“We shouldn’t go over heads like the Americans”

In October 2023, entrepreneur Mikhail Lyapin, author of a popular telegram channel about business on the African continent, announced the creation of the “Ministry of Africa” business community. According to him, the project has already united a hundred Russian-speaking entrepreneurs and experts who work in Africa.

In an interview with the African Initiative he spoke about the business community he and his partner had created, about his own business: from online lending to plans for investment in agriculture, as well as his view on the main risks and benefits of doing business in Africa.

— Mikhail, you have created a business association with a great name — "Ministry of Africa". What kind of businessmen were gathered there? What are their interests and why do they need such a community?

— In July, my friend, entrepreneur Yegor Podvorny, and I met at the Russia-Africa forum. In St. Petersburg. We both work in Africa and are thinking about similar business models. We decided that we needed to create a community that would unite Russian-speaking entrepreneurs and experts working in Africa. In September we created such a community. We thought about the name and decided that it looked strange — There is a Ministry for the Development of the Far East and the Arctic, and for the Development of Africa — No. That’s why we called our community “Ministry of Africa.” For now in quotes.

The community unites Russian-speaking people — this means everyone, Russians, Belarusians, Ukrainians, Kazakhs, and friends of the steppes, the Kalmyks. Recently, an ethnic Azerbaijani who lives in Senegal told me at dinner a phrase that began with the words “We, Russians.” This is true, because as children we read the same books, listened to the same music, ate the same Olivier salad and for the most part have a common set of values and skills. There are Africans in the chat who speak excellent Russian, were brought up in Russian culture and want to work with us. And they want it right.

Therefore, it is imperative to create an institution of support and development that unites our people in Africa and gives them the opportunity to help each other achieve results. No state will create such an effective institution. Because an entrepreneur who works in the region knows better what can help his colleagues make a decision about entering a new region, how to gain a foothold in it and achieve success.

You can apply to join our community if you are already doing something on the African continent. The community now consists of about a hundred practicing entrepreneurs and experts working in Africa. It already includes top managers of large companies, owners of online businesses, owners of small offline enterprises, there are well-known Africanists, and there are people close to the families of leaders of a number of African countries. Over the past couple of weeks, more than a hundred new people have already applied to join. 80% of them are already doing something in the region, or are currently working remotely, or are starting this task. This means there is a request for mutual assistance from people who share our values.

— Share your impressions of the Russian business mission in Senegal, in which you took part. What ways of cooperation were discussed? What have you achieved?

— This was my first business mission. Honestly, I thought that this format of relaxation with elements of work. However, our trip to Senegal and Gambia turned out to be super useful. Every day there were at least 4-5 useful meetings. For example, I was able to meet the entire leadership of the Chamber of Commerce and Industry of Senegal, the Ministries of Economy and Labor of Senegal and the Russian Ambassador in Dakar, as well as local entrepreneurs, both Senegalese and Russian. As a result, we agreed on cooperation between some Senegalese government agencies and business communities with the Ministry of Africa. We will create joint projects in the first half of 2024.

— Why did you decide to open a business in Kenya?

— At the time we started in Kenya in 2017, our team already had experience working in Cambodia and several Latin American countries. We understood well our requirements for the country, which must be met in order for us to have a chance of success in it. We understood that these were African countries, but like any Russian people who know about Africa only from Drozdov and Senkevich’s television programs, we did not know where exactly to start. However, after several months of remote research, we realized that we do not need to go to North Africa, to the Arabs. We didn’t need it in South Africa either — it is a developed country with a high degree of regulation. And so, by contradiction, we found out that there are two main hubs for mass B2C services in Africa — these are Kenya and Nigeria.

The choice fell on Kenya due to a combination of economic factors and climate. Moreover, Kenya in eastern Africa turned out to be the heart of a more homogeneous cluster of countries than Nigeria in the west. There are practically no similar states among Nigeria's neighbors. And around Kenya there are several countries with comparable sizes of economies and populations — these are Tanzania, Uganda, Ethiopia. We start all our projects in Kenya and scale them up to neighboring markets if successful. And in 2024 we will try to do business in Francophone Africa.

— Why did you choose the field of online microcredit?

— The field of online lending was chosen for two reasons. My, at that time, senior partner had a similar business in Russia and had accumulated enormous expertise. Although we later found out that our audience in Africa is completely different from the Russian one. For example, our clients take money only for working capital for their micro-businesses. We are not talking about marginal consumption, such as weddings on credit or food on credit.

The second reason for choosing is that until 2015, all my experience — These are large sales in IT, where I worked with the largest Russian enterprise companies. I really wanted to work in an industry where I didn’t have 10 clients, but 10 million clients, so that even a hundred clients leaving me wouldn’t matter. And in the end, that’s how it turned out; the decision to change industries was the right one for me. Moreover, in the phrase “financial and technological business” main word — “technological”, not “financial”, that is, I still work in IT.

