A follow-up to ‘Fortune at the middle of the pyramid’
This post was co-authored by the DFS Lab team. Originally published on 15 Dec 2020
It’s a popular meme in the startup ecosystem to poke | fun at people who only think about Africa’s potential in simplistic terms like youth and population size. This has inspired many attempts to provide a more nuanced estimation of the market opportunity (most notably, this piece by Dr. Ola Brown about Nigeria’s true market size). These do a good job of quantifying the opportunity, but there’s room for a more qualitative perspective. For instance, what does it mean to say you’re building for consumers in an African country? Lagos may have more in common with Nairobi than it does with Jigawa, and Amathole may have more in common with Kibera than it does with Johannesburg.
In Fortune at the middle of the pyramid, we argue, among other things, that the most significant opportunity for African B2C startups lies with consumers who earn between $4 — $8 per day (if you haven’t read that essay yet, we would recommend doing so). This is largely because that income band holds the highest concentration of discretionary spending power on the continent, as the graph below shows.
With this in mind, this piece aims to dig deeper into the day to day life of that population; what they own, what they buy, and what they care about.
To do this, we’re going to use profiles from Dollar Street, a project by Swedish designer, Anna Rosling Rönnlund of the Gapminder Foundation. Dollar Street imagines the world as a street organized by income; the poorest to the extreme left, the richest to the right, and the rest of us somewhere in between. Volunteer photographers around the world take photos of consenting families, the things they own, and the places they live, then interview them about their lives, and publish it all online. If we’re successful, these should help us better understand the shape of the Africa opportunity, now that we appreciate its size.
Note: While they are freely accessible on the Gapminder website, we will not be using photos of the families themselves.
What’s life like at $4/day?
Meet the Ayadi family. Hatim (27) works 35 hours a week as a manure collector. He lives with his wife, Habibaa (26), and two children, Farah (4) and Amen (2). They belong to a small minority group in Tunisia that often moves from place to place, and so, they live in tents without running water, electricity, or a toilet. Their dream is to one day buy a house.
Because of their nomadic lifestyle, they have to buy all their food supplies, which eats up about 80% of their income. They typically cook using wood (though they own a stove), and collect water from a source nearby for both washing and drinking.
And while they don’t have electricity (lighting is provided using kerosene lamps), they do own a feature phone.
There are about 350 million Africans in the same income band as the Ayadi family. Together, they make up the lower end of the feasible/addressable market for technology companies on the continent, excluding the 500–700 million who live on even less. Next up, we’ll visit a family in the same income band as the Ayadis, but from a different country.Meet the Shemede family. Bennadette (40) works as a fish trader. Her eldest sons, Taiwo (23) and Sunday (18) are both fishermen, and the other children, Grace (16), Patiense, Kehinde (12), Idowu (10), Jawu (6), and David (4) only go to school. They live in a two-bedroom house made of wood, which their relatives helped build; it’s got a leaky roof, no electricity, and no toilet. They plan to buy roofing materials sometime soon, but dream of buying land to build a better house someday.
The Shemede family find it hard to save any money since about 90% of their income is spent on food supplies, which they cook using charcoal. Because they live on the water, growing their own food is not an option at the moment.
There’s stationery lying around the house — evidence that the children are getting an education — and just like the Ayadi family, they also own a mobile phone, even though they don’t have access to electricity.
Now, what’s life like at $8/day?
Meet the Nshimyimana family. Martin (51) is a cattle trader in Rwanda. He lives with his wife, Musabyimana (47) who is a farmer, and between them, they work 60 hours a week. They have four sons, Niyonsaba (21), Niyigena (16), Dushimimana (12), and Irabukunda (10), and one daughter, Iniringiyimana (20). For the past ten years, they have lived in a five-bedroom house, which they built with the help of friends and relatives.
In addition to the house, which has reliable power, drinking water, and plumbing, they also own agricultural land. Of the $251 each adult in the household consumes monthly, they only have to spend about 30% on foodstuff — their farm provides up to 60% of their nutritional needs. They want to buy more agricultural land in the near future, and someday, hope to be able to buy a car.
We can see immediately that the Nshimyimana family is much more likely to adopt and find value in technology products. In addition to the fact that there is more discretionary income at this level, they also have some of the infrastructure (like stable electricity) necessary to take advantage of digital products.
The fact that they own farmland increases their ability to grow their own food, freeing up any cash income to spend on other things.
And crucially, their aspirations are not about the basics, but instead are focused on improving their lives along specific dimensions (i.e. dreaming about buying a car).
What’s different at $23/day?
Meet the Arusa family. Mulunesh (28) lives with her husband, Sokare (32) in Ethiopia. They are both government employees, each consuming about $719 in goods and services per month. Their son, Amunue (4) and a relative’s daughter, Eluka (6) live with them in a two-bedroom apartment which they own. They like the building quality, as well as its location. The house has water supply, a toilet outdoors, and electricity, though there are regular outages.
In addition to this house, they own another one, and their next plan is to move to a bigger town and build a third there. Sometimes, they go on vacation, and have travelled as far as Hawassa city in Ethiopia. In the long run, they dream of buying a motorbike for themselves.
The Arusa family buy half of their food supplies from the market, and produce the rest themselves. This frees up money to spend on other necessities.
One thing you notice is that at this income level, there are purely decorative items in the house.
You also notice door locks, toys for the kids, ceramic cups, and stainless steel utensils (all evidence of discretionary income).
The TV, radio, and DVD player, show up together for the first time as well, and at this level, smartphone ownership becomes feasible.
Broadly speaking, the Arusa family looks the most like the assumed “consumer” in many African tech conversations. But in reality, this group makes up a tiny, tiny percentage of the population. Let’s see that graph from the intro again:
Now, when you go as high as $125 consumed per day, you start to see evidence of mass affluence: washing machines, microwaves, tupperware, laptop computers, and cars, like in these photos from the Hearne family in South Africa ($3,755 per month) and the Tessema family in Ethiopia ($6,316 per month). You also begin to see international trips, more exposure to cultural tropes from the global north, and so on.
But, again, these make up a tiny portion of the addressable population.
For digital commerce to take off on the continent, we need certain enabling factors: i) physical capability, ii) mobile phones, iii) digital literacy, iv) access to electricity, v) digital payment wallets, vi) deliverable addresses/robust fulfillment infrastructure, etc.
It’s worth thinking about what this stack means for each income band (especially $4 — $8 a day!), how startups might build for/in each context, as well as the opportunities this will unlock. More on this soon.
Chapter 4: Physical Ubiquity Redux
Chapter 1: The Frontier Blindspot