African startups are making the risky bet of expanding beyond the continent for growth and profits

Egypt’s startups are attracting investors
Egypt’s startups are attracting investors
Image: Reuters/Akhtar Soomro
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The alluring promise for tech startups in Africa is the social and commercial upside that lies in providing scalable solutions and products to users on a continent that’s home to several significant problems—and market opportunities.

Population growth in Africa, which is on pace to surpass the rest of the world, dropping internet costs and rising mobile phone adoption all offer prospects of an attractive market given the wide range of infrastructure gaps from financial technology, logistics, commerce, power and health to education that startups are aiming to plug and profit from. Yet, over the past 18 months, a growing crop of startups and their founders have started looking to expand beyond Africa to emerging markets elsewhere.

Last year Paga, the Nigerian mobile money service, announced expansion plans to Mexico and the Philippines as part of a $10 million funding round while Swvl, the Egyptian bus-hailing service, has also expanded to Pakistan where it currently operates in three cities. For its part, mobile lending app Lidya has popped up in Poland and Czech Republic and has plans for further expansion in Eastern Europe. And, although initially founded in the United States by a Nigerian, Migo, a fintech startup that provides credit-as-a service to large Nigerian companies, is now expanding to Brazil.

Expanding beyond the continent bucks conventional expectations of first seeking pan-African growth but Mostafa Kandil, chief executive of Swvl, says the company’s focus has always been global. “As an emerging market player, we focus on emerging markets that have problems with mass transit—and across the globe, there are quite a few of them,” he says. “As we grew, we started seeing similar problems in Pakistan as we looked for cities that can be suited to [our] technology,” he tells Quartz. Paga’s founder Tayo Oviosu says his company just wants to make it easier for a billion people to move and use money. “Everyone has different reasons for moving abroad but we simply thought ‘where do we go where we can get this one billion number that we’re targeting?’,” he says. It’s a worldview that Oviosu insists isn’t an afterthought. “When I started the business, I didn’t set out thinking I was building a Nigerian business, I set out thinking I was building a global business—because the problems that we set out to solve exist all over the world.”

Market illusions

While founders can reasonably have global ambitions for their products, there’s a question as to whether some of it is driven by the size of the local addressable market on the continent. Despite forecasts of long-term population and middle-class growth in Africa (more than half of global population growth by 2050 will occur in Africa), there are still question marks over the current size of local markets. It’s a reality that e-commerce startups have been confronted with over the past half decade as they struggle to prove the market’s viability, even in Nigeria.

“The reality is that a lot of the African markets are actually very small,” Oviosu says. “So if you are truly talking about [big] African markets, you’re talking about [a few] countries like Nigeria, South Africa, Egypt, Ethiopia and Morocco,” he adds. (Paga has also expanded to Ethiopia). The decision by Jumia, often described as the “Amazon of Africa”, to shut operations in smaller markets seems to support this argument.

But other African executives believe the size of the local opportunity remains vast and rewarding enough.

“The way I see it, Africa is basically one of the last frontiers where there are so many inefficiencies across so many value chains and the opportunity is more significant than in other markets especially where you have the local content to guide your execution,” says Peter Njonjo, CEO of Twiga Foods, the Kenya-based food logistics startup.

For its part, Twiga—which has raised $40 million in venture funding over the past year—is primarily focused on expanding on the continent, starting with Francophone West Africa.

Cautionary tales

Despite the dangling promise of a larger target market, international expansion comes with its own perils. M-Pesa, the mobile money service which has proven transformational in East Africa where it first launched, has struggled to export its product beyond the continent despite the best efforts of parent company Vodafone and its subsidiaries, including Vodacom. Twelve years since its founding, the service remains only available in seven African countries

The possibility of expanding beyond the continent piques the interest of an Africa-focused investor like Cyril Collon, general partner at Partech Africa’s venture fund which views global emerging markets as part of a wider opportunity but not at the expense of strong local dominance first which is a “fundamental prerequisite”.

Yet, as a majority of African startups were founded within the past decade and largely remain in the process of pretty much changing social behavior and winning over local customers, they are currently unlikely to meet the supposed requirement of local market dominance.

The associated strain that rebuilding operations from scratch in a new country can place on a budding company also requires accurately judging risk against reward. “It has to be done precisely where you’re not just pushing millions of dollars trying to crack a market you don’t know yet,” Collon says. “Going too far too fast might be a mistake.” Arguably, the obvious cases for expansion include when the startup is targeting “markets that are quite comfortably correlated in the sense that demand for the product and service is very similar and the customers are similarly situated,” says Eghosa Omoigui, founder of Echo VC Partners, the venture capital fund which led a 2018 Series A investment round in  Migo.

But, just like Collon, Omoigui preaches the need for a cautious expansion strategy. “It’s very easy to say you’re leaving a big market to go chase another one but it needs to be quite organic. It’s not your natural ecosystem. The investigation always has to be if you’re moving to this new market, what is the superpower you’re bringing with you?”

For his part, Victor Asemota, Africa partner at Alta Global Ventures, a US-based VC firm, questions the source of the desire to expand. “Most of these moves seem investor driven and not from pure market insight and it is dangerous. Unless the investor has other complementary companies in those markets or built a support system in those regions, it is usually hard to break in.”

It’s a sentiment Lagos-based Omoigui shares: “That’s one of the downsides of big rounds with overseas investors who push you to spend, then all of a sudden the speed at which your business is growing locally cannot be a good match for the spending which then means you have to look like you’re doing things and then you start thinking [international] market expansion.”

That’s not the case for Migo though as it expands to Brazil seemingly with strong technical and market support already in place: its $20 million Series B round earlier this month was led by Valor Capital Group, a Brazil-focused venture firm known for backing promising technology companies founded elsewhere and powering their expansion to South America’s largest country.

But not everyone shares similar circumstances or can boast of such synergy with investors for expansion plans. As it turns out, executing expansion has, in itself, become a trump card played to become more attractive to investors, Collon says. “There are people throwing dollars [at expanding] just to get it on their pitch deck that they’re already in four, five or six countries—but it doesn’t make any sense if you haven’t done it properly.”

A whole new world

Beyond markets they understand well, African startups expanding outside the continent inevitably open themselves up to competition in unfamiliar surroundings, often up against more established businesses with strong footing in those markets. Kandil says Swvl is betting on its chances of success by offering a competitive product. “Consumers always take the products that will give them most value for money. If you’re able to deliver on this, with great price and availability, then you’ll most likely win.” Like Kandil, Oviosu is confident African-built solutions can scale and compete elsewhere. “I fundamentally believe that there’s no reason why technology built on the African continent cannot be used anywhere in the world,” he says. As such, international expansion, he adds, “shouldn’t look odd.”

Some of that confidence is rooted in the wealth of engineering talent on the continent. The large pool of developer talent across the continent proved appealing enough to build a business model around as Andela, the developer training and outsourcing company, launched in 2014 on the premise of hiring, training and outsourcing developers to companies in the United States in need of software engineering talent. Andela’s model has proved particularly appealing to investors as it has raised $180 million in funding since its launch. The engineering boom isn’t showing signs of slowing either as Africa is the world’s fastest-growing continent for software developers.

But in trying to win over a new market, Collon also emphasizes the need to take local nuances into account. “The learning curve in the new market is very critical…you may have to fine tune your model,” he says. “Because you’re used to iterations in your own market, you need to find product market fit for the international market.”

And as Paga starts to look beyond the continent seeking more customers, growth and profits, it’s a message that Oviosu already appears to have taken to heart. “We certainly cannot cut and paste Nigeria into Mexico,” he says. “You have to have a respect and understanding for the locals.”

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