Driving Technology-Enabled Business Models in Rural Northeast Nigeria: Challenges and Opportunities
This blog is authored by John Rachkara, Deputy Chief of Party of the Rural Resilience Activity, John Daudu Ebile, Senior MIS/T4D Officer of the Rural Resilience Activity.
Technology-enabled services can provide several advantages to the agri-economy, from better data-driven market insights to increased collaboration between the various market players. First and foremost, technology can help to streamline the data processing process. Advanced analytics enable farmers, grain aggregators, agro-processors, traders, and public sector actors to make more informed decisions quicker, helping to facilitate more efficient trading, planning, and risk management. Market actors can now use online platforms to share information about markets and trends more quickly. This can help them identify opportunities for collaboration and gain a better understanding of the agricultural markets.
Agro-technology services can help enhance supply chain efficiency, bring power balance in negotiation, bridge information gaps between value chain actors, bring transparency in trading activities, and ease value creation and sharing. Overall, technology can help to improve efficiencies, streamline trading, encourage trust building and collaboration, and open new market opportunities. Development facilitators subscribe to the benefits that technology brings into the marketplace. The known benefits of streamlining processes, cost efficiencies, supply chain transparency, and increased efficiency have gained attention from the development industry. Against this backdrop, development projects are investing significantly in technology-enabled business models because of the benefits and promises of scalability of outreach and impact.
However, do the development interventions realize the optimal return on [co-]investment in tech-enable solutions? How well are perceived benefits captured? Do projects invest in suitable models or companies? Is there a solid business case for tech-enabled services? The Feed the Future Nigeria Rural Resilience Activity (RRA) works to protect the livelihoods and well-being of the population in Northeast Nigeria through the market systems development (MSD) approach. MSD reduces poverty by enhancing how poor women and men interact with the markets that provide them with jobs, income, and access to services. Markets and the private sector offer a direct means for people to participate in economic activity – to find employment, earn income, and access services. There is an opportunity for shared prosperity where there is efficiency and competitiveness-driven growth. Tech-enabled business models hold the promise of optimizing growth and creating large-scale benefits.
The road to success is, however, challenging. For instance, RRA co-invested in several tech-enabled business models to drive efficiency in Northeast Nigeria. Some worked while others did not work. Perhaps the vital question is why others didn’t work. What did we learn from the process? First, we co-invested in some models whose business cases we didn’t understand well. The ideas were fancy on paper, but the revenue models were unclear. Like many development projects, we also invested in companies/solutions in the ideation stage. The risk is that one is likely investing in a business that has yet to be tried and tested. This is not uncommon since the agri-technology sector in most rural parts of Africa is just coming into existence and displaying signs of future potential.
Many initial agri-tech models are also borrowed from existing businesses in the technology spaces. Unless there is something concrete and unique in the next similar idea, even successful execution can land the business model in trouble. Generally, co-investing in a new business opportunity requires remarkable foresight that sometimes teams may or may not have. This could be even more challenging in the technology sector. Ultimately, we rely on how convincing the promoters’ pitch is or our gut instinct. Or we submit to the easy-to-understand numbers, the promise of benefits multiplying many times, or just faith. Whatever the reason, it cannot guarantee success. Like in the corporate world, in the ideation stage, where promoters seek support from venture investors, it’s hard to assess success. An excellent example from the RRA partnership experience is a technology solution company that pitched a model to deliver inputs to rural farmers using the digitally enabled e-marketplace model. The prospects of reaching more rural farmers in the Northeast with improved agricultural input and significantly improved seeds gave weight to the proposal. However, the execution was problematic.
Development projects should be aware of their risk appetite if they invest in companies still in the early phases, which may be just beginning to implement their business plan. There can be no assurance that they will ever operate profitably. The likelihood of achieving profitability should be considered in light of the problems, context, expenses, difficulties in customer acquisition, complications, and delays in integration and iterations. The company may need to successfully attain the objectives necessary to overcome these risks and uncertainties. While the idea may be good, the execution could be sub-par, but one must tell beforehand. The risk of not being able to execute a fantastic view on paper is genuine and pulls down many promising ventures.
We also learned that the return on investment, if any, is highly variable and not guaranteed. Some startups may be successful and generate significant returns, but many will not be successful and will only generate small returns, if any at all. Any returns you may receive will vary in amount, frequency, and timing. One should refrain from investing funds requiring a regular, predictable, and stable return. Whereas there might be returns delays, the real benefits for the poor and the company may take several years to materialize. Knowing if a startup investment will generate any return may also take years. One should refrain from investing funds that require a return within a specific timeframe. Lastly, we also saw liquidity risks with our investees, and the pressure to cash out might limit any improvements.
Good technology solutions can yield enormous benefits to the development sector. We have taken to scale several successful tech models in the agricultural, financial, and energy markets. Some of our partners are growing their market shares and customer base by 2x. In the last six months, two of our co-investees raised more than US$110M from investors and institutional funders. This will go a long way in improving the lives of people in Nigeria and beyond. Investors ensure solutions bring a sufficient return before making a significant investment. Development facilitators should use similar matrices. MSD practitioners should invest in understanding how to conduct business case analysis for tech-enabled services. Some questions that may increase the chances of success are: What is the market opportunity for this product? What are the costs to bring the product to market? What are the costs through the stages of the product life cycle? Where does the product fit in the sector, and how will it impact existing agri-markets? How does this product affect the various market actors? Is there a clear revenue model? Is the revenue model executable? The pitch is one element of the business analysis. Still, the full scope of the analysis should include all revenues, costs, and other business aspects such as growth stage, market acceptability, route to market, etc.