BusinessDay
Nigeria's leading finance and market intelligence news report.
Qries

Africa needs a generation of risk takers

Doing business in Africa is tough. Stories abound of regulatory challenges and policy inconsistencies impacting businesses on the continent. Simple processes like paying taxes, registering a business, and obtaining necessary permits, all done with relative ease in developed markets, often prove tedious in Africa. The World Bank, in its 2020 Doing Business Report, paints a grim picture of African businesses investing excessive resources and time to secure and process such basic functions.

“Compared to other parts of the world, Sub-Saharan Africa still underperforms in several areas. In getting electricity, for example, businesses must pay more than 3,100% of income per capita to connect to the grid, compared to just over 400% in the Middle East and North Africa or 272% in Europe and Central Asia…and small and medium-size businesses in their second year of operation need to pay taxes more than 36 times a year, compared to an average of 23 times globally,” the report said.

World Bank Doing Business 2020

Despite the stark picture painted, optimism for investment in Africa is palpable — all this, of course, prior to the onset of the COVID-19 pandemic. This optimism is buoyed by slow but progressive reforms aimed at enhancing the ease of doing business and opening doors to investors on the continent.

Across Sub-Saharan Africa, reforms have largely revolved around improving access to credit, making business registration easier, and strengthening the legal framework for the enforcement of contracts. Beyond these reforms, and in conjunction with them, Africa’s business reputation has been greatly enhanced by the rise of a generation of risk-takers. A slew of African startups, despite obvious challenges, are tackling problems, making life better for people, and impacting the continent’s economy.

Operating in Ghana, Nigeria, Zambia, and Zimbabwe, mPharma is a prime example of the new guard in the African tech space. Born out of a frustration with government and regulatory silence in the face of drug counterfeiting, the startup introduced a cloud-based software that connects hospitals, patients and pharmacies, all in an attempt to revolutionise the drug supply chain. Doctors are now able to track the availability of medicine in real-time; patients can access e-prescription tools, and pharmacies can stock up on prescription drugs at lower costs, as mPharma handles the interface with manufacturers and regulators.

Interswitch in Nigeria created some of the country’s first payment processing infrastructure, a bold step in an era heavily dominated by cash payments and ledger transactions. This innovation paved the way for digital payments in Nigeria with a new generation of digital disruptors, with Flutterwave and Paystack leveraging this infrastructure. Both companies have created payment solutions aimed at reducing stress for African businesses while boosting trans-border trade with products that enhance the customer experience and maximise efficiency.

Interswitch continues to reap the rewards of its leap of faith with a recent announcement that it is set to achieve unicorn status after global giant Visa acquired a minority stake in the company. The investment, which takes the company’s valuation to $1billion, solidifies its spot as one of the most valuable players in the African fintech space.

These success stories mirror the explosive growth in mobile money transactions in Kenya, where M-Pesa has become a daily fixture, allowing them to make deposits and withdrawals, pay bills, and even access microcredit facilities all via a mobile-based platform.

The birth of M-Pesa in Kenya was an original recognition of the promise of mobile phone-based banking. The risks associated with transporting and utilising cash saw Kenyans swapping airtime transfer for cash payments. This trend was observed by researchers from the United Kingdom’s Department for International Development (DFID). DFID’s ensuing collaboration with Vodafone blossomed, with M-Pesa growing to become a market leader in the mobile money space which has since piqued the interest of traditional banking institutions. Key partnerships with PayPal and Western Union as well as a strategic expansion into East Africa continues to provide financial inclusion for rural communities and beyond.

These stories reveal a striking phenomenon: a generation of African entrepreneurs and startups utilising tech innovations to solve significant problems across the continent. Business in Africa is not just business for profit. These risk-takers are targeting ground-level impact, especially as many entrepreneurs bring home their experiences gained overseas.

As an investor, I have found the combination of sound business principles and a passion for making an impact to be the foundation of successful startups. In our current environment, I believe calculated risk-takers with business instinct, focus, diligence, and a desire to make a difference while contributing to their communities will prove the veritable key to Africa’s future.

To ensure that this future is realised in its entirety, these risk-takers must be encouraged and supported, beginning with a reconsideration of the framework for investment in Africa. We must create institutions and processes that ensure that the most viable risk-takers on the continent who are pushing boundaries and solving problems can access the support they need to grow and scale.  Initiatives like the Future Africa Collective, which seeks to democratize the opportunity of investing in African tech startups, is a step in the right direction. The Collective aims to create new and sustainable funding sources for the ecosystem by carefully curating and screening exciting startups for presentation to a qualified pool of investors. Such platforms will help to kick-start the entry of even more risk-takers.

The African Development Bank, in its African Economic Outlook for 2020, highlights a continuing shift from private consumption to investment and predicts that Africa’s economic growth, which had stabilized at 3.4 percent in 2019, is expected to rise to 3.9 percent in 2020, and to 4.1 percent in 2021. One thing is clear; Africa is an emerging marketplace with huge potential, but to truly succeed, it requires a new breed of people playing in its entrepreneurial and investment space. It needs a generation of risk-takers ready to tackle problems and build the next set of solutions by Africans and for Africans. It also requires a committed group of investors who will support, coach, and guide these businesses to sustained success.

The arc of innovation, investment, and production in Africa is rising; to sustain this momentum, more people — entrepreneurs and investors — will need to shoulder the risk and embark upon new genre-defying, market-opening ventures. Some businesses may be sacrificed along the way, but their stories will help to pave the way for future successes as these risk-takers confront the big questions.

.Oghayore is a visionary investor and emerging markets strategist with experience in building innovative business solutions in underserved markets.

 

 

Get real time updates directly on you device, subscribe now.

Comments are closed.