Trends and Entrepreneurship in Africa

This is a write-up of a webinar I gave the Royal Academy of Engineering 2018 Africa Prize shortlisted entrepreneurs on May 29, 2018.

Context

The African continent is a very special place to do business. As a entrepreneurial economy, Africa can sometimes be overlooked, but then it takes the world by storm; seizing opportunities that were originally labeled as a setback, like the cellphone economy demonstrates[1][2]. With Africa being very much in the global eye now, I would like to take a look at opportunities where the absence of structures that frame thinking — like capital-intensive infrastructures — offers free thinkers the opportunity to truly innovate.

Why is Africa in the global eye now? A few years back, many private research publications and reports started focusing on Africa as the next big place to do business. This attention is not fading. EY for example, publish an Africa attractiveness report every year [3]. PWC have recently published a report on the digital revolution on the continent [4]. Today I think these trends in interest are very relevant because they carry a long-term vision of the continent’s offerings beyond a land of commodities.

It is true that markets and cash tend to be very sensitive to short-term effects here and elsewhere. For example, the volatility observed in South Africa as political turmoil took place and sent the South African currency plunging as Finance ministers were hired and fired in 2015 and 2016 set a negative narrative that did not contribute to investor confidence, but local factors are not the only ones to blame. For example, research by the International Monetary Fund found that commodity price volatility and economic surprises from other economies, expecially the US seem to join political conditions as the leading causes for the volatility of the Rand/US exchange rate [5]. Short term effects take other forms too. Countries whose societies receive a lot of foreign aid may be tributary to global political shifts that impact such aid, such as the current US stance of “America first”. While I haven’t found reliable data about US aid to Africa in 2017, and projections for 2018, I believe we can assume the numbers to decrease compared to previous administrations.

Nonetheless, I still believe the overall trend of growing attractiveness of Africa for business to be true. I am also an optimist and I would rather pay attention to how investor confidence grows as soon as countries show how amenable to business they are.

Rwanda is a good example of a country that has actively sought to build a positive image for business. In the last two decades and a bit, Rwanda’s economy has experienced steady growth. However, challenges remain. 60% of the population is living in extreme poverty and about 25% of the GDP is foreign aid. However, Rwanda hit most Millennium Development Goals by 2015, which is an impressive result [6].

Another interesting economy is that of Kenya. It has also been growing steadily, but remains vulnerable to local and international turbulence. One striking example of this is when, in 2010, clouds of ash from an volcano in Iceland drifted over continental Europe grounding planes for weeks. Kenya’s agricultural exports suffered gravely from that. Indeed, a significant portion of vegetables and flowers cultivated in Kenya are aimed for the European market. Suddenly all those exports came to a halt [7]. This extreme example shows that Kenya’s agriculture sector is definitely a global business, but the country still needs to build buffers in its economy to be able to weather such events with minimal effects on its society.

As the Rwandan and Kenyan [8] MDG results and national development planning work show that their efforts to ensure a stable economy pay off. They pay off in attracting foreign businesses, and in opportunities afforded local entrepreneurs, like access to funding [9].

At the meeting point of foreign businesses seeking to enter a country and a growing base of local entrepreneurs form alliances and contacts that shed a global light on African businesses.

Structures that frame thinking

In the context described above, I mention structures that frame thinking. A structure that frames thinking is a structure within which one is (unconsciously) constrained to remain with ideas, inventions, etc. A business that operates in a place where the source of communications or power can be taken for granted and simply itemized in a budget, has no incentive to think about solutions where communications or power are not a given.

The shining African example of thinking outside a structure simply thanks to its absence this is the cellphone economy; the absence of copper wires to every remote corner of the continent was overcome with cellphone coverage whose service providing companies did not have to deprecate a vast infrastructure of land-based telephones. The cellphone economy that grew out of that is now often the foundation of internet access on the continent [10].

No infrastructure, no limits to innovation

Similarly, the new payment systems growing across the continent are a true solution. They are for example affordable because they do not emerge from banks with decades of investment in expensive security-compliant computer systems whose budgeted deprecation and costly upgrades can spread the total cost of the system over a longer period of time than the lifetime of the technology itself.

Another infrastructure that doesn’t have to be applied in Africa like it is elsewhere is that of centralised electricity provision [11]. The grid-based electricity supply is a model that is necessary only if the generation of power and its storage can only be in the hands of a central infrastructure and therefore a central authority, like state-owned enterprise for example. Today technology exists that makes the spreading of kilometres of wire on pylons across the land unneccessary. Solar power [12] and other renewable sources as well as new battery technology means that one doen’s need to abandon, say, a business idea that needs reliable electricity, just because the infrastructure isn’t there. One can make it happen for oneself.

Another large topic I would like to touch upon is that of healthcare. The major causes of death across the continent are largely preventable [13], and they are by far not as prevalent in other parts of the world with a more developed healthcare system.

