excited when I come across success stories of businesses in Africa. Blue Skies a Ghanian Fruit packager, that pre-packes fruit salads and juices for export to Europe was featured in BBC yesterday. In a coverage titled “Ghana’s juicy economic lesson“, Blue Skies was said to employ about 2,000 workers  made a whooping $20m (£15m) last year.

Such a success story not only re-assures African businesses their potential in Agricultural type of businesses, but inspires them on how they can create employment opportunities in the continent.

An Interesting thing to note is that Blue Skies is currently exploring the Ghanian market because sales have been affected by the economic crisies and suprisingly their sales are catching up locally.

According to Kennedy Afful the Finance Manager:

“The local market has grabbed our juice in such a fantastic manner,” said Kennedy Afful, who looks a little more cheery than when he was discussing the falling exports

“In March last year we were taking in just 200 cedis ($145; £105) a week from the juice sold in Ghana. But last week we took $7 000 from local sales and we anticipate by end of year we will reach $14,000 a week.”

They have a well designed website with lots of information about their products and market too. You can visit their website at
Blue Skies

Nigeria is a third world country and surprisingly e-commerce is emerging at a very astonishing rate. The main key players in Nigeria are quiet innovative and patient. Although there are quite a lot of already abandon web projects along the years. Nevertheless we shouldnt forget that it is like that everywhere.

The Nigerian web market is very promising although it has not been infected with the normal “leap-frogging” factor which is a very common fate with technologies in her market.

The key players in the Nigerian web market are:-
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