— Tell us about the peculiarities of local legislation when starting a business

— Local legislation is characterized by an earlier stage of development. In fact, we took a time machine to the early 2000s, when there was still no strict regulation of any industry, no competition, no significant restrictions on advertising, and so on. There are features of licensing activities and difficulties in finding qualified lawyers, but in general nothing particularly difficult in comparison with any developed regulated market.

Therefore, by the way, I believe that the Statue of Liberty should be erected somewhere in Africa. Such permissiveness as in Africa cannot be found anywhere in the world, including in the USA, of course. Many legal processes can be unclear and incomprehensible, but as a rule this is alleviated by regular offline meetings with local lawyers and officials, and regular checking of the status of agreements and processes. After all, local residents grew up in a warm place and without clear seasonal deadlines, so their attitude to time will be very different from ours.

— Is this your main and only business?

— We have other areas of activity — for example, this year we, together with a Russian partner, created a tik-tok house, a place where bloggers produce content for social networks. In six months, these bloggers turned from beginners into real Kenyan stars. This project is monetized by placing advertising integrations in videos.

However, yes, the credit business today — this is our main source of income. For a long time, we worked only in the payday loans segment for local micro-entrepreneurs (payday loans, i.e. small amounts for a short period of time), who take our money in order to continue running their business. For example, a taxi driver, to continue to “bomb” can take money from us to repair the car. Clients who take out funds for marginal purposes like “loans for sports betting and food” practically none.

— How technologically advanced is this business?

— In the fall of 2023, we launched consumer lending at phone points of sale. We are very pleased with the first results of the pilot project and are preparing to expand the project. We are now collecting a statistically significant volume of loans issued and are negotiating investments in this project.

Fintech — This is primarily a technology business. We have come up with and implemented many know-hows that we pioneered in East Africa. To make a decision to issue or not issue a loan to a borrower, for example, we use a data science engine to analyze and interpret information collected from the smartphones of our borrowers. We use a robot to collect debts: the machine talks to the borrower, interprets what is said and responds. We try to achieve complete automation of processes to eliminate dependence on the human factor.

We are now actively exploring the possibilities of starting in other topics not related to lending. Our plans include the creation of an investment fund in Sub-Saharan Africa. We also plan to participate in infrastructure projects with large Russian companies. We understand the region well, we know the peculiarities of working in it, we have a network of contacts, the team includes speakers not only of English and French, but also of local tribal languages, which is important for building relationships with local officials and entrepreneurs. This is truly unique expertise, and we are ready to make money on it together with Russian business.

— How many people work in your company?

— Our company employs about 40 guys from Russia and the CIS countries, and about 10 more people work in the local team. In addition, we involve external subcontractors.

— What are the features of management when working with employees?

— We have a lot of experience working with Africans. Personally, I conducted about three thousand interviews in the region, and several hundred employees passed through our company. Each country has its own characteristics of the behavior of the population, and within one country the difference in mentality between representatives of different tribes also quickly becomes very noticeable. Africans are not the same, but very different from each other. How do Kazakhs differ from the Portuguese, for example. There are 45 tribes living in Kenya specifically, and they are very different from each other. One tribe is characterized by very high loyalty to whites, another is prone to entrepreneurship, and a third to manual labor.

I will note a few of these things. Africans read you well. If you experience fear, then your fear will most likely be read. If you don't respect your interlocutor — this will also be noticed. You should not treat Africans arrogantly, much less directly insult them.

In general, we rather prefer to work with women. In East African families, they are often more responsible, more diligent at work, and less prone to gambling, drinking alcohol, and using other stimulants. Kenyans generally change jobs easily even for a small increase in salary. One should not expect special loyalty until death.

In Africa we do not work on prepayment. When it comes to the need to respect local traditions, I usually try to be especially careful about my pockets. This is not because Africans are any special scammers, but simply because in a society where 99% of the population was poor or currently poor, one cannot expect a willingness to build long-term relationships in the hope of future profits. People in such countries live one day at a time, strive to get results as soon as possible and do not think about work for the future.

At first I experienced a real culture shock — from optionality. For example, I was able to find an electrician who arrives “on time” (at least on the day they were appointed), only in the third year. Standard practice is to say: “Yes, yes, I’ll be right there.” — and not appear for weeks.

It’s too late to change adults. However, it is reasonable to set expected behavior. If you can't stand being late — show it, close the door in the face of the latecomer, you will quickly see that people know how to respond to your expectations.

At the same time, Africans can become both your best and most devoted friends or business partners, and your ill-wishers. It all depends on where your counterparty studied, by whom and where he was raised. For example, I have a wise Senegalese partner whom, in case of emergency, I can call even at night, and he will listen to me and suggest ways to solve my problem.