This statement carries an underlying assumption, though; that the existence of a densely distributed and technologically advanced set of medical facilites is the way to go. But medical facilities are mainly oriented towards intervention once a health issue is manifest. If the presence of such facilities is not guaranteed, there are other ways of improving public health before an issue arises. Prevention-oriented healthcare and early disease detection with technologies that do not rely on costly and comprehensively equipped laboratories, for example, are impactful solutions that don’t need the medical infrastructure found in more developed areas of the world.

In fact, the hunger for such cost-effective technologies in developed regions has not been sufficient to drive innovation. This, and limited thinking have allowed (among other reasons) a vertiginous hike in the cost of healthcare [14] and often oversubscribed facilities [15]. Quite a few of the shortlisted entrepreneurs of the Royal Academy of Engineering’s 2018 Africa Prize are working in exactly that area and that is fantastic.

Another, more inclusive way to think of healthcare, is to think of who provides care at all. In the case of infants and young children, it is mostly mothers. So educating mothers is an area that can make a huge difference in health outcomes of a population without needing to build hospitals and in fact many projects target mothers (e.g. [16]).

The bottom line is that health is everywhere and affects everyone and improving healthcare can happen in many ways outside what could be considered “the health system” of hospitals and clinics, although that definition is already more inclusive today [17].

As these examples show, the existence of infrastructure frames thinking while its absence allows entrepreneurs to innovate beyond mental limits set by the reliance on pre-existing technological infrastructure. This opportunity may not be unique to Africa, but it opens up endless business opportunities for creative thinkers who are aware of the democratisation of the latest technologies.

Why African Entrepreneurs succeed where global companies don’t.

This is an interestic fact. A great piece of research [18] examines the fate of international companies failing to establish a presence in African markets and the reasons for their withdrawals in contrast with domestic entrepreneurs (and some other international companies) who sucessfully establish a business presence in Africa.

I recommend reading the entire article, but I would like to highlight the following from this piece of research. The lack of success of the international companies appears to come down to two main factors.

• Firstly, they assume that the narrative of the growing and emerging African markets means the growth of an African middle class. This has proven not to be true, unlike in strong Asian emerging economies.
• Secondly, they come into the country with the aim of making money off that middle class, not with the aim of developing the country.

After realising that the middle class they are waiting for is not growing as expected, many international companies withdraw.

On the other hand, domestic entrepreneurs (and some international companies that are not waiting for the emergence of the middle class) know the market, and propose products that are locally relevant both in purpose and in price, and often solve real problems. They are the true vectors of growth.

In fact, the growth in connected and technological entrepreneurship across Africa has been highlighted in another excellent article [19], which I also strongly recommend. The premise of this article is that in the current global economic climate (I would add since the 2008 economic crisis and the general austerity and spending cuts that have affected the leading western economies), imports have decreased in affordability and reliability and that has triggered a wave of local solutions and local entrepreneurship. It is a beautiful picture that emerges and one that I deeply believe in.

This leads me to the last element I would like to mention today, and this is an open question to the entrepreneurs, the ones who are busy making the predicted greatness of Africa happen.

How does Africa go global? Or even pan-African?

Kutlwano Ramaboa from the University of Cape Town wrote a fascinating article discussing the role of MBA schools in Africa [20], and although applied to MBA programmes, it illustrates the question quite well. African MBAs that teach skills that are applicable and relevant in doing business in Africa, where most business are small, operate in coutries that are ranked low in the World Bank’s “Ease of doing business” rankings [21], where inequality is high and skills scarce, won’t probably score highly in global MBA rankings. In those rankings, the highest scoring programmes train people to run large corporate entities, some larger than certain African economies even. Considering that the global MBA rankings are often used by prospective MBA students to choose where to apply to, this is an interesting conundrum in the African context both in terms of education and of executive hiring.

Are government programmes such as national development strategies helpful? Or is it easier to be an online only business doing e-commerce, where the origin of the business is irrelevant to the consumer, as long as the convenience, the service and the price are satisfactory? Is that meeting point between international interest in Africa as a business destination one that really does create alliances? How often do international companies buy the rights to technologies developed here and then do whatever they do with them, like grow them, or remove them from the landscape so they can sell a lesser product that they still need to repay the R&D on? How safe is African intellectual property internationally?

All those are open questions that I would love to hear your thoughts on.

The webinar was followed by a conversation with the participants, but the conversation never ends, so I invite anyone to chime in in the comments section.

References:

URLs functional at time of writing. Contact me if they are not working anymore and you wish to read them, I have saved each of them to pdfs.

