CHAPTER 4

INNOVATE YOUR BUSINESS MODEL

Kellogg, the US-based food manufacturing company, made headlines in 2015 when it invested $450 million in Tolaram Africa, a Nigeria-based company that few in the West had heard of. Kellogg’s chairman and CEO John Bryant announced a long-term partnership and a 50 percent stake in Tolaram’s West African sales and distribution company. At the time, he said, “As a region that is experiencing explosive growth, sub-Saharan Africa provides tremendous opportunity for our company. Tolaram Africa has built a highly successful consumer products business, and today it is one of the largest food companies in Nigeria. This partnership is an excellent strategic fit for Kellogg.”¹

To understand what Kellogg gets from this alliance, consider the remarkable story of Tolaram’s crown jewel, the humble Indomie brand of instant noodles, today one of Nigeria’s most beloved consumer products. Sold in single-serving packets for the equivalent of less than 20 US cents, the brand enjoys near-universal name recognition and has attracted a 150,000-member fan club. The brand is so well woven into Nigerian society that it might surprise Nigerians to recall that noodles are not among their traditional foods and that Tolaram has operated in the country for just thirty years.² (The company’s origins are in Asia; its parent company is headquartered in Singapore.)

Dufil Prima Foods, the Tolaram company that produces Indomie noodles, introduced the product in Nigeria in 1988. At the time, the country was under military rule, per capita income was barely $250, and four out of five Nigerians lived on less than $2 a day. But in these circumstances, the company saw an opportunity to feed a nation with an affordable and convenient product—and in so doing, create a new category. The vast majority of Nigerians had never eaten or even seen noodles; many thought they were being sold worms. Yet the new offering immediately found a big market. Indomie noodles can be cooked in less than three minutes and combined with an egg to produce a nutritious, low-cost meal. The company soon shifted from importing to manufacturing the product locally. As Deepak Singhal, the CEO of Dufil Prima Foods, told us: “We created a food that was relevant for Nigeria. And in ten to fifteen years, we became a household name.”

Across the continent in Kenya, there is a company with an equally impressive growth story, one also built on a fundamental innovation. Equity Bank was born out of a small building society in 2004, with just over 400,000 clients at the time. Today it has more than 12 million clients across East Africa. In 2017, it had over $5 billion in assets and reported pretax profits of $270 million.³

James Mwangi, Equity Bank’s founding CEO, told us that Equity Bank’s purpose is “to solve a social problem: lack of access to financial services.” That problem was deeply personal for Mwangi: “I grew up in a rural area, and my own mother didn’t have a bank account,” he said. “The nearest bank branch was fifty kilometers away, and the minimum opening balance was equivalent to several years of her earnings. My mother would also have been intimidated by banks, with their granite floors, long queues, and formally dressed officials.” To make matters worse, banks often had a seven-day rule between withdrawals. “If your child got sick, you couldn’t go back and withdraw money from your account if you’d been there the day before,” said Mwangi. “Banks simply didn’t understand the financial diaries of ordinary people.”

Kenyans’ logical response was to keep their money under the mattress—fewer than one in ten adults had a bank account at the turn of the twenty-first century. Today, thanks in large measure to Equity Bank’s innovations, two-thirds of them do. “We knew we had to address the needs of people like my mother,” Mwangi said. “We wanted to give banking a human face and create the concept of the bank as a marketplace where people would feel at home. We did away with high minimum balances, created affordable products, and most importantly, delivered them where people lived.” Well before cell phone–based banking came along, Equity Bank introduced what it called “mobile banking.” It created mini bank branches that could fit in the back of a Land Rover and drove them from village to village across rural Kenya. Equity Bank’s best-known innovation, though, is its agency banking model; it has accredited more than thirty thousand small retail outlets across the country as bank agents, able to accept deposits and dispense cash. “That has really taken banking to the last mile in every village,” Mwangi told us.

Today Equity Bank has moved beyond Land Rovers and enabled true mobile banking via its Equitel cell phone banking application, launched in 2015. By 2017, Equitel was handling the large majority of the bank’s cash transactions and loan disbursements, and the bank was adding insurance and brokerage service to the platform. Equity Bank is already looking at future innovations. “We see social media as the next channel for banking,” said Mwangi. “So our next big focus is channel innovation.”