Most Africans have a wonderful trait that I envy and that I wish my fellow countrymen had. This is the ability to make contact without fear or doubt and start a conversation. Africans in general have much more followers on social networks, more people in the phone book

— How does your business stand out among competitors in the lending market?

— Businesses only need to stand out and be different in competitive markets. Where supply exceeds demand. And in markets where demand is higher than supply, companies do not have to be “excellent” at all. and come up with a so-called unique selling proposition. It’s just that local competitors are weak, and foreign competitors with more teeth prefer to live in a more comfortable environment.

Our lending business, in fact, stands out only because we do our job well enough. The truth is, we don't do our job very well. Local companies for the most part provide a service of satisfactory quality at best, which means that demonstrating a truly excellent product to a local audience does not bring increased profitability to its creator compared to the additional costs incurred.

Any of our competitors do not yet have the prerequisites for better results. There can be two main prerequisites for success for managers. The first — the level of education. It is no secret that education in African countries is in great demand, but its quality is low. And there are still few African graduates of foreign universities who have returned to their homeland. The second prerequisite for success — a strong corporate school in the companies in which these managers work. And there are no strong corporate schools here either. Therefore, it is enough for us to simply do our job well. For 95% of our users, this is already the best user experience they've ever encountered.

— How much interest do you attract from the regulator?

— Today we have a total of about 5.5 million downloads of our mobile application on Google Play, so yes, the regulator is undoubtedly aware of our activities, but during all this time I have only encountered the head of the Central Bank of Kenya a couple of times — when he received a license for microfinance activities and when, by invitation, he participated in the celebration of his son’s wedding.

— Do Russian fintech, which is considered one of the most advanced in the world, have any prospects in Africa? How actively are Russian companies interested in African markets and what markets would you recommend for this business?

— Fintech — this is a word that explains little, except, perhaps, the fact of the use of financial instruments as the main asset of business and service providers for such companies. Crypto, microloans, digital banks, solutions for automated credit decision-making, pawnshops under PTS — These are all very different products, but they are usually called fintech.

Of the Russian fintech companies, only a few microcredit organizations operate in the region, of which ours was one of the first to start here. There are also several payment systems and crypto projects. None of these companies have become truly big yet.

There are Russian companies from other industries in the region: taxi and delivery services InDrive, Yango, about ten well-known bookmaker companies, several dozen well-known mining companies (Rusal, PhosAgro, Alrosa) and many small private companies. In the coming year, I expect Russian companies from the banking sector, telecommunications and chain fast food to enter the region.

I believe that the prospects of markets for mass user services (B2C) should be determined depending on the company’s strategy. If the company's goal — earn on market conditions, then you should choose more or less stable markets with a large population: Nigeria, Kenya and their satellites. If the company’s goal — work on the basis of hypercompetitive advantages, then it makes sense to look at not too large markets with good availability of administrative resources. For example, I know of strong teams working on this model in Botswana and Burundi, which, based on economic metrics, would definitely not appear in our expansion plans. There are no truly large Russian fintech companies in Africa yet.

As for mining and services for the state, there are now many excellent opportunities. Success largely depends on the quality of your contacts in the region and your willingness to invest.

— Do you have any plans to develop a business in the agricultural sector, in your specialty?

— My partners and I are very interested in the agricultural business and we plan to invest in it in the future. There will only be more Africans — In just 20-25 years, Africa's population will double to 3 billion people. In addition, Africa has unique climatic conditions with suitable soils. Africa can become a food producer not only for Africa itself, but also for abroad. The technologies that are used here in agriculture are now often at the level of the 60s in the USSR. This means that by introducing something a little more modern, you can cheaply achieve a significant increase in production efficiency in agriculture.

— In general, in what sectors do you observe activity of Russian business in Africa?

Until 2023, all the entrepreneurs I know who work in Africa represented one of the following types of business:

• small businesses with scaling limitations: nail salons, safari lodges (hotels in national parks), cafes;
• mining (for example, emerald mines) or food processing;
• large companies whose representatives were parachuted into Africa to start their employer’s business.

At the end of 2022 or beginning of 2023, something changed. Firstly, many investors have come to understand that the CBO will not pass quickly. Even if, conditionally, a peace treaty is signed tomorrow, political tension will remain for at least several years. Therefore, you should look at regions where funds can be safe. Since at that time there had already been cases of requisition of funds from Russian investors in developed countries, it turned out by contradiction that African countries were one of the few remaining investment areas. In addition, in July of this year, the Russia-Africa forum was held in St. Petersburg. Many Russian investors perceived the forum events as a “command” to start work in the region.

