Moonshot by TechCabal is the conference that will bring together Africa’s tech ecosystem in person to network, collaborate, share insights and celebrate innovation. Join us in Lagos on  October 11 and 12. In this article built around the conference, founders of Union54 and Cashlinq share insights on the opportunities, challenges and future of building in pre-emerging markets.

According to Perseus Mlambo, founder and CEO of YC-alumni fintech Union54, the decision to choose Zambia as the startup’s first market was driven by the promise that the pre-emerging market held. Before Union54, Mlambo had founded Zazu, a fintech whose flagship product was a debit card connected to a mobile app which enabled users to understand how they were spending money.

“Over time [with Zazu], we started to realise that the problem we had been solving in Zambia was also present in other markets across the continent. So we developed Union 54 as an API to help other fintechs and non-banks, to be able to issue debit cards,” said Mlambo.

By using a pre-emerging market like Zambia as a sandbox to solve a continent-wide problem, Mlambo and his team built Union54 into one of the continent’s foremost startups, with over $15 million in raised funds and a partnership with Mastercard.

The intricacies of pre-emerging markets

By definition, a pre-emerging market is a country that is more established than the least developed countries (LDCs) but still less established than the emerging markets because it is too small, carries too much inherent risk, or is too illiquid to be considered an emerging market. 

Tendai Mugovi is another entrepreneur building in an emerging market. He is the founder and CEO of Cashlinq, a Zimbabwean fintech offering core banking services via a banking-as-a-service model. The startup also has operations in Zambia. For him, the decision to launch in a pre-emerging market like Zimbabwe was driven by the fact that it was a country where the founding team members had been operating and had, over the years, built a good reputation. Additionally, it was easier for the banks to go with Cashlinq as they knew how good and experienced our team was.

Mugovi points to the numerous advantages of building in a pre-emerging market. These include less competition, more affordable talent, and the fact that consumers with less disposable income in such markets are more receptive to trying out new affordable solutions.

“Pre-emerging markets offer a great opportunity to build a great product that can then be shipped to emerging markets. The opportunity to build a great product comes mainly from the following key realities in pre-emerging markets,” he added.

Despite the vast number of opportunities and advantages of building in frontier markets, they also come with their set of unique challenges. For Mugovi, these include inflation and unstable currencies, lack of potential investors, regulatory bottlenecks as well a small market size.

“It’s difficult to build a great business in a single pre-emerging market. This is a problem we knew from day one, and we have always had a multi-country strategy that is paying off. We developed Cashlinq with ISO standards that make it easy to connect in any country easily. For instance, in Zambia, we connected to the national payment infrastructure within 3 weeks,” Mugovi told TechCabal.

On the future of emerging markets in Africa

For Mlambo, the future of pre-emerging markets lies in the continent’s ability to address the challenges that entrepreneurs building in these markets face. One way to do this, he adds, is to make it easier to facilitate intra-innovation between pre-emerging markets.

“There needs to be greater care placed into supporting cross-country entrepreneurship between such markets. This will prevent the replication of efforts when startups are trying to scale between these markets. There needs to be harmonisation with regards to regulations, and other factors to make it easy for startups to operate in more than one such market,” Mlambo told TechCabal.

He  believes creating incentives for entrepreneurs to build in such markets would also go a long way. These can include funding as well as business education opportunities for aspiring entrepreneurs.

Mugovi adds that to ensure success when building in pre-emerging markets, innovators need to leverage the aforementioned advantages while also using the lean startup model to manage costs and build a startup that will survive with or without venture funds.

“I think pre-emerging entrepreneurs need to understand how investors function and avoid ridiculous valuations just because they are similar to a start-up in Kenya which raised those figures. Pre-emerging markets have more risk and if that reflects in valuations, I think the investors might even get more ROI in these markets and they would be more interested,” he added.

Additionally, to address the lack of investments issue, he believes leveraging the diaspora could go a long way in helping startups secure funding to seed and scale their innovations.

“It’s easy for a Zambian in the USA to invest in a Zambian start-up because they are more likely to understand the problem, impact, culture, etc. At Cashlinq we received our initial investment from Zimbabweans in the diaspora and the process was easy because some of the risks that foreigners will be afraid of are just an imagination far from the truth,” he concluded.

With pre-emerging markets making up the majority of most markets in Africa, the value that can be unlocked by entrepreneurs who tackle these markets is large. One remaining stumbling block is the numerous challenges cited above, which can be addressed through collaborative efforts between founders, government, investors, as well as the diaspora.

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