It’s Time for Startup Africa
Chatter about the promise of Africa is not new. Outside economists have been reminding us about relatively high GDP growth rates; China conspiracy theorists keep us informed about who is buying up the continent’s natural resources; and global aid agencies are constantly rewriting their strategies. What is new is the rise of a new generation of Africans that is actually making things happen.
Since my visit to Africa last October, I have had some recent touch points with its emerging startup ecosystem. First, through my involvement in the LIONS@FRICA (Liberalizing Innovation Opportunity Nations) Partnership launched to enhance and deepen the startup and innovation ecosystems of targeted fast-growing economies on the continent. With partners like Microsoft, Intel, Nokia, the African Development Bank, the U.S. Department of State, Global Entrepreneurship Week, DEMO and others, what we started last year is set to be all about action not just words.
Second, at the recent Global Entrepreneurship Congress (GEC) I chaired last month, we welcomed 190 delegates from Africa who were eager for new ideas to develop their startup communities into a robust economic force. The GEC brought together key players from the best programs and organizations providing resources to emerging African startups. They exchanged ideas both among themselves and with a global audience where there was a strong interest from startup investors and mentors in the continent. At last year’s GEC, I detected a lack of confidence from representatives from the African startup scene. This year the story was different. At the opening policy summit, for example, the front row was full of delegates from Zambia, Ghana and neighboring countries all engaging in sharing ideas about what government can do to help and what it should not do when it comes to foster the emergence of new and young firms. During a networking session, I heard Tanzania-born investor Mbwana Alliy talk about starting out in Africa, learning from Silicon Valley and returning to start the Savannah Fund which first invested in an Australia-based company that developed a program that strips down smartphone applications so they work on the very basic phones that most Africans carry. This African accelerator-type fund has now Russ Simmons, the co-founder of Yelp Inc., Dave McClure of 500 Startups, and Tim Draper of New York-based Draper Fisher Jurvetson, among its investors. Finally, as reported last week, out of 130 nations, it was Cape Verde who beat out big nations and small with its effort to galvanize national support around its new entrepreneurs when they took top honors for the coveted GEW Country of the Year Award—presented as the GEC came to a close with a celebration overlooking Rio de Janiero.
These observations during the GEC should not surprise us. Africa is experiencing its longest income boom for 30 years, and the prospects remain highly positive. The IMF forecasts that seven of the world's 10 fastest-growing economies will be African: Ethiopia, Mozambique, Tanzania, Congo, Ghana, Zambia and Nigeria. According to a World Bank report released in October 2012, 21 of the 48 sub-Saharan African countries have gained middle-income status, representing more than 400 million people. In the view of McKinsey and Co., Africa already has more middle class consumers than India, which has a larger population. This means there is a large market for untapped opportunities. The African Development Bank recently projected that, by 2030, consumer spending on the continent will explode from $680 billion in 2008 to $2.2 trillion.
What’s more interesting about these data, is that the continent’s natural resources have helped, but do not account for the full story behind this boom. New and growing business in non-commodity sectors, such as retail commerce, transportation, telecommunications and manufacturing are behind it as well. Take West Africa’s Dropifi, which has been named world’s most promising technology startup company after winning the grand prize in the 2012 Startup Open during Global Entrepreneurship Week last November. This Ghana-based company beat hundreds of the best and brightest new startups from 56 countries. As Africa grows, the culture among the young is changing as well in favor of opportunity recognition and high-growth entrepreneurship. The latest Global Entrepreneurship Monitor shows that entrepreneurs in Sub-Saharan Africa are, on average, 1.4 times more likely to be improvement-driven opportunity entrepreneurs, as opposed to driven by necessity.
This is why Microsoft introduced earlier this year the 4Afrika Initiative to focus efforts on accelerating adoption of smart devices, empowering businesses, and raising skills development to unleash innovation. By 2016, the 4Afrika Initiative plans, among other things, to bring 1 million new African firms online, establish the Afrika Academy to help develop both technical and business skills for entrepreneurship and improved employability, and work with the Kenyan Ministry of Information and Communications to deliver low-cost, wireless broadband and thereby create new opportunities for commerce, education, healthcare and delivery of government services.
“We want to empower African youth, entrepreneurs, developers, and business and civic leaders to turn great ideas into a reality that can help their community, their country, the continent and beyond,” said Fernando de Sousa, general manager, around the launch of the 4Afrika. This initiative is now a leading LIONS@FRICA partner.
There are other emerging players too. The African Venture Capital Association and Avanz Capital Partners, observed in their report “The Private Equity Climate in Africa Embracing the Lion” that traditional barriers to entry, such as poorly developed financial markets, political instability and the fragmentation of the economy are gradually being broken down by political reform and economic growth. The World’s Bank Doing Business data supports this statement about the role of governments in unleashing investment. Its latest report shows that among the 50 economies with the biggest regulatory improvements since 2005, one-third (17) are in Sub-Saharan Africa. In fact, Rwanda is the second most improved globally due to its sustained reform efforts. Last February, The Economist dubbed this country “Africa’s new Singapore” for its positive economic reforms. However, Rwanda is not the only leader. Many African governments look to Mauritius, another strong performer on Doing Business indicators, as a source of good practices to inspire regulatory reforms in their own countries.
There is a lot of work ahead to tap the full potential of the creative genius in Africa. The cost of starting a business is still high. The global average is a significant 31% of income per capita. Entrepreneurs in Sub-Saharan Africa economies face even higher costs, reaching 87% of income per capita. In terms of intellectual property protection, a 2008 survey conducted in Kenya by the International Data Corporation (IDC) revealed that the country could create 977 IT jobs and the local IT industry could contribute an additional $40.01 million to GDP if the current 80% software piracy rate were reduced by 10 percentage points over four years.
However, the work is underway. Improvements are now visible. And judging from these developments and from the energy and initiative of the audience at the GEC in Rio, the discourse has changed from convincing people of “the promise of Africa” to how Africa is now helping accelerate growth for itself and for the world. Over the coming weeks, I will dedicate some space in this blog for digging deeper into actions underway in some of Africa’s emerging economies. Your thoughts are most welcome.