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African start-ups: Myths and monsters

African start-ups: Myths and monsters

The original version of this article was published on Vadoinafrica.com, an Italian blog facilitating the Afro-Italian dialogue on innovation and opportunities.

African start-ups: Myths and monsters


It did not take long before the recent start-ups craze reached the African shores.

Before we start, it would be good to put forward - and agree upon - a definition of start-ups able to encompass the diversity of businesses in Africa. 

Provided that we succeed in the endeavour, we are challenged by the need to explain why Western concepts of startups are often flawed and poorly applicable to businesses in Africa.

It takes a moment to end up off-track.

If we are to see startups as 'scrappy young ventures, hip San Francisco apps and huge tech companies' we are bound to fail from the outset. Replicability and scalability, two characteristics Steve Blank finds pivotal to define a startups, are too often associated with Western-style successful platform startups and narrow down the scope to the infamous 'techpreneurs', hence excluding from the equation the many informal entrepreneurs or street vendors that populate the continent.

On the contrary, if we keep in mind the composition and facets of African markets and carve out a suitable definition, we increase the chances of crafting a successful analysis.

Let's look at startups as early-stage businesses with a high risk of failure and a high potential for disruption of the existing market or capacity-building in infant markets.

African-Startup.jpg

Serial entrepreneurship mania

It seems now fashionable for industry tycoons, local and international organisations to run ‘battles’ where startups are awarded prizes often in the form of grants or support facilities. Among the most active recently across the continent we find:

  1. Tony Elumelu Entrepreneurship Programme – an initiative launched in 2015 by the founder of the Nigerian United Bank of Africa and who deployed $100 million to fund ten thousand African startups through micro-grants.
  2. Seedstars – a Swiss organisation running over 80 local competitions across Africa which offers equity investment and which recently signed a partnership with the Italian utility giant Enel Green Power in order to tighten the screws in the renewable energy sector.
  3. GSMA Ecosystem Accelerator’s Innovation Fund – A fund sponsored by the UKAID and Australian Aid which offers up to $350,000 in equity-free grants to start-ups across Africa (and Asia Pacific) using mobile technology.
  4. African Entrepreneurship Award – Launched in 2015 by the Moroccan BMCE.
These are but the tip of a growing iceberg. 

First, support, in the form of cash or facilities, is now more available due to the growing global interest in the technology sector and the projected role this will have in the coming years. Doing business is no longer a privilege confined to closed circles or high middle class – although it could be argued that sectors such as natural resources are still entirely dominated by the 1%.

Second, there is a great deal of enthusiasm around the idea of launching a startup but not many words are spent analysing why 75 to 90% of such businesses fail within 3-5 years. Growing – as opposed to launching a business needs some thorough exploration.

Sceptics blame the system which, accordingly, has managed to trigger a vicious trend whereby these serial entrepreneurs set up their businesses without a long-term vision but rather some sort of blitzkrieg strategy made of catchy pitch decks and emphatic networking sessions in order to tap into the funding abundance. These start-ups seem to be more about winning prizes than clients.

The result to such a bombastic yet niche supportive framework risks distracting from major problems affecting the continent.

African modern mythology: Zuckerbergs and Silicon Savannah

Mass media don’t make it any easier. Most of the narrative is not consistent and, besides focusing only on sensationalist propaganda, it is filtered through Western perspectives. I found myself agreeing with Sadibou Sow, Senegalese founder of afriqueitnews.com, when he warned about blindly marrying the idea of looking for the next Zuckerberg as he would not last a day in Africa. He’s not alone. A growing base is beginning to acknowledge the structural differences between African economies and California and looks at the conception of the ‘Silicon Savannah’ with high cynicism. They are not wrong. Africa has been using Western standard as a benchmark for decades. The startup world isn’t exempt.

There are indeed many obstacles African businesses have to face:

  1. Lack of a proper financing apparatus: 70% of African citizens are unbanked or lack appropriate credit scores allowing them to request loans from their banks. On top, despite the recent improvements in the Ease of Doing Business - Over eighty reforms were implemented in 36 SSA countries in 2017 only - , taxation and regulation represent two major barriers to running a business smoothly. This is reflected in the gargantuan gap between the venture capital deployed in 2017 between Silicon Valley and the entire continent – $560 million versus $25 billion.
  2. Scarce human capital and mentors: local entrepreneurs are still scarce and often lack the capacity to mentor emerging businesses and young aspiring entrepreneurs.
  3. A flawed legal system: property rights, among which regulation on patent and IP is still embryonic pretty much all across the continent. This represents a major impediment in a world where intellectual property rights and open source are two leading buzzwords.
  4. Brain drain: MNCs and large NGOs in Africa have long been object of criticism. Western organisations tend to offer better salaries and attract the best talents, hence draining an already talent-scarce pool.
Source: World Bank,  Ease of Doing Business 2018  - Figures as of June 2017

Source: World Bank, Ease of Doing Business 2018 - Figures as of June 2017

Need for a narrative shift: forget the unicorns, there’s nothing wrong with good ol’ MSMEs. 

African economies do not lack ideas nor talents, despite a relatively small share of high-skilled population. Necessity is the mother of innovation may be an old, redundant motto, but still fully applies to the continent. The will to see real change happen is tangible and, even though many bombastic yet vain entrepreneurs populate the start-up ecosystem, there is great hope for the future. In this sense, I would suggest young entrepreneurs to refer to look at the several success stories of more 'traditional' MSMEs, such as the ones that drove the economic boom during the heyday of European industrialisation in the mid-1950s, rather than necessarily Silicon Valley, Elon Musk and Zuckerberg. There are very specific reasons why the Valley developed in California and it is hardly replicable elsewhere. African entrepreneurs need to acknowledge this and understand the priorities. Nothing bad with drafting pitch decks and focussing on social media strategy, but let’s not forget the product, the market, and the revenues.

Don’t get me wrong. Years working alongside startups have been a huge source of inspiration and personal growth. As Antonello Bartiromo - partner at dpixel and who I collaborated with in Kampala – pointed out:   here, I had the chance to revise my idea of resilience, which is a peculiarity we, in Italy, tend to look for in a team. I believe people in the developed world can’t compete with young Africans who have often grown up without the wealth of services and benefits we are surrounded by - and yet, keep pursuing their entrepreneurial dreams.

The entrepreneurial dynamism of the youngest continent on earth is a not-so-implicit opportunity. Tech giants understood this well, and they are pouring resources to maximise the potential. On the other hand, the inward-looking world of Italian SMEs is still blind and brainwashed by stereotyped concepts such as:

  • Africa is poor, lacks potential, hence it needs our (the white man) charity.
  • Made-in-Italy can be easily exported to Africa and is an opportunity for quick profit – In spite of the growing presence of the continent of far more important trade partners such as China, India, Turkey, Japan, and Korea.
Source: The Economist,   The Next Frontier

Source: The Economist, The Next Frontier

Italian – and, more broadly, Western – entrepreneurs should start looking at African startups to learn how to adapt to very fluid and evolving markets in order to establish partnership and to think of the continent as a diverse land of opportunity, rather than one where to cash in effortlessly.

Martino Ghielmi is the Founder and Editor of Vadoinafrica.com, blog focussed on promoting Italo-African dialogue around entreprenership, innovation and creativity. A former management consultant, he has worked for E4impact (spin-off of the Catholic University of Milano in partnership with 8 African universities).