Mark Zuckerberg's early business advice to “move fast and break things” doesn’t work when expanding your SaaS business to Nairobi or across Africa. Applying this mindset here won’t just cost you your customers; it will trigger regulatory and compliance fines, and don’t get us started on the currency volatility shaping the African market you can’t win against.

On top of that, there is revenue loss caused by digital payment limitations; up to 30% of your African customers are trying to pay you, but your payment gateway is blocking them at checkout. Africa’s fragmented market is not only dealing with international SaaS companies; even Inter-African expansion is affected. For instance, a Kenyan business cannot easily expand into the South African market without registering and setting up a local incorporation, which takes approximately 6 months to 3 years.

The operational reality for Software as a Service (SaaS) companies has shifted from a phase of experimental growth to one of structural maturation. The "growth at all costs” strategies that defined the previous era are being replaced by a focus on sustainability, unit economics, and regulatory compliance.

For international and regional technology companies, Africa represents one of the final markets for significant double-digit growth. However, it remains a market where traditional Western expansion strategies often fail if applied without significant adaptation to the reality of the market. The complexities of the continent are not merely logistical but structural, involving cross-border payment friction, distinct data sovereignty requirements, and a unique internet architecture that dictates user experience.

This report serves as an exhaustive, expert-level guide, with a focus on clear, actionable insights and an alternative option to expansion known as the Merchant of Record model.

Why SaaS? Why Expansion?

SaaS is not just software in a continent like Africa, it is a digital infrastructure where billions of people use to speed up their everyday processes; transactions, inventory, security, logistics automation, and the like. SaaS creates the efficiency layer that the physical system often lacks. 

The African market doesn't need lighter versions of Western software; it needs heavier operational tools that solve for offline realities when connectivity drops, when there is a lack of trust, and fragmented payments.

A SaaS company capable of earning revenue in Nigerian Naira (NGN), Kenyan Shillings (KES), and West African CFA (XOF) creates a natural treasury defense.

• The Naira offers scale and volume.

• The Shilling offers relative stability and high digital payment conversion.

• The CFA offers a Euro-pegged safe harbor against inflation.

Expansion provides a safe net for revenue resilience, and diversifying into new markets like Africa protects your business valuation from the volatility of any single central bank.

Sizing the market and Setting strategy

A realistic market sizing

One of the most persistent errors committed by SaaS companies entering the African market is the miscalculation of the exact market size to address. In developed economies like the United States or the European Union, market data is abundant, and consumption patterns are relatively predictable. In Africa, however, the gap between the total population and the serviceable market is clear due to infrastructure constraints, economic informality, and digital literacy levels. To build a viable business model, you must move beyond broad population statistics, such as the often-cited 1.4 billion people, and utilize a more granular, exact market size linked to that particular industry.

The industry standard for this analysis involves three distinct layers: Total Addressable Market (TAM), Serviceable Addressable Market (SAM), and Serviceable Obtainable Market (SOM). While these terms are common in venture capital, their application in the African context requires a specific, localized understanding.

Total Addressable Market (TAM)

The Total Addressable Market, or TAM, represents the best-case, highly optimistic projections, which is the total revenue opportunity available if a company were to achieve 100% market share in a defined sector, assuming absolutely no constraints on distribution, price, or geography. For a SaaS company targeting small businesses, the TAM might be calculated by counting every registered Small and Medium Enterprise (SME) across the continent.

However, in the African context, TAM is often a superficial metric that does not correlate to business success. It looks impressive in a pitch deck but holds little operational value. For example, knowing there are 40 million SMEs in Nigeria is relevant only if all 40 million have internet access, digital payment methods, and a need for software. If a significant portion of these businesses operate entirely offline or in the informal cash economy, including them in the TAM creates a false view of the opportunity. TAM helps in understanding the long-term opportunity present in any industry, but tells a founder very little about what can be achieved.

Serviceable Addressable Market (SAM)

The Serviceable Addressable Market (SAM) is where reality sets in. This metric filters the TAM down to the segment of the market that a business can realistically target, given its current business model, pricing strategy, and geographical reach

In Africa, there is a wider gap between TAM and SAM than in developed markets due to the likely  hard infrastructure constraints:

• Connectivity: Does the customer have reliable broadband or 4G access to run a cloud-based application?

• Hardware: Does the customer possess the necessary hardware (smartphones, laptops, or POS) to interface with the software?

• Payments: Does the customer have a bank account, credit card, or mobile money wallet capable of processing recurring digital payments?

