Initial coin offerings (ICOs) see companies create their own digital tokens and sell them to the public.
They are like initial public offerings (IPOs), but investors take no equity in the business, and rather invest in the potential value of the token.
They are proving attractive to firms and investors alike, with over 230 companies raising almost $4 billion in such a way in 2017.
“Initial coin offerings allow companies an easy way to raise capital while bypassing many of the regulations and requirements associated with initial public offerings. ICOs also allow companies to tap into the hype around cryptocurrencies and crowd-sourcing,” says George Etheredge, Research Analyst in the Digital Transformation Practice at Frost & Sullivan Africa.
But are ICOs relevant in the African context? It’s early days, but a number of startups have recently given them a whirl. Nigerian remittances platform SureRemit netted $7 million, while South African company and property investment portal ProsperiProp secured $200,000.
ProsperiProp founder Llew Morkel says ICOs offer entrepreneurs an opportunity to dip into a global source of capital without having to go through formal channels like banks or venture capitalists.
“Investor institutions require the entrepreneur to commit to a period of exclusivity while the funder conducts their due diligence. In the event where the application is rejected, the entrepreneur has to start over, often costing valuable time to market. This cycle is discouraging,” he says.
The lack of regulation in this space makes it easier to fund starved African businesses. But it’s also the main drawback of ICOs.
“It’s far easier for groups to set up ‘fake’ ICOs. The general hype around the crypto space may cause investors to be insufficiently diligent,” says Etheredge.
This is likely to mean the space becomes the focus of more regulation as time passes.
“One factor here will be those parties that currently make money from the way things are done at the moment will have powerful incentives to lobby for regulation. This is a pattern in most disruptive industries, just look at Uber,” says Etheredge.
Getting the legal ducks in a row was one of the challenges for ProsperiProp.
“It’s important for an ICO to move inside the guidelines of each country’s legal framework. The country’s framework not only protects the ICO investor but also the entrepreneur,” says Morkel.
With all the noise around ICOs, and awareness of potential scams, marketing is key. Wala CEO Tricia Martinez says trust, transparency and community are key elements.
“We quickly recognized that in order to gain trust you must be transparent. And the only way to build a community is by being transparent. Once we gained the trust of the individual and were transparent our community began to grow,” she says.
Africa’s foray into the world of ICOs have been tentative thus far, but those that have made the jump expect more to follow. SureRemit co-founder Adeoye Ojo says they are about more than just capital.
“There needs to be a real utility for the underlying token being distributed. Many businesses are rushing to tokenise without a proper plan to sustain the new economy they are creating. This isn’t unique to Africa,” he says.
“ICOs shouldn’t be used as a funding mechanism. Only if there is a real use case to build a token economy should an entrepreneur look at this as a potential channel,” she said.
Yet the potential for token sales to provide access to funding cannot be ignored.
“The good thing is that barring countries that have some strict financial regulations about ICOs, almost anybody can participate. This allows projects, including African ones, to have exposure to a diverse audience who can both back and be first users of the product,” says Ojo.
This diversity, however, also means the usage of ICOs by African companies will depend on how these strategies perform globally.
“They are attractive in an African context as they can, for now, get past regulatory and bureaucratic red tape. However, Africa is some distance behind wealthier areas with respect to crypto adoption,” says Etheredge.
Yet all the signs are that crypto, in Africa and globally, is on the rise. Much of the future of ICOs in Africa may hang on the level of success experienced by first movers like SureRemit, Wala and ProsperiProp. For now, it’s a question of riding the wave and seeing where it goes.
– By Tom Jackson
Here’s Why Gold Has Topped $2,000 For The First Time
Gold reached a record high of more than $2,000 an ounce on Tuesday, as investors, spooked by a weakening dollar, volatility triggered by coronavirus and ever rising U.S. cases, continue to look for a safe haven to move their money into.
- Gold hit a high of $2,041.33 an ounce on Wednesday, after exceeding $2,000 for the first time on Tuesday.
- The precious metal has gained more than 34% this year, making it one of 2020’s best-performing assets, Reuters reports.
- Gold isn’t the only precious metal to have gained significantly, with the price of silver jumping to its highest level since 2013, and rising 50% overall this year.
- The dollar weakened to two-year lows last week as lawmakers in Washington work to agree another stimulus deal.
Governments and central banks across the world are unleashing stimulus packages worth some $20 trillion into the global economy, according to the Bank of America, in a bid to boost output after the pandemic continues to halt major industries and force people to stay home. U.S. lawmakers are currently working to secure a further package of economic relief, and investors are concerned that stimulus packages will trigger inflation and devalue other assets. Meanwhile, escalating tensions between the world’s two largest economies, the U.S. and China, is likely to keep pushing gold upwards.
