Africa is no longer the so-called “dark continent” of the past. Today, the continent is experiencing unprecedented levels of technological innovation. African youths are building their own startups. Technology entrepreneurship is taking root. Despite the numerous challenges that still affect the African tech scene, it’s safe to say that the African seed of innovation is germinating.
One key factor that makes Africa the new land of opportunity for innovations and tech startups is the continent’s highly young population, the highest in the world. But why is technology business in Africa still lagging behind other regions of the world? These are my observations:
1) Lack of Long-Term Support for African Startups
Organizers of tech hubs, hackathons and other contests pitting startups against each other often fail to offer long-term support to their winners. Soon after, many of these tech startups collapse due to a lack of expertise on the part of their founders on how to navigate the highly turbulent business landscape. While developing a startup to compete and win in a tech hub contest can take a few weeks, incubating and growing a competitive technology business out of what is left after scooping a hackathon prize is much more complex.
2) A Prohibitive Business Incubation Environment
There are many factors here, ranging from underdeveloped physical infrastructure to support tech businesses, high levels of illiteracy and poor access to education opportunities among many Africans, limited access to technology and tech gadgets, and the fact that many Africans still remain very skeptical of online financial solutions. With such humongous challenges, building a profitable tech enterprise in Africa still remains a big challenge. The penetration of the Internet and technological gadgets like smart phones into the interior of the remotest parts of Africa still remains very low, with regular Internet access still quite expensive for most Africans.
3) High Fragmentation of Markets and Limited Access to Capital
African tech markets are highly fragmented. With more than 50 sovereign countries in Africa, the diversity in languages, infrastructural systems, currencies and cross-border systems, as well as culturally, socio-economically and politically, is quite huge. This creates massive barriers that hinder the growth of African technology businesses across national and regional boundaries. The companies’ supply and distribution chains are also very limited. Subsequently, this makes it much more difficult for eCommerce enterprises to take advantage of economies of scale and access to affordable capital. A country like Kenya has tried to make it easier for its youth and other marginalized groups like women and people living with disabilities to access capital by having specialized funds geared towards these groups. However, there still remains a lot to be done to reduce the bureaucracies that slow down access to such funds.
4) Highly Restrictive Regulatory Policies and Corruption
Government policies can also promote or restrict the smooth operation of tech entrepreneurship in their respective countries and regions. For instance, in 2013 Ghana passed a law requiring that any foreign entity wanting to invest in a Ghanaian startup must be able to provide financial support of US$200,000 or more. That is a huge figure when most foreign organizations are willing (or able) to part with only between US$5,000 and $100,000. To make things even worse, very few of the local investors who aren’t skeptical of tech enterprises can fill this gap. Many African regulatory authorities also seem unable or unwilling to enforce IP protection and property rights laws that would help protect companies from unscrupulous competition. Several potential foreign funders of local African startups are often scared away by the high levels of corruption in both public and private institutions.
So, What Can Be Done to Help the Situation?
- African governments should take steps to enhance the promotion of Intra-African collaboration to reduce the high level of fragmentation among businesses.
- African youth should take advantage of platforms like social media to market their tech startups since traditional channels like TV, radio and billboard ads are much more expensive.
- Governments in Africa also have a huge role to play in eliminating corruption and improving regulatory systems to further assure foreign investors of a smooth operating environment.
- To mitigate against the challenge of high fragmentation, African countries should enhance the formation of regional economic blocs to further harmonize business conditions across regions.
- More needs to be done to curb the high levels of online fraud that has made many Africans skeptical and even fearful of tech-savvy financial solutions.