• Affordability: Can the customer afford the allocated price, given the local currency purchasing power?

For instance, a cloud-based accounting platform might have a TAM of 50 million businesses. But if the software requires a desktop computer and a high-speed fiber connection, the SAM might instantly shrink to 2 million businesses located in major urban centers like Lagos, Nairobi, Cape Town, and Cairo. SAM represents the exact market segment, the customers you could actually serve if you had unlimited sales and marketing resources

Serviceable Obtainable Market (SOM)

Finally, the Serviceable Obtainable Market (SOM) represents the short-term target, typically over a 3 to 5-year horizon. It is the realistic share of the SAM that a company expects to capture within that short period, such as budget, sales capacity, and personnel, and external pressures like competition and regulatory hurdles

The SOM calculation forces a business to answer difficult questions about execution:

• How many sales calls can our team realistically make in a week, given the reality of the continent?

• What is the conversion rate of our marketing funnel?

• How strong are the local or global competitors?

• How fast can we onboard customers, given our support capacity?

The relationship between these three metrics creates a funnel. A business plan that presents a massive TAM but fails to articulate the constraints of the SAM or the execution plan for the SOM suggests a lack of understanding of the African market's structural friction.

To navigate the African market effectively for a SaaS founder or executive, Africa’s high volatility requires a different operational mindset. You cannot simply "copy and paste" a strategy designed for markets like Switzerland or Germany, where stability is guaranteed. Strategies to incorporate include:

1. Larger cash buffers: Companies must maintain higher cash reserves to weather sudden downturns, such as currency devaluations or periods of political instability.

2. Flexible pricing: Revenue models must be adaptable because rigid pricing structures can break when local currencies fluctuate wildly against the dollar.

3. Diversification: To smooth out the volatility, successful companies often diversify their exposure. This might mean operating in multiple African regions with different economic drivers (e.g., East Africa and West Africa) or balancing African operations with revenue streams from more stable markets

The growth problem

For much of the last decade, the dominant philosophy for technology startups was "Blitzscaling," coined by Reid Hoffman. Blitzscaling is a strategy that prioritizes speed over efficiency in an environment of uncertainty. The goal is to grow so fast that you capture the market and achieve a first-scale advantage before competitors can react, effectively becoming too big to fail.

However, the application of Blitzscaling in the African context is under scrutiny. Blitzscaling relies on the assumption that if you sacrifice efficiency for speed, you will eventually achieve a monopoly position that allows you to fix the efficiency problems later. This works well in environments where the infrastructure is stable, and capital is cheap

In Africa, the environment itself is the source of uncertainty; attempting to Blitzscale in an environment with unstable infrastructure (power, internet) and fluctuating regulations can be dangerous. If a company scales its operations massively while losing money on every unit, and then hits a currency crisis or a drying up of venture capital, it will collapse under its own weight.

Instead, a pivot toward Unit Economics first focuses on efficient growth. This means ensuring that the core business model is profitable on a per-customer basis before expanding.

Just as network traffic can suffer from inefficiency, business operations can suffer from the trombone effect of scaling too fast, where resources are routed inefficiently across borders, creating delay in decision-making and cash flow. Rapid expansion across multiple African borders without a solid operational foundation creates organizational drag, where the complexity of managing 15 different tax regimes slows down the entire company.

The modern playbook prioritizes a smart Scaling approach that proves the unit economics in one high market like Nigeria or Kenya, builds the resilience mechanisms (legal, financial, technical), and then scales to the next market, rather than attempting a simultaneous continental blitz.

The Infrastructure challenge

The cost of a response time

For a SaaS company, the speed at which an application loads is a critical determinant of user satisfaction and retention. In the African context, a specific and pervasive networking phenomenon known as the Trombone effect poses a significant challenge to delivering a high-quality user experience. Understanding and solving this is a key competitive advantage.

The Trombone effect refers to a routing inefficiency where data traffic takes a circuitous path to reach a destination that is geographically close; the data goes out a long way, turns around, and comes back. For example, a user in a corporate office in Lagos, Nigeria, attempts to access a cloud-based file stored by a colleague in a building across the street. In an ideal network, the data would travel directly between the two buildings via a local internet exchange. However, due to the network architecture and security configurations, the traffic often follows a model

This round-trip journey adds hundreds of milliseconds of delay. While a 200-millisecond delay might seem negligible, in the world of SaaS applications, it is frustrating; a button click that hesitates before responding or a dashboard that doesn’t load properly. Bad user experience can lead to lower adoption rates and higher churn, as users perceive the software as being slow and not easy to use.

