Why is Africa a perfect scenario for innovative startups?

Africa is known for its abundance and opportunity. Being the world’s second largest continent, it is richly endowed with a variety of resources. But it needs to set aside its intra-continental differences in order to maximize the opportunities available from growing foreign interest. Africa is attracting increasing interest from the international financial community. The spotlight is now on our continent and Africa must rise to the occasion.

Africa has a dynamic history shaped by great migrations, wars, slavery, colonialism, and even the Cold War. But now Africa is reclaiming its place on the world stage. Often seen by observers as a single country, Africa has a complicated history and is often misunderstood. It is extensively diverse – in geography and climate; in cultures and traditions; in economic production, distribution, and consumption; and in social and political structures and practices. During the last decades, with much innovation and initiative, Africa is finally grabbing the world’s attention, with more international companies setting up offices here, increased banking interest, and strong stock market performances. All its major regions have recently experienced strong economic growth, driven in part by its wealth of natural resources. 2008 marked the decade that Africa’s energy and mining industry came to life, bringing an unprecedented oil export boom.

Africa has been the second-fastest-growing region in the world over the past 10 years, with average annual growth of 5.1 per cent over the past decade, driven by greater political stability and economic reforms that have unleashed the private sector in many countries. Poverty is also on the retreat. A new consuming class has taken its place: since 2000, 31 million African households have joined the world’s consuming class. At the point when household incomes exceed $5,000, measured at purchasing power parity, consumers begin to direct more than half their income to things other than food and shelter. The continent now has around 90 million people who fit this definition. That figure is projected to reach 128 million by 2020.

By 2035, Africa’s labour force will be bigger than that of any individual country in the world, which offers the continent a chance to reap a demographic dividend, using its young and growing workers to boost economic growth.

Today 40 per cent of Africans have some secondary or tertiary education. By 2020, it will be nearly half. But African countries still need further progress to remain economically competitive. While 33 per cent of Africans in the labour force receive secondary education, 39 per cent of workers in India and 66 per cent in China receive education at this level.

The experience of other emerging economies shows that Africa could accelerate its creation of stable jobs dramatically. When they were at a similar stage of development as Africa today, Thailand, South Korea and Brazil generated jobs at double or triple the rate of Africa’s. This would lift millions more Africans out of poverty and vault millions of others into the consuming class. It would also cut the time needed to reach East Asia’s percentage of stable employment by more than half, from over 50 years to just 20 years.

Africa has about 60 per cent of the world’s unused cropland, providing it with a golden opportunity to simultaneously develop its agricultural sector and reduce unemployment. On current trends, African agriculture is on course to create 8 million wage-paying jobs between now and 2020.

Africa needs a jobs strategy, not just a growth strategy. Countries need explicit programmes to create jobs, targeted at labour-intensive sectors that enjoy comparative advantage. Governments, working with private companies, need to improve access to finance in those sectors, build the necessary infrastructure, cut unnecessary regulation and bureaucracy and create a more business-friendly environment, and develop the skills needed to support the industries of the future.

With a billion people in Africa, a growing middle class, fast economic growth compared to much of the world, and the rapid expansion of both internet and mobile penetration, White argued there are many new market opportunities for these startups.

What’s more, those opportunities extend beyond Africa’s borders. While this certainly was accelerated by a need on this continent for alternatives to traditional financial statements and credit bureaus, it has applications to individuals regardless of where in the world they reside.

What’s more, those opportunities extend beyond Africa’s borders, argued Aaron Fu, managing partner for Africa at Nest, a Hong Kong-based VC firm. He cited SuperFluid, a Kenyan startup Nest is incubating, which uses non-traditional data sources to assess people’s financial health. “While this certainly was accelerated by a need on this continent for alternatives to traditional financial statements and credit bureaus, it has applications to individuals regardless of where in the world they reside.”

Startup in africa_cecilia ibru
Image courtesy of Dennis Skley at Flickr.com

African governments are also doing more. Rwanda has created a special visa for technology entrepreneurs. Kenya has launched Enterprise Kenya, through which the government plans to back tech startups itself, and has revised its company acts, including one that has been in place since 1948. The Nigerian government, a strong supporter of DEMO Africa, has launched a publicly funded incubator in Lagos and plans to back startups itself.

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