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Why investors are backing logistics startups – the “third wave” of Africa’s tech revolution

Why investors are backing logistics startups – the “third wave” of Africa’s tech revolution

African logistics startups are part of a “third wave” of Africa’s tech revolution that is attracting investors because of its access to high profile customers, clear paths to profitability, and expert founders.

Logistics as a sector is on the rise in Africa, with startups across the continent tackling bottlenecks and inefficiencies in all sorts of areas. 

Opportunities in the sector are only set to grow as the African Continental Free Trade Agreement (AfCFTA) comes into effect, and investors that would not normally consider Africa to be a happy hunting ground are taking note.

According to the latest edition of the African Tech Startups Funding Report released each year by Disrupt Africa, logistics startups had a record-breaking 2019. The number of startups that secured investment went up by 91.7 per cent on 2018 numbers, while total funding increased by 264.6 per cent to US$69,627,000.

Total annual funding in this sector has been growing at hugely impressive rates, jumping an astonishing 6,746 per cent since 2016, and these numbers are set for further improvement in 2020.

Last week’s virtual Africa Tech Summit Connects event brought together founders in the logistics space to talk about why investors were so keen on the space, and analyse opportunities going forward. Obi Ozor is co-founder of Nigerian’s Kobo360, which last year raised a US$30 million funding round from investors including Goldman Sachs, and he said logistics platforms were part of a “third wave” of Africa’s tech development.

“The first wave was e-commerce, and they did their best and they were successful to a degree, and we’ve seen the second wave, fintech, and you’re beginning to see exits, which is very promising. And in kind of the rear sector are tech-enabled platforms that are taking existing established industries with cashflows and different things, and digitising them and making them more efficient,” Ozor said. 

“Our time is coming in the next few years. You’re going to see significant success and exits. Investors are beginning to see companies that could go to the New York Stock Exchange, and sustainably stay there.”

This is because companies like this have major customers, as well as clear paths to profitability and founders who have seen and analysed what happened in the first and second waves.

“That is part of the reason why you are starting to see investors who haven’t put money into Africa put money into Africa, because this is real,” Ozor said.

The logistics sector in general is laden with opportunities as it is central to Africa’s economic development, according to Miishe Addy, co-founder and chief executive officer (CEO) of Jetstream.

“Most businesses in Africa make and sell physical things, and you can’t sell what you can’t move. So logistics is really a centrepiece of the entire commerce equation. And we’ve seen so much momentum in the fintech world, and there are so many e-commerce websites that are coming up to allow SMEs and everyone else to sell products, but it is the people who are running the cargo on the ground who are solving one of the trickiest bottlenecks,” she said. 

Ozor said the implementation of the AfCFTA would be a huge boost to the e-logistics space, and that question was how startups like Kobo360 could plug into it.

“I think the first thing is building capacity, and being able to have that reach and bring the supply chain – land and sea – together,” he said. “If the logistics and digital supply chain platforms don’t start innovating then this opportunity in Africa may not come true.”

Jean-Claude Homawoo, co-founder and chief product officer of the Kenya-based Lori, said his company was looking forward to the agreement being implemented, and participating in unlocking the value there. 

“We are expecting there to be quite a bit of investment in manufacturing and production, and that is going to grow volumes quite a bit. But the most important bit is in border crossings. Today, whether it is at the border between Kenya and Uganda, or at ports in Nigeria, the actual logistics of trucks moving is still a huge problem. There are week-long lines at borders and at the entrance of ports. This trade agreement is very important, but it really needs to be supplemented with the right technology to facilitate the movement of goods,” he said.

Yet it is still important from digital logistics companies to make clients of established logistics players, many of whom are very traditional, and Addy said when it comes to this design does not get enough attention

“Many of the companies that have existed for decades within the logistics industry have developed manual systems that work more or less efficiently, and the biggest switching cost for them is to unlearn the habits of these manual systems and get on board with technology. They may conceptually understand that tech is more efficient, but it really requires an organisational change and a change in mindset,” she said.

“So from our perspective we are as keenly focused on the engineering and the architecture of the system as we are on the design and the usability, so that people actually working in the ports can easily access these systems and use them readily.”

Homawoo agreed. “Design is a huge piece here. We realised early on that simply copying and pasting what Uber Freight or other Western companies were building was not going to be sufficient, because the market is different. The problems that needed to be solved were slightly different and the tools you needed to solve them with were slightly different,” he said.

Ozor said the events of 2020 had had a significant impact when it comes to companies looking to adopt technology.

“COVID-19 made it a little easier to sell technology to these enterprises, who before were not that open to new ideas. But we’ve seen 42 per cent adoption in the past few months, and I think that is because of COVID,” he said.