In chapter 1, we emphasized that, to win in Africa, companies must make bold strategic moves to seize the growth opportunity in consumer and business markets, differentiate themselves from the competition, and achieve breakthrough productivity. The Indomie and Equity Bank stories provide great illustrations of those moves. Both have driven constant, systematic innovation to meet the unmet needs of African consumers and businesses. Their experience, and that of other fast-growing businesses across the continent, points to four key innovation practices that you should put at the heart of your strategy:

1. Create products and services that fulfill Africa’s unmet needs.

2. Rethink your business model to truly engage with your customers.

3. Get lean to drive down cost and price points.

4. Harness technology to unleash the next wave of innovation.

INNOVATION PRACTICE 1: CREATE PRODUCTS AND SERVICES THAT FULFILL AFRICA’S UNMET NEEDS

A hallmark of innovators such as Tolaram and Equity Bank is to create new products and services—and sometimes whole categories—that are targeted at African needs, tastes, and spending power. Our survey of business executives suggests that success in this arena is a key differentiator of company performance in Africa. Among companies reporting rapid growth and high levels of profitability, 44 percent of respondents said the main focus of their growth strategy in Africa was to launch new products or services or adapt existing products to African customers’ needs and preferences. Among other companies, fewer than 30 percent were doing the same.

Indomie noodles was a classic innovation to meet an unmet need that consumers struggled to satisfy. But Tolaram did not stop there: it is now seeking new opportunities to fulfill unmet needs across Africa. One such innovation—creating a packaged version of a traditional West African deep-fried snack called “chin chin”—stems from Africa’s rapid urbanization and youthful demographics. “Chin chin is a household product that people used to cook at home,” says CEO Singhal. “But these days, young people in the cities are relying on their grandparents to send it from the countryside. So we created a similar taste in a packaged form. We’ve localized and customized our product to make it relevant to the market.” Indomie noodles, too, have been localized and Africanized: Tolaram took its original Asian noodle product and added local spices to appeal to West African palates.

There are many other areas where business innovators are finding solutions to Africa’s unmet needs. Building affordable housing, a critical challenge in the continent’s fast-growing cities, is one. LafargeHolcim, a global cement company with operations across Africa, has developed a new process that allows homebuilders to create bricks made largely of earth. The company says this reduces the cost of building a house by 20 to 40 percent. The company offers customers training, equipment to make the bricks, and designs for basic houses. LafargeHolcim’s innovation is aimed squarely at making its cement products affordable to low-income customers, but it is also part of a broader social commitment. The company has helped create the Affordable Housing Hub in partnership with UN-Habitat and several international development agencies. This initiative is pioneering homebuilding and financing innovations in countries ranging from Ghana to Mali to Morocco.⁴

Africa might have an unmet need for basic bricks made of earth—but it has an equally pressing need for a wide range of high-tech gadgets such as smartphones. Chinese mobile-phone maker Tecno packs advanced technology into smartphones that retail for less than $50 and have been tailored for African customers, including photo software designed to better capture darker skin tones. In Ethiopia, it was the first major cell phone brand to introduce a keyboard in Amharic, the country’s official language. Tecno is prospering in Africa, winning a market share of between 25 and 40 percent in several East African markets, despite competition from global technology leaders. As it does so, Tecno is hastening the spread of smartphone technology.⁵

One growing need in Africa is for smartcards, such as those used by Mastercard and Visa for their secure, chip-and-pin enabled credit and debit cards. Kofo Akinkugbe, a Nigeria-based former banker, spotted a gap in the market: the fact that, despite the rapidly rising penetration of banking, sub-Saharan Africa lacked an internationally certified manufacturer of smartcards. In response, she launched SecureID in 2005. “I saw a very large white space,” Akinkugbe told us, “Banks were issuing cards in increasing numbers, but the ecosystem was driven by importers of cards who did not project the global best practices the banks expected.”

SecureID overcame multiple hurdles to build a state-of-the-art smartcard manufacturing plant near Lagos. Not the least of these was convincing global card issuers that they could trust her. “The challenge was to get certified by Mastercard, Visa, and American Express, given Nigeria’s reputation for fraud,” Akinkugbe said. So SecureID invested in building a plant that conformed to the highest international specifications—including biometric access control, closed-circuit TV, cybersecurity tested by the firm’s own team of hackers, a water treatment plant to supply the plant’s sophisticated machinery, and equipment to eliminate dust from the manufacturing environment. When we visited the shining, windowless facility, we could have been in Dallas or Frankfurt—but for the nationality of the smartly uniformed workers, 95 percent of whom are Nigerian. The card issuers were equally impressed: they certified the plant within six months.

