Innovation in Africa: How Businesses Are Driving Remarkable Growth

Many parts of Africa suffer from extreme poverty, especially sub-Saharan Africa. The Borgen Project reports the following:

  • 75 percent of the world’s poorest countries are located in Africa.
  • The 10 countries with the highest proportion of residents living in extreme poverty, defined as those subsisting on less than $1.25 USD per day, are all in sub-Saharan Africa.
  • One in three people living in sub-Saharan Africa suffers from undernourishment.

street vendorOf course, the statistics are only one part of the story; the true tragedy is the men, women, and children who struggle to acquire and sustain even the most basic necessities of food, water, and shelter.

Hope is on the horizon, however, as visionary entrepreneurs seek to tap into Africa’s vast human capital and talent. African businesses and startups are advancing the economic development of the continent and helping to pull more and more people out of poverty. Their innovations span every sector of the economy and all industries, including mobile communications, agriculture, finance and banking, retail, energy, manufacturing, and more. Even in sub-Saharan Africa, innovators have led a movement to better the lives of the many who call it home. In addition, foreign investment continues to help spur growth.

The case of M-Pesa, a digital payment platform that has revolutionized Kenya’s economy, offers an excellent example of the kind of business innovation that is taking place in Africa. The company’s story also reveals the factors that are encouraging entrepreneurism across the continent.

Kenya and M-Pesa: A Case Study

In 2007, many Kenyans lacked access to basic financial services. The vast majority of Kenya’s citizens did not have a bank account, couldn’t transfer or receive money, and had no access to credit. Without basic financial infrastructure, even the most talented and ambitious entrepreneurs had trouble setting up a business.

Kenya safariThen, researchers who had received funding from the UK Department for International Development (DFID) noticed something striking about the Kenyan economy: many Kenyans were paying for goods and services with mobile airtime, instead of an exchange of cash. DFID then connected with mobile service provider Vodafone, which had been interested in the microfinance sector and saw potential in mobile banking. After a student software development project, Vodafone’s Kenyan affiliate, Safaricom, introduced M-Pesa. The service is now widely considered the most successful mobile-based financial service in the developing world.

M-Pesa helped revolutionize the everyday lives of Kenyans by implementing a formal, reliable, and user-friendly mobile system for banking. Many Kenyans live in rural areas far from banks, although the country is increasingly urbanizing as young people move to cities for jobs and the chance at a better life. Prior to M-Pesa, city dwellers who wanted to send money home to their families in isolated villages had few options—they could send the cash with a trusted friend traveling to the area, or send a postal money order, although this could take weeks and required a post office box.

Now, businesses across Africa are using M-Pesa for everyday transactions, and the technology has helped them stabilize their revenue streams and attract repeat customers. In addition, M-Pesa has enabled many of Kenya’s low-income citizens to send money, pay bills, and access microcredit services—in fact, 72% of Kenyans living on less than $1.25 USD per day used the service in 2011.

Entrepreneurial Climate in Kenya

M-Pesa’s success in Kenya shows how the country’s climate is favorable for business, despite its relative poverty. On the surface, the country doesn’t appear to be an attractive investment opportunity. For instance, the United Nations ranks Kenya 145th (out of 187 countries) on the Human Development Index (HDI)—a comprehensive measurement of a nation’s average life expectancy, education, and income.

Nevertheless, as a result of its strong entrepreneurial culture and growing business sector, Kenya has become one of the world’s fastest-growing recipients of foreign investment. Several sectors of the economy are benefiting from the renewed business confidence in Kenya; agriculture, health, medical services, and tech companies are being targeted by investors.

Investment in Africa

In 2015, $185 million was invested in African startups; this number represented a strong year-over-year growth rate that perplexed some venture capitalists. What were the factors behind the increased investment in African startups?

For one, the sheer rate of growth that many African countries are achieving actually outpaces that of many other regions of the world. In addition, foreign investors are known to focus on three specific criteria: (1) culture: the perceptible “level” of entrepreneurism in a country; (2) environment: the necessary financial, legal, and political frameworks to sustain and grow business operations; (3) opportunity: the overall odds of growing and scaling within local markets.

While many areas of Africa remain underdeveloped and impoverished, the continent is making remarkable progress in these three criteria. Many African nations are working diligently to encourage entrepreneurs, attract investment, and strengthen public-private partnerships. Together, they will continue to drive the African continent’s economic growth and development.