Solving the Trombone effect requires eliminating this lag in response time by decentralizing the network architecture. Companies can set up regional hubs in Lagos or Johannesburg; the traffic only needs to travel to the local hub and back, thus reducing the problem. New architecture makes use of Security Service Edge (SSE) technologies, which allow security policies to be enforced locally in the cloud, or make use of local peering 

The rise of hyperscalers

The most effective weapon against the Trombone effect and infrastructure instability is the utilization of Hyperscalers.

A hyperscaler is a large-scale cloud service provider that operates massive data centers capable of hyperscale computing. The primary examples are Amazon Web Services (AWS), Google Cloud Platform (GCP), and Microsoft Azure. Unlike traditional data centers, hyperscalers function by networking thousands or millions of servers together. This architecture allows for seamless horizontal scaling if a SaaS application experiences a sudden spike in traffic like when lots of people are trying to gain access into a site that uses the hyperscaler's system, the system automatically allocates more computing resources to handle the load, and then scales down when traffic subsides. 

These hyperscalers have aggressively invested in Africa. Microsoft Azure opened data centers in South Africa (Cape Town and Johannesburg). AWS launched its Cape Town region and established Local Zones in Lagos and Nairobi. Google is investing in the Equiano subsea cable and local infrastructure. Many African nations are taking the necessary precautions of enacting Data Residency laws that require citizen data to be stored physically within the country. Using a local hyperscaler region allows your foreign SaaS company to comply with these laws without the huge cost of building your own physical server room

The decision to use a hyperscaler is no longer just a technical choice; it is a strategic one. It aligns the business with the realities of data sovereignty laws while simultaneously solving the latency challenges that frustrate users

The Financial rails 

One of the most complex aspects of expanding into Africa is the mechanics of getting paid. The global financial system is not seamless, and the friction is most evident in cross-border transactions involving African currencies. An understanding of payment providers, banking relationships, and what works in every scenario is essential. 

Merchant of Record (MoR) vs. Payment Service Provider (PSP)

When establishing a payment infrastructure, a SaaS company faces a fundamental choice: operate as the merchant or outsource the liability. This choice is represented by the distinction between a Payment Service Provider (PSP) and a Merchant of Record (MoR).

The Payment Service Provider (PSP)

A PSP, like Stripe, Paystack, or Flutterwave, functions as a technical gateway. Think of a PSP as a toolbox. They provide the digital equivalent of a credit card terminal, the APIs, and software to accept payments that your customers pay to you. 

• The operational reality: When using a PSP, the SaaS company remains the legal seller of the goods. This means the company is responsible for the entire financial transaction lifecycle.

• Liability: Your company must handle tax calculation, tax remittance (filing VAT returns in each specific country), refunds, and fraud disputes.

• Best Fit: PSPs are ideal for companies that have established local entities (e.g., a registered entity of an international company in Nigeria) and a finance team capable of managing local compliance. 

The Merchant of Record (MoR)

An MoR, such as Startbutton or Dlocal, functions as a reseller. When a customer in Kenya buys software using an MoR, they are technically purchasing it from the MoR, not from the SaaS company directly. The MoR then turns around and pays the SaaS company.

• The Operational Reality: The MoR takes on the legal and financial liability of the transaction.

• They serve as a shield: Because the MoR is the legal seller, they are responsible for calculating and remitting sales tax/VAT in every country where your company operates. They handle compliance with local banking regulations, manage refunds and chargebacks.

• Best Fit: For a SaaS company expanding into 15 different African countries simultaneously, an MoR is often the superior strategic choice; they eliminate the need to register for tax, set up local entities, or hire local accountants in every single market. They act as a compliance shield, allowing the company to focus on the growth of the product in those new markets.

Comparative analysis of payment models

The Hidden Cost Of Correspondent Banking

For companies that choose to handle their own payments or B2B transfers, correspondent banking becomes a critical bottleneck.

There is a chain of trust…

In the global banking system, banks in different countries rarely have direct relationships. If a company in Nigeria wants to wire money to a vendor in the United States, the Nigerian bank cannot simply send the funds to the US bank. Instead, they must use a middleman, a Correspondent Bank.

• The Nigerian bank holds a Nostro account (an account holding foreign currency) with a major global bank (e.g Citibank or JP Morgan).

