The infinite resource: Africa’s data economy with Rob Withagen

26 Feb

“Rather than drilling for oil, Africa should be building for the data economy”. This was the message Vera Songwe, Executive Secretary of the UN’s Economic Commission, sent to Africa’s policy makers last year. Data is rapidly becoming one of the world’s most sought after commodities. To thrive in the future global economy, African markets need to ensure they are not left behind. Asoko Insight is a corporate data company seeking to bridge the knowledge gap for investors operating in African markets. Ahead of Invest Africa’s flagship event, The Africa Debate, we sat down with one of its co-founders, Rob Withagen.

Why did you start Asoko Insight?

The idea for Asoko Insight was born out of the frustration of working as an analyst and not having access to reliable information on local African companies. The single biggest challenge investors face when looking at an African investment opportunity is a lack of data. For private equity funds looking at deals in Africa, due diligence costs can be a major deterrent. A lot of capital is eaten up deciding whether the investment should be made in the first place. There is a danger that the significantly higher costs of collating the data for a deal in Africa could paralyse the investment potential of the continent.

We have built a research infrastructure specifically adapted to the challenges of Africa’s data space. We leverage in-country personnel alongside data aggregation software and natural language processing, which involves filtering information out of unstructured data sets like news articles and social media feeds. We now have a database spanning 25 countries which subscribers can access and that data allows us to deliver bespoke research projects on behalf of clients.

You’ve recently launched a DealRoom in partnership with the UK Department for International Trade. What was the idea behind the DealRoom and how does it work?

As I’ve said, the cost of identifying and verifying deals in Africa can be prohibitive to UK capital finding a home in Africa. The DealRoom removes a lot of those costs because the deals are identified and taken through a data quality process by Asoko. Asoko takes deals submitted to the platform through a stringent verification process to ensure that all the submitted data is correct and there is a real investment proposition on the table. Once the deals are on the platform, it becomes a market-based evaluation. Investors can choose those they would like to start conversations with, and we are able to offer feedback to those which are not picked up.

Which sectors are seeing the most interest from investors on the Asoko platform?

Currently, we’re seeing significant interest in consumer-facing industries such as agro-processing, FMCG, logistics, healthcare and education. Within those, there is a particular interest in demand-driven industries. This largely follows Africa’s growth dynamics. Consumer industries have experienced strong growth over the last fifteen years, and this has accelerated over the last five.

Since the start of the decade investors and corporations have become smarter at identifying where the real market opportunity lies. Previously the market had been slightly overestimated and the potential for growth was generalised across all sectors. Now we’re seeing investors hone in on an African middle class that is starting to have the appetite and the disposable income to spend on better consumer goods.

According to Partech, Venture Capital funding for African tech companies was at the highest it has ever been last year. What do you think is driving this growth?

It’s partly an evolution of the value chain. Investments are becoming bigger because tech start-ups are becoming bigger and more mature. Four to five years ago the larger investments in the tech space were sitting at two to three million dollars, since then there’s been a tenfold increase.

Another factor is the entrance of Chinese capital. Last year we saw OPay, PalmPay and Lori Systems raise a combined $240 million from Chinese investors. Of course, Chinese investment in Africa has been significant for some time now, but now that the venture capital layer has been added to that funding suite, it’s only a matter of time before the Chinese VC ecosystem, and the wider Asian market, moves to Africa.

Beyond venture capital, which other funding sources will be key for African tech in 2020?

The big missing piece thus far has been global corporates. Ultimately, investors are looking for financial returns and will weight their investments accordingly. When we talk about Africa taking a more prominent role on the global data stage, it’s much more a matter of a better connection between a global FMCG company like Unilever or P&G with African start-ups or SMEs that have a data-driven view of the African consumer or the African supply chain to bring to the table. Some global corporates have taken advantage of these opportunities such as VISA and Mastercard’s investments into Interswitch and Flutterwave.

At The Africa Debate this year we will be exploring how to accelerate sustainable growth across Africa. Africa’s knowledge gap is often overlooked in this conversation, but reliable data is a key part of both investor confidence and accurately measuring progress on the SDGs. How can Africa bridge its data gap in measuring both corporate impact and progress towards the SDGs?

As ESG becomes a more important part of attracting investment, we’re increasingly doing work in that area. Companies want to be recognised as SDG compliant and our data platform can encourage companies to submit data they would not otherwise have had an incentive to measure. In many markets local regulations are not there on ESG and transparency-related issues and, where they are, they are not always enforced.

For example, we are currently working with the United Nations on developing an interface specifically designed to map African corporates according to their impact on the 17 SDGs. By the end of the project we should have a comprehensive pan-African map of any African corporate with the potential to contribute to an SDG. The investment community is becoming smarter and smarter at encouraging companies to be more transparent. Clearly when it comes to ESG, the stick approach is not going to get us there. We need a carrot and investor interest in ESG performance is a massive incentive for companies to capture that data.

The beauty of data, unlike oil, is that it is an infinite resource. From a purely commercial perspective that makes it a very interesting commodity. The challenge remains getting enough data out of Africa at a viable cost but, as Africa’s data and tech landscape matures, we’re seeing improvements. For example, a fintech company like 4G Capital or Cellulant is always building data on where money is, how it’s circulating in the economy and how big Africa’s consumer pool really is. That data is gradually becoming part of a global ecosystem and I think if African start-ups continue down this trajectory, we’re going to see Africa rapidly close the data gap.

With the sustainable financing, environmental management and social performance on the rise in investment globally, The Africa Debate is an opportunity for those in positions to shape Africa’s economies to discuss how to build and support sustainable businesses that respond to the long-term needs of the continent. Join the Debate on 29th April to hear more from Rob Withagen.

For more information about how to participate in the UK Department for International Trade’s DealRoom click here.