What do you get when you put together a population of almost 1.2 billion people across 54 countries and call it Africa? Well, most would say poverty, crime and corruption. But how accurate is that today? Africa today has one of the fastest growing startup cultures in the world today with locals focusing on problems that match their eco-system and connect with the locals. Firms like Twiga foods (Kenya), Jumia (Nigeria), RecycloBekia (Egypt) and LifeQ (South Africa) are changing the way we do business across the continent. But the truth is, you probably haven’t heard of most of these startups because of how startups in the western world dominate the front page of your favorite newspaper.
So today, we focus on the startups of the African world, why there are so many entrepreneurs within the continent, and what this means for the world.
Which countries top the list?
Africa has experienced a 46% rise in tech-based startups receiving major funding since 2015. In 2020, a total of 359 tech-based startups received major funding from investors, with many more being set up in other industries.
But across the continent, startups raised over USD701.5 million worth of investments. The top 4 countries with most startups in the past 10 years included:
1. South Africa – 312 startups (Most dominant industry – Fintech)
2. Nigeria – 287 startups (Most dominant industry – Fintech)
3. Egypt – 223 startups (Most dominant industry – E-commerce)
4. Kenya – 195 startups (Most dominant industry – Fintech)
It is quite evident that the most common industry targeted in Africa is often Fintech. Although it maynot be very clear why that’s the case, it could be said that it is due to the lack of proper banking systems and financial institutions in the early years of independence for Africa as a whole. Historically, Africans had quite weak financial institutions which means a huge gap is present to fill in hence the high saturation of startups in fintech.
Africa is well known for its focus on the agricultural sector across the world being so rich in natural resources. While traditionally it is believed that countries must shift to the secondary sector then tertiary sector to ‘qualify’ as developed, a good proportion of startups are also focusing on agricultural improvement where the countries have a greater competitive edge. Startups like Twiga foods in Kenya are bringing innovative solutions in this industry by redesigning the logistics of produce from farm to market by connecting sellers and buyers.
So, what is it that is driving such high levels of innovation across the continent, and what is holding them back?
Why African startup culture is thriving?
Undoubtedly, it is often a collection of reasons that lead to any new change being made. For the case of African startups, it can be grouped and narrowed down to 3 main reasons:
1. A growing youthful population–Africa as a region currently holds the top spot in terms of rate of rising youthful population. Infact, UNICEF estimates that by 2050 the youth population in Africa will have risen to almost 1 billion (a staggering 50% rise compared to 2017 where youth population stood at 628 million). At the same time South Asia, South East Asia, Western Europe and North America are expected to see downward trends in youth populations.
This means that at the moment, there is a significant rise in young people joining the labor market leaving the market saturated. Hence comes into play the famous saying ‘Necessity is the mother of invention’. In essence, such a large number of youths are unlikely to all fit into traditional jobs available. So, they have to end up creating their own, and what better way to do this than tech and startups?
2. Rising internet penetration –Several years ago, less than 50% of the population in top African countries had connectivity to the internet. Today, all 4 of the top 4 countries in terms of startups have over 50% of their population connected to the internet. According to Statista.com Kenya leads the list with 85.2% of its population been connected to the internet while Nigeria comes in 3rd (73%) (Based on data collected till December 2020). With greater internet penetration comes in greater opportunity and access to worldwide resources. Such changes enable young people to discover what happens across the globe and how bring those solutions to their local environment in form of startups with assistance and mentorship from across the world. The title of ‘The digital Savannah of Africa’ is quite accurate for Kenya in that case.
3. Application of emerging tech–Technology is undoubtedly the fastest changing industry across the world and countries who can capitalize on adapting new technology are bound to succeed in the medium and long run. This happens to be exactly the case for African countries. Modern innovations such as 3D printing and Fintech are taking root in Africa along with many new businesses dealing with SaaS (Software as a Service) solutions. Since the field is wide, it gives space for many startups to form, each with their own unique edge.
What is holding them back?
The truth of the economy is there is never a perfect environment for anything. Businesses and leaders often have to pierce through unfavorable conditions to market goods or bring change. That also happens to be the case for African startups.
Structurally, startups have tended to fail in Africa for 2 main reasons. The first one is the fact that the consumers within Africa still have quite a low purchasing power. Most countries in the continent still fall under the ‘developing’ category which means incomes are still quite low. This lowers demand for the products of most startups. To add on to that, the continent is fragmented in 54 countries who are part of separate trading blocs unlike the EU which makes it slightly harder to sell across borders. The second reason is the complex and inconsistent regulation which makes it difficult to navigate across the business world, especially for startups who have little finance and probably even less legal knowledge.
Another key reason for startup failure in Africa has been the competition from large national firms. Firms established in the early years and operate as monopolies often end up adapting the new tech that startups have to offer internally since they can afford it. This makes the startups business irrelevant hence forcing them to close.
What does this mean for Africa?
For a business to be successful today, it’s all about doing what is new a.k.a. having a competitive edge (lesson 1 of your MBA) and this is brought true by the world of startups. That’s something Africa isn’t short of. If the current trends continue, we may end up seeing Africa being the startup capital of the world and a lot more foreign investors making FDI’s (Foreign Direct Investments) in Africa helping the continent to develop. But at the moment a lot is dependent on how stable these nations can be political to enable a fertile environment for the startups to root themselves and grow.
Written by- Mitesh Varsani
Edited by- Nanditha Menon