WHAT TO WATCH FOR
Gold’s impressive rally could well continue, analysts predict, as the pandemic shows little sign of slowing down, allowing battered industries to reopen and letting global economies recover. More than 18 million people have been infected so far, while the death toll topped 700,000 this week.
By Isabel Togoh, Forbes Staff
Op-Ed: The eCommerce Lifeboat For South Africa’s Retail Industry
Covid-19 led eCommerce revolution
The Covid-19 crisis has redefined the retail playing field. This has seen retailers scrambling to accommodate changed consumer behaviour as shopping surges online.
The pandemic has exposed the precariousness of a solely bricks and mortar model. According to a recent report by McKinsey, consumers expect a relative shift to online shopping in most categories in the short term, driven primarily by a sharp decrease in in-store shopping. In the longer term, 40 percent of consumers plan to increase online shopping once the crisis is over.
Fear of infection drives move to online
“Previous epidemics have foreshadowed this online trend,” says Derek Cikes, Commercial Director at buy now pay later fintech, Payflex.
“The SARS epidemic in 2003 expedited China’s path in launching digital payments and eCommerce in the country, creating a permanent shift in consumer behaviour. Similarly, the Coronavirus has caused a marked change in South Africa’s consumer behaviour and habits, with social distancing, hygiene measures and self-quarantine now integral parts of our everyday realities,” says Cikes.
With the crisis expected to remain for the foreseeable future, these behaviours are anticipated to become further entrenched and remain even as the crisis eventually ebbs.
Shopping: an altered reality
Shopping is no longer a leisurely, sensory-filled experience. Instead, retailers have replaced sampling of beauty items or delightful food temptations with an antibacterial touch averse world of hand sanitizers and plexiglass barriers.
This interaction or rather fear of interaction is driving new shopping behaviour, with consumers opting for the safety and convenience of eCommerce. And retailers are hastening to adapt to what they view as lasting changes in the way that people choose to shop as millions of consumers choose online as their preferred medium of shopping.
Epidemics’ impact on retail
According to a Global Shopping Index published by Salesforce, the number of unique digital shoppers rose 40% year-over-year for Q1 2020.
In a South African context, 29% of online consumers say they are doing far more shopping online than before the coronavirus outbreak while 65% say they are visiting physical stores less, according to a Nielsen study of 10 markets in Africa and the Middle East, including South Africa.
“The pandemic has fast-tracked trends that were already budding in the eCommerce space including digital and alternative payments. The 40% increase in shoppers and 25% increase in eCommerce merchant sign-ups to our platforms highlights this monumental shift towards digital as an increasingly preferred avenue of shopping and transacting,” says Cikes.
Cikes says the increased availability of click-and-collect models, digital payment models like buy now pay later platforms and other alternative payment options, as well as faster delivery models, are anticipated to further fuel this online revolution.
Global players wake up to eCommerce opportunity
Major tech and retailer stores are waking up to the huge potential of eCommerce as millions of consumers choose online space for their shopping. Facebook is making a major push into e-commerce with the launch of Shops, a way for businesses to set up free storefronts on Facebook and Instagram.
While Zara-owner Inditex recently announced plans to close up to 1,200 smaller-sized stores, and to invest 3 billion dollars in digital commerce.
“Retailers and tech companies are recognising the significance, need and value to move online in order to accommodate consumer behaviour and sentiment for safer, seamless shopping alternatives. It will be interesting to see the kind of personalised, targeted spin they can put on it based on their collected user data around interests and geolocation,” says Cikes.
How SA retailers can harness this opportunity
The consumer mindset has changed in terms of their relationship to eCommerce. Online has become an accepted, go-to shopping alternative with the digital environment providing consumers with convenience, safety and access to a wide range of shopping options.
And while hygiene and safety concerns have provided the initial impetus in driving consumers online, shoppers have now experienced this environment as a feasible option with its accompanying convenience and benefits. This is entrenching the shift to online shopping, extending its impact to long after the pandemic has passed.
“We’re reaching a tipping point for eCommerce. Standalone bricks and mortar are no longer sufficient as consumers demand more rapid digitisation solutions. The fact that more people than ever are relying on the internet to shop for their everyday needs makes it imperative to have an online shopping model in order to remain competitive and viable.
The eCommerce revolution is here. Those that will survive will be retailers who have a multichannel approach to sales that provides customers with an option for a seamless shopping experience from the comfort of their own homes. This is no longer a luxury. It’s critical,” concludes Cikes.
– Paul Behrmann, Founder & CEO of Payflex
Why It Must All Ad Up
With Covid-19 emphasizing the human element in advertising, brands should re-evaluate their strategies and reframe their messaging to stay relevant. Saying nothing is wrong too, add experts.
