This wasn’t going to be today’s essay. But writing is an effective way to think, and I’ve been thinking about this for just over two years now, so I might as well open source the thinking process.
The premise
Global economic chains of value and supply will become more and more digital, including in Africa despite high levels of informality. The slow pace of formalisation in Africa means that digitalisation will and is happening around informal-adjacent digital platforms. So Instagram DMs and WhatsApp status posts are how mom-and-pop shops and street traders will go online. Larger businesses a.k.a SMEs will do emails but mostly rely on WhatsApp group chats for file management, bidding and order execution, supplemented by visual inspection.
Different economic interest groups will try new digital tools as they emerge. But they may not stick with these tools because these tools either fail to make it into routine workflows, or they create too many roadblocks before delivering value. To put it simply, digital platforms fail when they fail to transition from great tools to great products. All products, especially products that affect economic chains of value and supply are trading products.
In the end, where no digital platform sufficiently aggregates information access and sharing, people will just revert to informal digitisation like leaving a WhatsApp text message or calling a counterparty—if you can find their contact information. It may work well for consumers, but for businesses, it stunts productivity.
And what are all these people typically trying to do on any given day? Trading. They are trying to buy or sell something. Something that has always been with us. Not just Africa too, but the entire human race. And why are they using these “social digital” platforms they use? Because it is the path of least resistance. Least resistance for what? The least resistance to communicating.
Man shall live by talking
In the first few chapters of the Old Testament, we are treated to a real estate development story. As the story goes, people wanted to do something they could be proud of themselves for, but in the end, they were unable to forced to abandon the development because no one could understand each other. It would take far more time to work out new semantic rules than these high-ego early real estate tycoons could stomach, so each one went off with their group to build smaller cities.
Trading is fundamentally the process of communicating over common protocols with the goal of consummating an economically tangible transaction. Those transactions start with talking, being understood and responding, which is in some way a transaction. I said earlier in this essay that the art of communication is the first in a series of transactions that together we call trading. When you see or ask about the price of a kilogram of fish at the market, you are typically near the end of a long chain of trade communications summarily declared as a price.
You see this in the different styles street traders across the world employ to pass a point across. While on a speeding motorcycle taxi on Thika road, in Nairobi three months ago, I noticed the busboys waving small handheld signs inscribed with the destination and fares. It stuck with me because it was both odd and clever. On previous trips, when I used the buses, I relied on friends and kind strangers to point me to the right buses. If I had noticed those cards, it would have made the trade easier and I could saved my Uber money.
It’s probably the same reason why I haven’t used a public bus in Lagos. A city I’ve barely spent one month in cumulatively. So I usually cannot decipher the rapid-fire callsigns from Lagos busboys, and I am too introverted to ask the many questions I know it would take me to find my way around. So I’m typically team Okada (the local term for motorcycle taxis) for short distances, and team Bolt/Uber/for longer distances.
The point is, that trading happens when people talk to each other. It’s important to stress that this is a when not a because they talk to each other. Communication is both an initiator of trade and a constant background process for trading.
As trading progresses, it becomes more complex and more abstract. Our ancestors used sticks and stones to record and consummate trade. Today you use cash, debit cards and bank apps. This abstraction forces narrower protocols for communication and trade. So can you walk into a mall or supermarket, barely talk to any other human being, and walk out 15 minutes later with a full cart.
This works well for supermarkets and small trade transactions even up to the stock market as it exists today. But as trade begins to scale, the protocols begin to get a bit loose. The larger the trade, the more you are likely to seek more information. It usually does not even need large trades for this to happen. You ask for advice or help when picking out groceries, you negotiate with the shop tender, and you pass tips along to family and friends while shopping together.
This human need to talk through high-stakes trade accidentally became one of the biggest drivers of value at Bloomberg when a chatbox built by one of the company’s engineers to communicate with other engineers, became popular with clients of the Terminal.
