African startups

The Disruptive Power of African HR Tech Startups

Why is the topic of my article Africa? Well, that’s easy: last year I realized that there is so much innovation in Africa that hardly ever receives attention. So I am making up for that in this newsletter. I hope you enjoy this virtual exploration of the state of HR Tech in Africa as much I did!

Data and Demographics

When I talk about the future of work, I always emphasize that you must have a good understanding of data. I often start my keynotes by showing the demographic situation of the countries where I present. Why? Because your business strategy succeeds or fails by having access to workers with the right knowledge. And your first step is to understand if there are enough qualified people in the area where your business operates. Unless your company is fully virtual, but even then you need to know where to find workers with the right skill sets.

The easiest way to assess the situation is to look at the population pyramid. It shows all the people in a country, divided in age groups. The desired model looks like a perfectly tapered pyramid: more young people than old people. I am sure you are well aware that a couple of geographies, e.g., Europe, North-America, Japan and China are headed towards a vastly different situation: people are aging out of the workforce in higher numbers than there are young people coming in to replace them. And that’s a problem. But not in Africa.

Africa is in a totally different situation: it has the youngest population in the world. 41 percent of Africans are under the age of 15 and the median age is 18. While Asia’s population is larger in size at 4.6 billion (and 24 percent of Asians are under 15), Africa comes in second at 1.3 billion, spread over 54 countries. These two continents will see their population grow in the next decades. So when we talk about the Future of Work, we better pay attention to what is happening there, because this is where the workforce of the future lives and works.

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African Tech Startups deserve a closer look

You already know that I like to track funding rounds in HR Technology. It lets me discover young companies that develop new HR solutions. It also provides me with insights in trends, especially when tracking the subcategories: are investors funding more talent solutions than HCM suites or payroll engines? Last year I started to notice a subtle interest in African companies. Investors funded a few startups here and there. Followed by a few more. Some people reached out to me to have a conversation about what I thought of African HR Tech businesses. And then last week, three African companies, PadeHCM, Power, Earnipay announced funding rounds for their HR solutions. This week one more company secured funding: Workpay.

Despite the challenges posed by the pandemic, the African tech startup ecosystem is growing and the total funding raised by African tech startups was close to $5B in 2022. The majority of funding rounds (75%) went to companies in Nigeria, South Africa, Egypt and Kenya and that’s also where most of the HR Tech vendors are based. Fintech is the category that stands out, as almost 40% of funding goes to financial solutions. So it’s no suprise that HR Tech vendors often include payroll and benefits in their services: the African workforce is in need of secure, modern financial support.

However, when I compare that total of $5B for all startups with the $10B for HR Tech startups globally, it’s obvious that African companies have a long way to go. So let’s be clear: for a population the size of Africa, HR solutions are hugely underfunded and deserve a lot more attention than they are currently getting. In 2022, $18M went to African companies. So far in 2023, it totals appr $10M. And the amount of these four funding rounds are peanuts, when you compare them to similar stage rounds in other geographies.

HR Tech startup funding in Africa

But I hope it’s a promising start that will lead to more. And that’s exactly why I am writing this newsletter on Africa: there is so much promise and opportunity there. Many solutions are overlooked because their founders have not moved their headquarters to the United States or Europe, to be close to investors. It’s much more a matter of access than it is of innovation as the companies mentioned in this article will show.

There is also a growing recognition of the potential of African tech startups to address some of the continent’s most pressing challenges. For example, some of these startups are developing HCM solutions, while also providing access to financial services and promoting financial inclusion. Many people in Africa are unbanked or underbanked (the Worldbank estimates less than 50% of adults have an account). They don’t have the easy access to financial support that workers in other regions enjoy. So these HCM vendors must take these circumstances into account and go after a scope that is slightly different from global HR Tech vendors, to ensure they cover the needs of the local user base (as it should be).