• The funds move from the Nigerian bank to the Correspondent Bank, and then to the recipient's bank.

• Sometimes, there are multiple intermediaries in the chain, which makes a lengthy process to transact.

The De-risking crisis

Following the 2008 financial crisis, global regulators tightened rules on money laundering and terror financing (AML/CFT). Major global banks analyzed their relationships and decided that the compliance costs of monitoring transactions from certain emerging markets outweighed the profits gotten from these markets. So, they began severing ties with local African banks, a process known as de-risking.

• The consequence: This has reduced the number of available routes for money to leave the continent. The remaining channels are congested, slow, and expensive. A swift transfer that might take 24 hours between EU countries can take weeks involving African countries, with high commission fees.

• Strategic Implication: Reliance on traditional wire transfers is a vulnerability. Modern SaaS companies are turning to alternative settlement rails. Companies like Thunes or various fintechs use proprietary networks to bypass the traditional correspondent chain, enabling faster movement of funds. Additionally, the use of stablecoins (like USDC) for B2B settlement is gaining traction as a way to avoid the friction of the legacy banking system entirely.

Dollarization and Currency volatility

Dollarization describes the tendency of an economy to prefer a stable foreign currency (usually the US Dollar) over its local currency for pricing, savings, and transactions.

The Pricing problem

In markets prone to inflation (such as Nigeria, Ghana, or Zimbabwe), pricing in local currency is risky; If a SaaS subscription is priced at 50,000 Naira, and the Naira devalues by 50% against the dollar, the real revenue of the company is halved, while its dollar-denominated costs (server hosting, software licenses) remain constant. To protect margins, companies often wish to price in Dollars. However, this hits a Dollarization ceiling

Dollarization ceiling occurs when local customers earn in local currency. If the SaaS product is priced in Dollars, a devaluation of the local currency makes the product effectively more expensive for the customer. Eventually, the price hits a ceiling where the customer simply cannot afford it, leading to churn.

• The Strategy:

• B2B: It is often acceptable to price in USD for enterprise clients, as they likely have access to foreign currency accounts and understand the need for stability.

• SME/Consumer: Pricing in local currency is often necessary to maintain market share. To manage the risk, companies use dynamic pricing (adjusting the local price frequently) or pegged pricing (setting a local price that updates monthly based on exchange rates).

• Hedging: Dollarization essentially outsources monetary policy to the US Federal Reserve. Since the local central bank cannot stabilize the currency effectively for the business, the business must manage its own FX risk through hedging strategies or by holding working capital in stable currencies like USD or stablecoins.

Navigating the Regulatory web

Governments across the continent are actively constructing legal frameworks to assert control over their digital spaces. This trend, known as Regulatory Hardening, is driven by a desire to protect citizen data, ensure national security, and capture tax revenue from the digital economy.

Data Sovereignty, Residency, and Localization

To operate legally, business leaders must distinguish between three concepts that are often used interchangeably but have distinct legal meanings.

1. Data residency: This is a geographical concept. It answers the question, "Where does the data physically sit?" If a server is located in a data center in Nairobi, the data residency is Kenya.

2. Data sovereignty: This is a legal concept. It answers the question, "Which country's laws govern this data?" Data is generally subject to the laws of the country where it is physically stored. However, the country of origin also claims sovereignty. This creates complex jurisdictional conflicts.

3. Data Localization: This is the regulatory restriction. It answers the question, "Are we allowed to move the data?" Localization laws mandate that data created within a country must remain within that country's borders.

The push for localization is often driven by fears of the US CLOUD Act, which allows US law enforcement to access data stored by US companies (like AWS or Google) regardless of where the server is located. African governments view localization as a way to reclaim sovereignty over their citizens' information.

Key Regulatory Frameworks

South Africa: POPIA (Protection of Personal Information Act)

POPIA is South Africa's answer to the EU's GDPR. It is fully active and enforced.

• Scope: It applies to any company (even those outside South Africa) that processes the personal information of South Africans.

• Key Distinction: Unlike GDPR, which primarily protects individuals, POPIA also protects juristic persons (companies). This means that B2B data like corporate email addresses, financial details are also protected under the law.

• Compliance: Companies must appoint an Information Officer (which can be the CEO) to report data breaches immediately, and ensure that any cross-border transfer of data is to a country with adequate privacy laws. If the destination country (e.g., the US) is not deemed adequate, a binding contract must be in place to ensure protection.