Today SecureID issues more than 30 million smartcards a year and counts many global and local banks as its clients. Akinkugbe sees plenty more unmet needs to address. SecureID is already supplying SIM cards to mobile phone companies and has expanded its manufacturing capacity to supply secure passports, ID cards, and driver’s licenses, which have historically been produced outside of Africa, at great expense to public-sector agencies and inconvenience to citizens. Said Akinkugbe, “The Nigerian newspapers were full of articles saying, ‘I applied for my driver’s license and I still haven’t got it after two years.’ But when the government commissioned us to make license cards in our local plant, we could get them into the hands of the driver in a week or two—and save the country a lot of foreign exchange.”

INNOVATION PRACTICE 2: RETHINK YOUR BUSINESS MODEL TO TRULY ENGAGE YOUR CUSTOMERS

Equity Bank’s innovation of turning thousands of shopkeepers into banking agents was a brilliant move to solve the problem of last-mile delivery. That is a challenge for businesses in almost any sector: Africa is a vast continent with generally poor transport infrastructure and big gaps in communications. Many millions of people lack formal postal addresses, or even a street name. While English or French may be the common tongue in the big cities, many rural people speak only their local language—of which there are more than 1,000 across the continent. Nigeria alone has more than 500 languages, Cameroon has 250, and Kenya has 68.

When we met with James Mwangi, he reflected on how his team had shaped the agency banking model: “We asked, how can we use shopkeepers as outlets to serve our customers? It took us six years to convince the Central Bank that shopkeepers could accept cash as banking agents. But once we did, we were able to multiply our network a thousandfold.” As a result, he added, “banking now competes with sugar and salt as a product.” The agency model has also demystified banking. Mwangi says: “Our agents don’t talk to customers in banking jargon—they use the language of the common man.” The agents have benefited too. As Mwangi notes, “We’ve helped those thirty thousand shopkeepers professionalize. They’ve become owner-managers, managing a bank for a commission. That in turn has distributed wealth across the country.”

Margaret Wanjiku, who runs a pharmacy in a suburb of Nairobi, is one of Equity Bank’s many agents. She told us that she typically serves between twenty and fifty Equity Bank customers each day, who mostly make cash withdrawals and deposits. “Around month end, there might be one hundred customers coming in over a couple of days,” she said. That traffic has helped her grow the pharmacy business, too. Customers appreciate the convenience of the agency model. “Equity Bank agencies are just all over, so you can drop in anywhere,” said one customer at Wanjiku’s pharmacy. “It’s really made my business faster and safer,” said another, who runs an informal trading stall. “I don’t have to carry a lot of money from one place to another, because there’s an agent just next to where I work.”

Tolaram, too, has driven fundamental innovation in getting Indomie noodles to consumers throughout Nigeria, starting with its approach to marketing. The company created a TV and radio ad campaign targeted at children. One ad features a young girl skipping down a supermarket aisle to grab handfuls of Indomie noodles packets as her mother, following with the shopping cart, smiles approvingly. “Changing people’s eating habits is not easy,” Deepak Singhal told us. “So we decided to start with the children and go all the way up.” Indomie’s fan club is a key part of this marketing campaign: it has branches in more than three thousand primary schools, which it supports with activities such as art competitions and excursions for pupils and teachers.

Tolaram supports its highly visible brand with a vast “feet-on-the-street” distribution network that includes more than a thousand vehicles, including motorcycles, trucks, and tuk-tuks (three-wheeled mini autos common throughout Africa and Asia). When distributors can’t go any further by vehicle, they continue on foot. That was a critical innovation, since the company’s route to consumers was through thousands of small, often informal outlets rather than an organized supermarket network. “Remember,” says Singhal, “in many African countries, 90 percent of retail outlets are informal.” Tolaram has also made sure that every time consumers walk into a local mom-and-pop store or stop at a stall at an open market, they find Indomie noodles right in front of them. The strategy is simple. Rather than trying to push its noodles to retailers, Tolaram focuses on getting its consumers excited about the product. They in turn ask for Indomie every time they go to their local store. That creates a tremendous pull from shopkeepers and stallholders, who beg Indomie’s distributors to keep them stocked. Our local research in Nigeria suggests that some small retailers spend as much as half their working capital stocking Indomie.