And that brings me to the third point I want to make: the African workforce uses technology in a different way. Another reason behind this growth in startups is the increasing adoption of mobile technology in Africa, with over 1 billion mobile phone users. They have a different device strategy: they are mobile first. For all kinds of reasons, many of them skipped the desktop. They never had to use one. And when you create solutions for mobile instead of a browser on desktop, you make different choices in your design strategy. Choices that can be easily transferred to young people in other regions around the world, who will never use a desktop in their lives either! And these solutions also align with the needs of the deskless workforce, as they utilize a mobile first approach.

Employee Experience

Just take a look at Jem and how they level up the mobile employee experience. Jem (formerly Smartwage) was founded in 2020 in South Africa and raised $2M early last year. I met the founders of Jem a few weeks ago. They noticed that delivering a payslip through email was a failing proposition. Workers weren’t picking up these payslips, with all kinds of consequences. Kiosks and self service didn’t work either. There had to be a better way, and they noticed that everyone uses Whatsapp. So Jem decided to switch the delivery mode and now offers companies the option to deliver payslips via Whatsapp. Once the employee accepts the connection, companies can extend the service and add features like on demand pay and employee communication as well.

We discussed in detail how such a solution wouldn’t be introduced as first service in Europe or North-America. Simply because the dominant medium is (was) email, and payslips are typically delivered to the inbox. Compare that to Africa, where Whatsapp is the leading communication tool (and now is in many other regions). It’s easy to see how global companies with deskless workers could benefit from this way of working. Instead of an email address, all you need to communicate with your employees is their mobile phone number, which you probably already have. And by using an App your workers already use, you meet them where they are, instead of asking them to adopt your means of communication. How’s that for a great employee experience?

Learning and development

But even though the majority of Africans have a phone, that isn’t necessarily a smartphone. And that means you have to rely on text as alternative. M-Shule does just that: they’ve built an SMS knowledge-building platform that helps organizations deliver learning, evaluation, and other tools, including self-service and growth analytics to help you engage and retain users.

While M-Shule (founded in Kenya, 2016) is focused on education in the broadest sense of the word, it can be used within a company to teach workers new skills through text messages, and ensure they have the information they need before they start the work. The M-Shule lessons can be accessed any time of the day so people can follow them whenever they have time, allowing for continuous and just in time learning. It’s a lean and mean concept, and one that also could be ported to Whatsapp as medium.

HCM Suites

The HCM Suites I introduced you to over the past two years had one thing in common: they were focused on supporting companies with their global workforce and assumed their clients already had a (local) payroll in place. They included no payroll functionality apart from connectors and APIs to existing payrolls.

The African HCM Suites take a different route: they focus on serving global and local customers and include payroll. Once they are up and running in one country, they add payroll to expand into the next. The reason for this is obvious: Core HR and payroll are a package deal, and the customer needs are such, that incorporating payroll in the HCM Suite is a given. How else are you going to pay your workers?

These startups focus on streamlining the pay process and bring it down from multiple days to a few hours by deploying new technologies. They also often partner with banks, accountants and fintechs to bring financial services to the workforce of their clients (earned wage access, insurance, loans, savings etc) no matter in which country the worker lives. It’s a totally different approach from HCM vendors in other continents. African vendors show a sharp focus on paying people and helping them with what matters most: establishing financial security.

Workpay is an end-to-end HR and payroll system offering a full set of services: employee administration, time tracking, payroll management, perk and benefits, expenses, insurance, including payouts to banks and mobile money devices in Africa. A performance service will be added this year. Workpay also offers an EOR service to employ and pay the African remote workforce, making it possible for companies to hire people legally without the need to set up a local entity. They have a long list of integrations with 3rd party pay processors, allowing them to pay workers across Africa. Workpay was founded in 2017 in Kenya and have since expanded into Nigeria. As I was writing this article, the company secured $2.7M in funding to support the expansion of the HR, Payroll, and Benefits solution to 40 countries throughout Africa.

With Core HR, Performance and Competency Management, HR Analytics, Leave Management, Payroll Management and Recruitment Management, SeamlessHR offers all the necessary functionality to hire, administer, manage and pay your workers. The company was founded in Nigeria in 2018 and went on to raise a $10M Series A round. SeamlessHR announced they will use the funding to further expand into Southern and Eastern Africa. They are also looking to launch embedded finance services as well as more AI and analytics functionality. They will add a number of services using external partners to accomplish their growth objectives.