Nigeria: Nigeria Data Protection Act 2023 (NDPA)

This recent legislation replaces older, fragmented regulations and establishes a more detailed framework.

• Data controllers of major Importance: The Act introduces a specific classification for organizations that process large volumes of data or highly sensitive data. These controllers of major importance have heightened obligations, including mandatory registration with the Data Protection Commission and the appointment of a qualified Data Protection Officer (DPO).

• Rights and Transfers: The Act grants Nigerian citizens rights similar to GDPR (deletion, access, withdrawal of consent). Cross-border transfer is permitted but regulated; data can only be moved to countries whitelisted by the Commission or through the use of Standard Contractual Clauses (SCCs)

• Security: High-risk processing activities require a formal Data Privacy Impact Assessment (DPIA) before they can proceed.

OHADA: The Harmonized Advantage

For companies eyeing Francophone Africa, there is a powerful legal instrument known as OHADA (Organization for the Harmonization of Business Law in Africa).

• The Concept: OHADA is a treaty between 17 West and Central African countries (including Senegal, the Ivory Coast, Cameroon, and Mali) to establish a single, uniform system of business laws.

• The Benefit: Instead of navigating 17 different legal systems, a company can operate across the entire bloc using one set of rules. OHADA provides Uniform Acts covering commercial law, arbitration, accounting, and corporate structures (e.g., the SARL entity).

• The CCJA: OHADA established the Common Court of Justice and Arbitration (CCJA) in Abidjan. This supranational court acts as the final court of appeal for business disputes in all member states. This provides a layer of legal security, allowing international investors to bypass potentially biased or inefficient local courts and have their disputes heard by a centralized, standardized body.

• Strategy: For a SaaS company, expanding into the OHADA zone offers a scalable legal model. Establishing a headquarters in a stable OHADA country (like Ivory Coast or Senegal) allows for easier expansion into the other 16 member states compared to the fragmented legal landscape of East Africa.

Taxation in the Digital Age

Governments across Africa are modernizing their tax codes to capture revenue from the digital economy. The era where digital companies paid no tax because they had no physical office has ended.

Significant Economic Presence (SEP)

The most critical tax concept for remote SaaS companies is Significant Economic Presence (SEP).

• The Shift: Traditionally, tax liability was tied to a permanent establishment, which is defined by having a physical office. If you didn't have an office, you didn't pay corporate tax.

• The New rule: SEP has disconnected tax liability from a physical presence. A company is deemed to have a taxable presence if it sustains a significant digital or economic interaction with the country's economy.

• Application: Nigeria and Kenya have both adopted SEP rules. If a company streams services, downloads data, or intermediates transactions for users in these countries, it triggers a tax liability.

• Mechanism: In Kenya, for example, the SEP tax is calculated as a percentage of deemed profit. The regulation deems profit to be 20% of gross turnover, and taxes that profit at 30%, resulting in an effective tax rate of 3% on gross turnover. This is a simplified tax aimed at non-resident digital companies.

VAT vs. Digital Services Tax (DST)

It is vital to distinguish between Digital Services Tax (DST) and Value Added Tax (VAT), as a company may be liable for both.

Digital Services Tax (DST)

• Nature: This is a direct tax on the company's revenue. It is a cost of doing business.

• Purpose: DST was designed to target tech giants (Google, Facebook) who generated massive value from user data without paying local tax. However, the thresholds often catch smaller SaaS players.

• Trend: The landscape is shifting. Kenya, for instance, recently repealed its specific 1.5% DST in favor of the SEP tax. Founders must stay updated on whether a specific country applies DST, SEP, or both.

Value Added Tax (VAT) on Digital Services

• Nature: This is a consumption tax paid by the customer.

• Mechanism: Even though the customer pays it, the remote SaaS company is responsible for collecting it at the point of sale and remitting it to the local revenue authority.

• Scope: South Africa, Nigeria, Kenya, and others have implemented “Remote Collection" mandates. They require foreign suppliers of electronic services to register for VAT.

• Contrast: DST comes out of the company's pocket (reducing margin) while VAT comes out of the customer's pocket (increasing price).

Conclusion

Expanding SaaS in Africa is not about discovering a hidden continent.  The growth opportunities are immense, but they are reserved for those who respect the friction of the market.

The winners of this era will not be the companies that simply launch a website and wait for global payment providers to handle the rest. The winners will be those who:

Solve the problems regarding the infrastructure payment gap and regulatory web.