Tolaram has also innovated in other aspects of its business model. “We have our own logistics company, our own raw material, our own plants, and our own packaging facilities,” says Singhal. “Controlling our own supply chain is very important. The consistency and quality of supply is essential.” As we discuss in chapter 5, such “backward integration” is a key step that companies can take to weather Africa’s relatively high volatility and ensure their businesses are resilient to shocks. Tolaram’s integrated supply chain, along with its logistics expertise and distribution network, made it the ideal partner for Kellogg as the American company sought to ramp up its presence in Africa.

PZ Cussons, a British consumer goods company with operations in Africa, has also driven real innovation to meet the challenge of getting its household goods, electrical appliances, and health and beauty products to customers. In Nigeria, it has a roster of hundreds of small distributors who serve small retailers. In some cities, it operates Coolworld stores to sell refrigerators, freezers, and other appliances. It has also set up twenty-five cash-and-carry depots in Nigeria, with a separate warehouse for each product category. Traders bring their own trucks to load up on everything from Imperial Leather soap to evaporated milk, taking on much of the company’s last-mile delivery.⁶ Coca-Cola, too, has set up foot and motorbike delivery systems across Africa and uses advanced analytics to predict restocking schedules at hundreds of informal kiosks.

The companies described above have all grappled with Africa’s infrastructure challenges in ways that ultimately strengthen their businesses, giving them a significant advantage over competitors who have not invested the same time and money.

INNOVATION PRACTICE 3: GET LEAN TO DRIVE DOWN COST AND PRICE POINTS

Even if African incomes have grown steadily in recent years, average incomes remain low by global standards. Of course, there are also big opportunities for companies to serve business customers and government institutions, but in these markets too, affordability is often the decisive factor. To profitably serve African customers in meaningful numbers—as Indomie and Equity Bank have both done—companies need to build high efficiency and low cost into their business models. In James Mwangi’s words: “Your business model needs high volumes and low margins, and it needs to be cost-effective and technology-driven.” Equity Bank has lived up to that promise: it reduced its cost-to-income ratio to 49 percent in 2016, down from a high of 70 percent some years previously. (By way of comparison, the average cost-to-income ratio of all banks in McKinsey’s global banking database is 59 percent.⁷)

It is worth noting that Equity Bank’s efficiency drive is part of a broader push by the African banking sector, which has seen its cost-to-income ratio edge downward in recent years. But we see big opportunities for banks in Africa to get leaner by applying three main levers. The first is digitization: there is a major opportunity to migrate distribution costs to digital channels such as Equity Bank’s Equitel platform. That will also allow banks to automate customer journeys, such as taking out a loan, and back-office processes. The second lever is to improve frontline productivity though analytics and data. The third is to consolidate back-office functions to reduce head office costs.⁸

Indeed, the recent slowdown in economic growth in some major African economies has been a spur for efficiency in many companies. Among Africa-based respondents to our executive survey, 48 percent reported that their companies’ African revenues had increased over the past five years, yet 67 percent said their profitability had improved—a clear sign of improved efficiency even in challenging operating conditions. Those that have driven down costs will emerge leaner and ready to compete more effectively when growth picks up again. An example is Ecobank in Nigeria, which launched a major efficiency drive in 2016. It closed fifty branches and reduced back-office costs through innovative approaches such as laying off drivers and partnering with Uber to retrain them as Uber drivers. The bank also appointed a new procurement team that renegotiated supplier contracts and signed on new suppliers, resulting in procurement costs being reduced by 40 to 50 percent.