Pade HCM is the one of the newer solutions. They were founded in 2020 in Nigeria and just completed a pre-seed round of $0.5M. They can support the global workforce with the HCM Suite, but are adding local payroll too. The solution includes Core HR, Performance, Disciplinary, Dashboards, Benefits, Time and Pay. Through audit reports, you can track every transaction made in the system, which is important for financial transparency. Pade also offers a Wallet to payroll admins (powered by Flutterwave) as a secure payment disbursement feature that allows companies to pay employee earnings as a direct deposit into their bank accounts.

Earned Wage Access

As you see in the examples above, having access to your salary once you’ve earned it is just as important in Africa as in other regions. Probably even more, because of the limited access to banking services. Apart from incorporating financial servies in HCM solutions, there is a growing list of companies offering flexible payment (EWA) solutions. People who need money before their payday typically rely on payday lenders and loans, which often come with high interest rates which leads to an undesirable debt situation. EWA providers bring an alternative, where workers can access (part of) the money they already earned, thereby avoiding debt and interest payments.

Earnipay provides flexible and on-demand salary access to workers. It’s an interest-free alternative to pay day loans, where workers can withdraw up to 50% of their accrued salary. The employer deducts the amount withdrawn from the salary at the end of the month, and pays the balance. Earnipay charges a set transaction fee, based on the amount withdrawn. The company raised a seed round of $4M and was founded in Nigeria in 2021.

Established in Kenya in 2020, Power is one of the three companies that just announced a $3M seed round. They offer earned wage access with adjacent services. The startup partners with employers and enables their employees to access financial services like loans, investment opportunities, and insurance products. Workers can access their money as soon as they have earned it. Power helps the workforce to take control of their financial well-being with tools to pay, save, borrow, and plan.

Young HR Tech Startups

And to show you how vibrant the HR Tech Startup scene is: Last week the Africa Tech Summit 2023 took place in Nairobi. The Startup Competition featured 14 contestants, of which 3 where HR Tech (chosen from over 250 pitches submitted!). Take a look:

FaidiHR LLC (Kenya) develops a cloud-based HR and payroll solution for SMEs to streamline complex payroll processes

PesaChoice (Rwanda) develops the Midas HR software and loan solution to address the gap in access to finance for African SMEs and corporations

Zofi Cash (Uganda) is a salary advance platform developed to address the challenges of financial emergencies before Payday.

A bright future, but also…

As you can conclude from the list above, the African HR Tech ecosystem shows a lot of promise. But it isn’t without its challenges, such as a lack of access to funding and talent, and a sometimes inadequate infrastructure to easily cover all user locations. Startups often face strong competition from large, established national firms and state monopolies. The political instability in some areas isn’t conducive to a vibrant startup climate either. You can find more information about what is needed to make the 4th Industrial Revolution happen in Africa in this report.

Brookings just released their Foresight Africa 2023 report, which includes a chapter on the Future of Work, and how to equip the African workforce for this future. Google calculated that the pool of African professional developers rose from 690,000 to 716,000 between 2020 and 2021, and providing tech services from Africa has the potential to be a real catalyst for growth. Prioritizing education is needed to recover and rebuild from the pandemic: there is an opportunity to focus on STEM-based career opportunities, especially when it comes to women and girls.

Overall, the state of HR Tech startups in Africa is promising, with a growing number of innovative and impactful companies emerging across the continent. While there are challenges to overcome, the potential for growth and impact is significant, and the African tech startup ecosystem is poised for continued growth and development in the years to come. The recent funding of HR Tech startups gives me hope for a bright future, especially because of the functional and technical innovation that these companies bring to HR. But the current funding rounds are just a drop in the ocean. Let’s see how this plays out. I’ll be watching it closely.

Disclaimer: I chose the companies as examples to illustrate the story line. No sponsoring involved. A mention is not an endorsement – please do your own due diligence.