“How do we respond to the biggest global conversation taking place?” asks Robert Grace, Founding Partner: Head Of Strategy, at M&C Saatchi Abel, an integrated advertising agency with branches across Africa. “How are you actually going to match what you’re talking about with action?”
This is where advertising’s role becomes interesting, far from simply acting like a loudspeaker to products, or putting out mushy messages to engender brand loyalty.
How has marketing had to help brands pivot their messaging at this time?
The global pandemic is influencing every aspect of life. “I’ve never heard the word ‘unprecedented’ used so much. We’ve used so much hyperbolic language in this time,” says Grace.
From changing work cultures, to countries in lockdown facing economic crises, Covid-19 is impacting everyone in tangible ways. For agencies and by extension, brands, to pretend it’s not happening or go on with business as normal, reads as tone-deaf at best and disingenuous and ruthless at worst.
With that in mind, some brands have opted for silence, fearful of saying the wrong thing at the wrong time. “Saying the wrong thing is unforgivable – the consumer is smarter than they’ve ever been. You could have been in the right place but one wrong move could send you backwards,” explains Khuthala Gala-Holten, Managing Director at Joe Public in Johannesburg.
The risk of saying the wrong thing is paired with the risk of saying nothing at all. “Many brands have paused spending now, which is not the best thing to do, because people expect brands to play a role. 88% of consumers want brands to talk to them now,” says Shaun Frazao, Head of Digital at Wavemaker. The data backs this up – according to email service provider Everlytic, their March 2020 open rate was really high: 55.3 million unique opens.
Others that are still “talking” are dramatically pivoting on their marketing messages and communications.
“Whatever you say has to be authentic and not seen as a marketing opportunity,” explains Grace.
“There are some brands that should be going into quarantine over this period – don’t use this ‘opportunity’ to sell, rather use the time to refine your strategy. So that when you go back into the market, you demonstrate that you’ve understood what consumers will be wanting from your brand.”
Gala-Holten adds: “Strategy first – what are the guardrails? Sometimes clients have several agencies. So you really need to empower them with guardrails. This is now the ‘new normal’ – we will never be the same. From the creative perspective, in a way, it’s very exciting.”
Across sub-Saharan Africa, we’re seeing six key themes in communications and advertising, explains Frazao (see sidebar). “Consumer centricity needs to be first. Brands that are communicating now are looking long-term, to build trust, and not short-term at the sales they could make.”
Every agency interviewed for this article has seen a combination of two trends: contracts shrinking as businesses struggle to make money, and a shift to digital marketing. “The way business has been done will change in the advertising world. We have been moving gradually to a very focused marketing landscape, and this will be the tipping point to push them into that realm at a faster pace,” says Darren Leishman, CEO of Spitfire Inbound.
For digital agencies or agencies with digital service offerings, this shift has been less painful, but agencies with offerings like TV ads (that require crew and a studio to shoot in) and eventing (where large groups of people meet) are the hardest hit.
“People are spending more time online and media figures are reflecting higher views than normal for online ads. Clients are cutting spend in offline channels in favor of online ones. However, most brands remain very cautious with marketing spend in general at this time,” says Brian Carter, Executive Creative Director at Digitas Liquorice.
Clint Paterson, CEO at sport and entertainment agency Levergy, adds: “New behaviors and lifestyles will take root, but it’s critically important to remember, people’s passions won’t die. The role of the brand or event owner becomes one of adaption here, how can relationships be reinterpreted, reinvented and reimagined to generate the kind of connection with audiences appropriate to this new normality?”
Grace puts it another way: “Any cracks you had before Covid-19 will turn into gaping holes.”
Diana Springer, Partner: Head of Strategy for strategic consultancy Black & White, adds marketing as a whole has become increasingly performance-based and goal-orientated. But in unforeseen times, “brands have to reframe what they’re measuring,” says Springer. “Otherwise, they can lose relevance. You have to change how you define success to shift your strategy. This pandemic is really making us consider the fundamentals.”
‘6 Marketing Themes FOR This Time’
Shaun Frazao, Head of Digital at Wavemaker, advises six key pandemic-driven themes in marketing for Africa:
- Supporting the frontline workers
- Repurposing production (instead of making products, brands are making products to help their consumer, such as South African Breweries donating alcohol to make hand-sanitizer)
- Helping the vulnerable
- Health messages (posters on social distancing, Pick n Pay’s message to avoid panic buying, and SA Tourism advising people to travel later)
- Making staying at home easier (brands are trying to be empathetic by making staying at home easier, like Vumatel increasing internet speed for free)
- Distributing positivity (Nandos’ latest ad is all about remaining positive, and Nike did something similar).
– Samantha Steele
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