Zambia takes a hike

For many Nigerian fintechs, the temptation of processing FX-based transactions has been impossible to resist. And you can’t fault them. FX-based transactions offer a lifeline of stable revenue to hedge against relentless naira devaluations.

The market data is certainly tempting. In July, the country saw a record-breaking $553 million in remittance inflows—a 130% jump from 2023. With take rates of 1-1.5%, processing even a tiny fraction of that can significantly boost a startup’s bottom line. 

While this predictable revenue line can allow startups to stay afloat and re-strategise on their market approach after macroeconomic challenges, the eventual race to the bottom will leave few winners.

As bigger, well-funded startups and global giants like Wise and TapTap re-enter Nigeria, already thin margins will further erode. Data from Flagship Partners, a global fintech advisory firm, shows a 20-30% dip in FX transaction margins over the last six years. Deep-pocketed players can also afford to spend $60-$120 to acquire each user, biding their time until the volume of transactions offsets those costs.

Operating in multiple regions requires painstaking regulatory approvals, expensive compliance teams, and liquidity buffers. Stablecoins might help one day, but that reality is still far off.

Smaller fintechs without scale face a steep uphill climb. Muktar Oladunmade, our fintech reporter, argues in his article that serving niche remittance corridors—like China-to-Francophone Africa—offers opportunities as low liquidity in those corridors brings higher margins. Fintechs can also add complementary services with remittance transactions to acquire and retain customers.

It’s a high-stakes game, and only the most strategic will come out on top. But for now, the collective push into remittances will benefit consumers through more options and a possible price war.

Alternative funding sources have long been essential for the growth of African startups. Given the continent’s relatively nascent tech ecosystem, there is less conviction about what strategies work, especially as customer behaviours continue to evolve. 

This uncertainty creates room for experimentation. However, experimentation requires capital, and institutional investors—the gatekeepers of venture capital—have increasingly turned their attention to a select few tech-heavy startups demonstrating strong revenue traction (typically those generating $1 million or more).

In this context, alternative financing options have served as a form of “patient capital” that allowed these experiments to thrive, providing crucial support for startups. The recent shutdown of USAID funding has dealt a significant blow to Kenya’s startup ecosystem. This move has removed over $100 million in non-dilutive funding, which had been instrumental in scaling ideas and proof of concepts (PoCs) across critical sectors like healthcare, agriculture, and clean energy (climate tech).

For over a decade, USAID’s Development Innovation Ventures (DIV) provided grants of up to $6 million to over 30 Kenyan startups, including BasiGo (electric buses), Maisha Meds (medical supply distribution), and SolarGen Technologies (solar-powered water purification).

For many founders, especially those in impact-driven sectors that struggle to attract venture capital, this funding was a lifeline. Now, the funding gap created could push innovative startups into investment programmes that pressure them to scale prematurely, potentially setting Africa’s tech ecosystem back decades. USAID’s exit could stifle growth in sectors like climate tech, which had been attracting increased investment. 

Some might argue that risky capital is better than none, but for Kenyan founders, the aid cut-off means a tougher fundraising environment and a need to explore new financing models, such as local investors, African-focused funds, or alternative lending.

The bigger question is: with USAID gone, who will fill its role in Africa’s tech ecosystem? Accelerators and tech hubs have tried, but recent exits, like Techstars, raise concerns.

On Wednesday, Zambia’s Central Bank raised benchmark interest rates by 50 basis points (bps) from 14% to 14.5% in a bid to curb inflation and fight the devaluation of its free-falling currency, the Kwacha.

The move, the first rate hike since November 2024, comes as Zambia battles its worst drought in over a century, which has driven up food and electricity costs. Inflation remains stubbornly high at 16.7%—well above the central bank’s 6%–8% target range—and is expected to average 14.6% in 2025. The ongoing depreciation of the Kwacha, which has lost 8% of its value this year, is worsening inflationary pressures by making imports more expensive.

For businesses and consumers, the rate hike means borrowing costs will rise, affecting everything from business expansion plans to household loans. Higher interest rates also aim to stabilise the currency, potentially easing import costs in the long run. However, with inflation expected to stay above target for at least two more years, the economic squeeze will persist.

For investors, the rate hike signals Zambia’s commitment to tackling inflation and stabilising its economy. But whether this will be enough depends on external factors, particularly the severity of the drought and global commodity prices.

If Zambia's currency does not stabilise, it could lead to more economic strain as the apex bank continues to fight the trend with more interest rate hikes amid the quickening inflation.