One compelling reason to boost efficiency is the mounting competition that companies face in Africa, including from a new wave of Chinese-owned businesses that have embarked on an ambitious expansion drive. Consider China’s StarTimes broadcasting company, which set up its first African operation in Rwanda in 2007 and within a decade was providing digital satellite television to 4 million customers in thirteen African countries and four languages. Satellite television was traditionally the preserve of higher-income households, but StarTimes targeted a broader market, pricing its subscription packages as low as $2 a month. In ten years, it has become a leading pay television provider across Africa. In Tanzania, for example, it invested $120 million over the 2010–2016 period and reduced the local cost of pay television by 80 to 90 percent.⁹

In construction and real estate, Chinese firms have won nearly 50 percent market share of Africa’s international construction market. China’s own breakneck pace of infrastructure construction over the past three decades has produced contractors with some of the most efficient cost structures in the world. The Chinese government’s financing of African infrastructure has helped Chinese contractors win some bids, but even in open-tender projects sponsored by the World Bank, Chinese firms are the biggest winners, winning 42 percent of contracts by value. One African government official we interviewed described Chinese firms as routinely being 40 percent cheaper than the next-lowest bid for similar levels of quality.¹⁰

INNOVATION PRACTICE 4: HARNESS TECHNOLOGY TO UNLEASH THE NEXT WAVE OF INNOVATION

Our executive survey suggests that winning companies are moving fast to embrace digital and mobile technologies and incorporate them into their innovation strategies. Among companies reporting rapid growth and high levels of profitability, 39 percent of respondents said mobile technologies were a key element of their African growth strategies, compared with 24 percent among all other companies. Likewise, 34 percent of high performers are putting social media tools at the heart of their strategy (compared with 15 percent for other companies), while 31 percent envisage making major use of big data and analytics (24 percent for other companies). High performers are also ahead on the next generation of technology innovations: they are twice as likely as other companies to put the internet of things and blockchain at the heart of their strategy for the next five years (figure 4-1).

We were not surprised that the respondents in our executive survey saw digital and mobile technologies as the single biggest business opportunity in Africa. Even in parts of Africa where internet access is still patchy or nonexistent, digital technology is changing the landscape. Thanks to companies like Interswitch, electronic payments are sweeping across the region. There are already 100 million active users of mobile financial services, and this number could multiply if the rest of the continent follows the lead of Kenya, where virtually every adult holds a mobile money account. That penetration is thanks to the explosive growth of M-Pesa, the service that led the way in mobile money in Africa. Launched by mobile telecommunications operator Safaricom in 2007, today it provides cell phone–based banking services to tens of millions of people.¹¹

LIGHTBULB MOMENT: INNOVATIONS IN OFF-GRID ENERGY

The widespread use of mobile money in Africa represents a big opportunity for entrepreneurs—and some of the most innovative have harnessed services such as M-Pesa to bring solar-powered energy to African households. The largest player in this fast-growing sector is Kenya-based M-Kopa. Founded with venture capital backing in 2011, the company provides affordable solar-powered electricity generation and storage solutions to households—and finances repayment over a twelve-month period via mobile money accounts. By 2017, M-Kopa had sold more than six hundred thousand household kits—double the number of the previous year. Most of its sales to date have been in Kenya, but the company has also established businesses in Tanzania, Uganda, and Ghana. In a sign of global business interest in Africa’s off-grid energy movement, the Japanese conglomerate Mitsui acquired a stake in M-Kopa in 2018.

Several other off-grid energy startups are growing fast in Africa, making the sector both increasingly competitive and an arena for continued innovation. One example is Uganda-based Fenix, which by 2017 had sold one hundred and forty thousand of its solar-power kits, also enabled by mobile money, to African households. In late 2017, Fenix was acquired by ENGIE, a major global energy company based in France, which announced plans to reach millions more off-grid solar-power customers across Africa and beyond. Another startup is UK-based BBOXX, which distributes its solar kits through agents in ten African countries—and uses remote monitoring technology to improve battery life and users’ experience. Yet another firm is d.light, which focuses on selling affordable solar-powered appliances such as a $12 rechargeable lantern.

Let’s take a closer look at M-Kopa, whose CEO is Canadian-born Jesse Moore. The name his cofounders chose for the business provides a clue to their original idea: kopa means “borrow” in Swahili, not “electricity.” M-Kopa planned to harness the mobile-money revolution unleashed by M-Pesa to enable Africans to finance the purchase of appliances that had hitherto been out of their reach, such as televisions and refrigerators. “Our idea was to create the ‘electronic sachet,’” said Moore. “Just as companies like Unilever sell shampoo in sachets to make it affordable to lower-income households, we would use mobile money to apply the same principle to selling appliances.” Using their M-Pesa account, a Kenyan household would be able to pay off its first refrigerator in monthly installments. Almost immediately, though, the company came up against a barrier: without electric power, no one would buy a fridge or a TV. And so the business idea morphed to being about loans and power: the first thing M-Kopa would offer via mobile-money financing would be a solar-power kit. That, in turn, would open the market for appliances and provide the company with a loyal customer base that had already proven its willingness and ability to make regular monthly payments.