But talking is not enough
Because trade does not happen because people talk. Rather people talk because they need to aggregate, test and execute trading activity. The more structured the protocols for aggregating information are, the better the quality of the information, and the more dependable the order execution systems are, the less people need to haggle. See your local supermarket for example.
So what if we built a system that aggregates information across the stakeholders in a supply chain, allows users to sift through the throve, and provides the plumbing for users to arrange order execution workflows in much the same way my sister uses WhatsApp to run a localised dropshipping store?
Users of this system should still be able to talk through the trade, but mostly in the way friends exchange gossip, tips, and warnings when shopping at a Costco, or to be locally relevant, your local member-discount store.
What supply chains could benefit from this type of system? What supply chains are sufficiently complex, intractable, and opaque, but also operate at the scale that can make this commercially viable for the system provider? And how would government institutions and the wider economy leverage this sort of platform to significantly increase factor productivity?
And perhaps the most important blocker of all, how would this increased transparency bring efficiency to current trading practices YET boost profits for the current players in the system? In other words, how will it support the business interests of the current trading players and NOT totally disrupt it?
The late Charlie Munger once said:
The great lesson is to discriminate between when technology is going to help you and when it's going to kill you. And most people do not get this straight in their heads.
When we were in the textile business, we were making low-end textiles - which are a real commodity product. And one day, the people came to Warren and said, "They've invented a new loom that we think will do twice as much work as our old ones."
And Warren said, “Gee, I hope this doesn't work because if it does, I'm going to close the mill.” And he meant it.
There are all kinds of wonderful new inventions that give you nothing as owners. The money won't come to you. All of the advantages from great improvements are going to flow through to the customers. It's such a simple idea. It's so basic. And yet it's so often forgotten.
I've never seen a single projection incorporating that. Rather, they always read: “This capital outlay will save you so much money that it will pay for itself in three years.” So you keep buying things that will pay for themselves in three years. And after 20 years of doing it, somehow you've earned a return of only about 4% per annum. That's the textile business. The cost reductions came through all right. But the benefit of the cost reductions didn't go to the guy who bought the equipment.
An increase in efficiency does not mean an increase in profitability.
Throughout this piece, I’ve focused on talking about trading, systems, economic activity and communication, but if you’ve been reading between the lines, you would immediately see that what I am describing is a data product. Or at least one way to build data products that lend themselves to ecosystems. I’m still tracing the contours of this product, and will probably write about it more. Especially how it might apply in the food commodity space.
As far as I can tell, the sort of system I imagine would need the buy-in of a significant portion of the current trading counterparties over time to really take off. In the same way, no one communicates by speaking a language only they can understand. This is the stickler. Digitising Africa is like teaching a new language.
One more thing. There might be a temptation to look at this piece, and think: should we build more chatbots? That is widely off base. The story here is to think of a data product as a structured protocol for trading between enterprises. This is obviously not suited for street-level or consumer trading. Instagram or chatbots may suffice.
In the meantime, if you’re reading this essay, consider it an invitation to chat, especially if you work in agriculture, export aggregation, integrated logistics and trade financing. I want to see where my assumptions are off, wild but possible, untested, greenfield and a minefield. Ring my phone off the hook, and/or schedule a chat here.
> While on a speeding motorcycle taxi on Thika road, in Nairobi three months ago
- Bodabodas are the easiest way to cut through traffic.
> I noticed the busboys waving small handheld signs inscribed with the destination and fares. It stuck with me because it was both odd and clever.
- That's a fascinating observation! It's a great example of naive realism. As a local, I've become so accustomed to certain aspects of our environment that I overlook details that would be striking to someone new to the area. It's interesting to think about how much we take for granted.
> On previous trips, when I used the buses, I relied on friends and kind strangers to point me to the right buses. If I had noticed those cards, it would have made the trade easier and I could saved my Uber money.
- It's definitely a testament to Kenyan hospitality that visitors can often rely on friendly locals for help. While London does offer more formal guidance with signage, maps, and apps like TFL, navigating a new city can still be daunting. Even with these resources, many people find themselves turning to friendly locals for assistance.