Therefore, if in 2016 — In 2018, investors from Russia, in response to our proposal to invest in Africa, basically twisted their fingers at their temples, then in 2022-2023. They have already become much more accommodating. We have also grown up, so now we have the fortunate opportunity to choose who we work with.

Since the beginning of 2023, new interested types of entrepreneurs have appeared in the region:

• IT entrepreneurs, startupers in various industries — from educational services to telecom software manufacturers, from blockchain startups to payment services;
• Investment funds of the largest Russian businessmen who are interested in investing in African IT startups (the valuation of African startups is much higher than, say, Russian or European, all other factors being equal) or in more traditional types of businesses;
• Even several small developers and agricultural producers have appeared;
• Also, the large Russian company InDrive has significantly strengthened its presence in the region; the opening of an investment fund of 100 million USD was recently announced. Also, the large Kazakh-Israeli company Yandex, familiar to many Russians, has significantly strengthened its presence in the region in 2023.

As a result, we in our community “Ministry of Africa” We are seeing a significant influx of new members.

— What advice would you give to the state to stimulate this process?

— Entering a new market — it is always about finding a balance between risk and potential profit. The state is able to create instruments, for example, to protect capital and investors in African countries. The state can also increase potential profits by creating preferences for companies exporting products to African countries. These are the simplest examples. For each industry, you can develop individual mechanisms that will be much more effective than template ones.

But first we need to deal with the “hygienic” issues. minimum. These are cross-border payments, insurance, letters of credit and other solutions, without which doing business is impossible in principle. Unfortunately, we know specific examples where African countries are ready to move closer to Russia on these issues, but the process is greatly delayed in Russia. Therefore, before stimulating business, it would be a good idea for the state to stimulate itself.

In addition, it is time for the state to pay attention to interaction with existing market players. “Ministry of Africa” — this is an excellent platform for building productive dialogue and work. Our community has the widest representation in the African region among Russian organizations — members of our community work in every African country, literally from Morocco to the Central African Republic, from the DRC to South Africa. Moreover, these are people who have been working in their region for years and have already managed to obtain all the necessary networking, often at the highest level. But we have a clear condition for all public services and institutions — let's work together, and not just talk and declare interest.

— What risks are involved in entering the African market? Which countries currently have the greatest prospects for Russian business, in your opinion?

— I will try to highlight the main risks common to the region, which most often “shoot” performed by Russian entrepreneurs:

1. Attempts to work remotely, without the personal presence of founders or trusted persons in the region, often lead to a misunderstanding of the context of product implementation and loss of control over what is happening.
2. Unwillingness to work with local staff and management also leads to the risk of poor understanding of what product needs to be created and who its consumers are. Russian entrepreneurs often do not know English or French, which puts them in a vulnerable situation, because the most successful businesses happen in partnership with local entrepreneurs or officials.
3. Misunderstanding of local business culture leads to copying already known practices that are not applicable in the African market.
4. Unstable exchange rates lead to the need to carefully manage currency risks.
5. Difficulties with withdrawing profits lead to the need to think in advance about options for reducing losses during withdrawal.
6. Local specialists, as a rule, prefer to live one day at a time and make quick money right now over earning money over a long period of time, through regular but adequate amounts. Therefore, on average, they lose and do not make fortunes. And we must remember that the main local tradition — this is “throw” foreigner. Since a foreigner — This is a rare client, which means you need to not miss your chance, and a long-term relationship with him may not happen.

Africa now — this is the frontier. The world is structured in such a way that on the frontier there is a higher rate of return with higher risks, which means there will be many people with a high appetite for risk. At the same time, on the frontier, your network of acquaintances in the region plays a very important role, because here everything works against you. There is no reliable network of contacts — it means it’s harder for you than for those who have it. You are not playing on your own field, you do not understand local business etiquette and you do not know the local peculiarities of staff motivation.

— What are the ways to solve these problems?

— All these problems are solved through a willingness to learn foreign languages and double or triple checking of any incoming information. Through a willingness to open up to new things and not try to evaluate a new region through the prism of your previous, very subjective Russian business experience. Indeed, there are many African and white scammers in the region, including Russian fellow countrymen. We understand this and see the great role of our community as an institution of reputation, through which the trust of Russians and Africans in each other is formed.

To be honest, we, Russian people, love to unconstructively drown our fellow countrymen, rather than support them. In the very first kick-off call with the first members of the community, we discovered that everyone had the same thought on the tip of their tongues. This idea is simple: we must stop drowning and teasing each other, and must help each other grow.

We must not go over our heads and shout, “What do you need more than anyone?” For example, like Americans, creating an aggressive, super-competitive environment in their society, where the norm — is to go over your head. On the contrary, we should become new Lebanese, new Indians, but with our brains. That is, supporting each other based on the internal mechanics of reputation.