Even with mobile-enabled installment payments, there was a big question about whether ordinary African households had the disposable income to afford solar energy kits—let alone fridges and TVs. Around 70 percent of African households earn less than $5,000 a year, and only a small number are middle-class by Western standards. But the M-Kopa business model takes that obstacle into account. As Moore told us, “Ours is a displacement proposition. African households already spend a lot of money on crappy energy sources like kerosene and batteries. We enable them to stop that wasteful expenditure and switch to something cheaper and better. It turns out that solar energy is a secret freer of cash, which people can reapply to buy fridges or pay school fees.”

M-Kopa is making real progress against its original, seemingly quixotic objective of selling appliances to rural African households. “We’ve created a financial relationship with our customers,” said Moore. “Once they’ve paid off their solar kit, we can sell them something else.” By the end of 2017, nearly two hundred thousand customers had returned for a second M-Kopa purchase, ranging from a larger solar kit to a refrigerator to a fuel-efficient stove. The best-seller, though, is an LED television that M-Kopa has developed to operate off solar power: as of 2017, the company had sold one hundred thousand of them. “We’ve helped people move from kerosene to content!” says Moore.

Although M-Kopa had yet to turn a profit at the time of writing, its revenues have grown rapidly and it has had no trouble in attracting multiple rounds of investment from global investors betting on its long-term success. “We’re already making $1 million a week in revenues, and will soon hit $100 million a year,” Moore told us in late 2017. “We plan to achieve profitability within quarters rather than years.” The company is prioritizing long-term growth and is actively investing in opportunities that could turn out to be big revenue streams in future. One of those is data. M-Kopa assiduously collects information on its customers’ spending patterns and preferences. And so M-Kopa is tackling yet another of Africa’s business barriers—the scarcity of reliable consumer data. “In the long run, data might prove to be the most powerful tool in our treasure chest,” Moore told us.

If you take a drive around rural Kenya, you’ll see off-grid energy changing lives, one homestead at a time. One of them, in the foothills of Mount Kilimanjaro in Kenya’s Kajiado County, belongs to Duncan Manga and his family. Lacking a connection to the grid, Manga signed up with M-Kopa in 2015. When we visited him, he told us that electricity had changed his family’s life. “My children can study at night, we can light up our kitchen, and I can charge my phone—before, I had to take it somewhere else to charge,” he said. “It’s also improved our security. Before, hyenas would come at night and attack our goats; now they see the lights and are scared off. Our lives have gotten much better. We used to travel far to buy kerosene for our lamp, and when it ran out, we were in darkness. Now we have light.”

TECHNOLOGY FOR TRANSFORMATION

Equity Bank, too, is using technology-driven innovation to support its goal of becoming ever more efficient in serving its customers. Its Equitel mobile application uses SIM overlay technology to enable easy access by customers of every mobile provider. The value of transactions completed via Equitel exceeded $3.5 billion in 2016, up from $1 billion in 2015. “It’s become very big, very fast,” Mwangi told us. “Today, our branches are doing 5,000 transactions a day, our agents are doing 300,000 transactions a day, and Equitel is doing 900,000 transactions a day. So we’re really moving away from bricks and mortar. And it’s also moved our bank to a variable-cost model.” As the proportion of transactions undertaken and loans dispersed in branches has fallen, Equity has begun to shrink its branch network.