[1] Mobile Phones and Economic Development in Africa, J.C. Aker and I.M. Mbiti, Journal of Economic Perspectives — Volume 24, Number 3 — Summer 2010 — Pages 207–232 URL to pdf: http://sites.tufts.edu/jennyaker/files/2010/09/aker_mobileafrica.pdf

[2] Mobile phones are transforming Africa, The Economist, Dec 10th 2016 URL to online article: https://www.economist.com/middle-east-and-africa/2016/12/10/mobile-phones-are-transforming-africa

[3] EY — Africa Attractiveness. URL to website where annual reports and analyses are published: http://www.ey.com/za/en/issues/business-environment/ey-africa-attractiveness-overview-page
Africa Attractiveness Report 2017 “Connectivity redefined”, EY, 2017. URL to pdf: https://www.ey.com/Publication/vwLUAssets/ey-africa-attractiveness-report/$FILE/ey-africa-attractiveness-report.pdf

[4] Disrupting Africa: Riding the wave of the digital revolution, pwc 2016. URL to pdf: https://www.pwc.com/gx/en/issues/high-growth-markets/assets/disrupting-africa-riding-the-wave-of-the-digital-revolution.pdf

[5] Surprise, Surprise: What Drives the Rand / U.S. Dollar Exchange Rate Volatility?, Maveé, Perelli, Schimmelpfennig, IMF Working Paper 2016. URL to paper: https://drive.google.com/file/d/0B6fMdg0R3pcuazJSUnVlZFZ0OXc/view

[6] World Bank Rwanda Overview. URL to website: http://www.worldbank.org/en/country/rwanda/overview

[7] Iceland volcano: Kenya’s farmers losing $1.3m a day in flights chaos. Nick Wadhams, The Guardian, Sun 18 Apr 2010. URL to online article: https://www.theguardian.com/world/2010/apr/18/iceland-volcano-kenya-farmers

[8] Millenium Development Goals, Status report for 2013, Ministry of Devolution and Planning, Republic of Kenya, 2013. URL to pdf: http://www.ke.undp.org/content/dam/kenya/docs/MDGs%20Report/MDG%202014.pdf

[9] African start-ups bag $195m in funding for 2017, Kgaogelo Letsebe, ITWeb, 22 January 2018. URL to online article: https://www.itweb.co.za/content/kYbe9MX6aAJvAWpG

[10] Digital in 2018: World’s internet users pass the 4 billion mark. Simon Kemp, Wearesocial.com, 30 January 2018. URL to online article: https://wearesocial.com/blog/2018/01/global-digital-report-2018
URL to slideshow of the report: https://www.slideshare.net/wearesocial/digital-in-2018-global-overview-86860338

[11] Africa Energy Outlook, A focus on energy prospects in Sub-Saharan Africa, World Energy Outlook Special Report, International Energy Agency 2014. URL to pdf report: https://www.iea.org/publications/freepublications/publication/WEO2014_AfricaEnergyOutlook.pdf

[12] Off-grid solar set to boom in Africa, Media statement, African Energy Indaba, 9 January 2018. URL to pdf: http://www.africaenergyindaba.com/energy_site/wp-content/uploads/2018/01/Off-grid-solar-set-to-boom-in-Africa.pdf

[13] FACTSHEET: Africa’s leading causes of death. Petrie Jansen van Vuuren, AfricaCheck, 14 August 2017. URL to online article: https://africacheck.org/factsheets/factsheet-africas-leading-causes-death/

[14] U.S. healthcare spending to climb 5.3 percent in 2018: agency. Yasmeen Abutaleb, Reuters, 14 February 2014. URL to article: https://www.reuters.com/article/us-usa-healthcare-spending/u-s-healthcare-spending-to-climb-5-3-percent-in-2018-agency-idUSKCN1FY2ZD

[15] Shock figures from top thinktank reveal extent of NHS crisis. Denis Campbell, The Guardian, 5 May 2018. URL to online article: https://www.theguardian.com/society/2018/may/05/nhs-lowest-level-doctors-nurses-beds-western-world

[16] MomConnect South Africa, a project by the Praekelt Foundation. URL to website: https://www.praekelt.org/momconnect-1

[17] Health system: (i) all the activities whose primary purpose is to promote, restore and/or maintain health; (ii) the people, institutions and resources, arranged together in accordance with established policies, to improve the health of the population they serve, while responding to people’s legitimate expectations and protecting them against the cost of ill-health through a variety of activities whose primary intent is to improve health.
Health Systems Strengthening Glossary, World Health Organization. URL to glossary: http://www.who.int/healthsystems/hss_glossary/en/index5.html

[18] Africa’s New Generation of Innovators. Christensen, Ojomo and van Bever, Harvard Business Review, January-February 2017, pp.128–136. URL to article: https://hbr.org/2017/01/africas-new-generation-of-innovators

[19] Why African Entrepreneurship Is Booming, Ndubuisi Ekekwe, Harvard Business Review, July 2016. URL to article: https://hbr.org/2016/07/why-african-entrepreneurship-is-booming

[20] Africa’s business schools need to be locally relevant and globally wise, Kutlwano Ramaboa, The Conversation, May 15, 2018. URL to article: https://theconversation.com/africas-business-schools-need-to-be-locally-relevant-and-globally-wise-94943

[21] Economy Rankings, World Bank. URL to portal: http://www.doingbusiness.org/rankings