Many more entrepreneurs are seizing the space being opened up by rising technology penetration. In Nigeria, Stanford-educated Tayo Oviosu founded Paga in 2009 as a mobile money transfer service in response to his frustration with having to carry cash. Customers can use Paga to send money to anyone in Nigeria either from their mobile phone or internet-enabled device or via any Paga agent across the country. Recipients get the money instantly, without having to be registered Paga users. Customers can also use Paga to pay for a variety of goods and services such as electricity bills, cable TV subscriptions, and prepaid mobile airtime top-ups. By April 2018, it had signed up over 8.4 million users and was processing close to $2 billion a year in payments. Even in the tough market conditions in Nigeria following the 2016 oil price collapse, Paga kept growing fast. Oviosu told us: “We are still achieving 166 percent growth, year on year. We doubled our revenues in the first quarter of 2018 compared to the same quarter in the previous year. In fact, we are showing people greater value using the Paga wallet in this tough economic climate.”

Companies that harness digital technologies for innovation can also help usher in transformative change in other sectors that are crucial in strengthening African economies and societies, including education and health care.

In education, consider the example of the African Leadership University (ALU), which operates in Rwanda and Mauritius. It offers a blended program that mixes online education with peer-to-peer learning and in-person interaction with faculty. Its founder, Fred Swaniker, told us, “Our university produces talent that competes with students from Harvard and Stanford. But we do it using one-tenth of their real estate and at one-tenth to one-twentieth of their cost.” His innovation was to shape a business model for higher education from scratch. Universities were invented “in a world where information was scarce,” he said. “But today, we live in a world where knowledge is ubiquitous.” Rather than relying on the traditional, professor-centered learning model, the ALU took a multimodal approach where individual students manage their own education using technology, peer-to-peer learning with classmates, and four-month work-experience internships with partner companies. That enables the university to get by with a small team of teaching staff.

In 2017, US-based educational technology company 2U ponied up $103 million to acquire a South African startup called GetSmarter. Founded in 2008 by brothers Sam and Rob Paddock, GetSmarter offers online certification courses to distance-learning students in partnership with several of the world’s top-tier universities. It has served more than fifty thousand students globally with a course-completion rate averaging 90 percent. The company says it earned approximately $17 million in revenue in 2016 and has some four hundred employees, including performance coaches, technologists, and video producers, as well as academic tutors who operate remotely around the world.¹²

In health care, digital technologies are enabling greater use of remote diagnosis, treatment, and education. Again, there are exciting opportunities for digital startups to contribute to these outcomes while building profitable businesses. One example is the mPedigree Network, which offers a technology-based solution to combat the sale of counterfeit products. Using mPedigree’s software, manufacturers can label their product packaging with a random code hidden beneath a scratch-off covering. To authenticate a product, the consumer simply scratches off the covering and sends the code via mobile phone to a toll-free number. mPedigree has been particularly successful in protecting pharmaceutical companies and their consumers from counterfeit drugs—a pressing need in Africa, given the preponderance of informal distribution and retail channels.¹³

Equity Bank, too, is innovating in the health-care space—both to contribute to society and to build a business in a new sector. Its innovation was to launch a network of medical centers called Equity Afia, linked to a health insurance product offered by the bank. The inspiration came from its charitable foundation, which has awarded some fifteen thousand university scholarships to gifted students from across Kenya’s forty-seven counties. “We looked at our graduates and found that six hundred of them had been to medical school,” said James Mwangi. Equity Bank already knew that 40 percent of the defaults on its bank loans were due to ill health in the family. “So we empowered our medical graduates as entrepreneur doctors, helping them start clinics and giving them the IT system backbone,” said Mwangi. “At the same time, we are providing our customers with medical insurance. These products intertwine the commercial interests of the bank and a solution to address the health challenge of our society.” In early 2018, Equity Afia had five medical centers up and running; Mwangi’s vision is to help three hundred doctors open clinics across Kenya.¹⁴

Equity Bank’s expansion into health care, incidentally, points to a key strategic approach of many of the continent’s most ambitious businesses. In our executive survey, 25 percent of top-performing companies in Africa said their growth strategies included entering adjacent industry sectors or expanding into new customer segments; just 11 percent of other companies planned to do the same.

To turn white space into gold—for shareholders and customers alike—companies must be ready to rethink their products, services, markets, and business models. For forward-looking businesses, that makes Africa one of the world’s most exciting arenas for innovation. Companies like Tolaram, Equity Bank, and M-Kopa provide examples that can be an inspiration to others: they have found ways to overcome persistent challenges that limited markets, hampered business growth, and made life harder for ordinary people. The innovative solutions that make business growth possible in Africa could one day provide more efficient products, services and business models for the rest of the world.