By Patrick Ndegwa
According to a report by the African Development Bank, Africa has the highest rate of entrepreneurship in the world, with 22% of the working-age population starting their own businesses. While the African continent has struggled to direct its large human capital pool and vast natural resources to accelerate economic growth, a new wave of entrepreneurship shows tremendous potential.
With the world on a steady course toward rapid digitalisation, many African start-ups are focusing on tech-based solutions. And as one of the fastest-urbanising regions in the world with an emerging middle class, Africa’s growing tech landscape is showing no signs of slowing down.
African tech on the rise
A recent ranking by investment publication fDi Intelligence has highlighted the most promising African countries for tech start-ups. South Africa and Kenya lead the pack in first and second place respectively when it comes to the state of their tech ecosystems. Nigeria recorded the highest number of start-ups, with entrepreneurs seizing new opportunities in the fintech sector due to under-provisioned banking services in the country. South Africa had the most foreign direct investment (FDI) projects in the software and IT services sector, and came first in the categories of Economic Potential, Start-Up Status, and Business Friendliness.
Kenya follows South Africa both overall and in Economic Potential, and the two countries are setting a strong example for what other African tech ecosystems could soon become. Kenya boasts the most coding schools on the continent, which will help enable a new generation of tech-savvy entrepreneurs and earned Kenya first place in the Human Capital and Lifestyle category. Kenya is also home to arguably Africa’s largest fintech success story, M-PESA, which has revolutionised banking and drastically improved financial inclusion across the continent.
While Africa’s fast-growing tech ecosystem shows promise, structural barriers present significant challenges to tech start-ups. These barriers include corruption and political instability, limited access to finance, an inconsistent regulatory environment, a lack of collaboration within a fragmented African continent, a shortage of digital skills, and inadequate communication infrastructure. Start-ups face strong competition from established global corporations with effective monopolies in certain markets, which is why it is crucial for African entrepreneurs to create new business models through digital innovation.
Although Africa has the highest rate of entrepreneurship in the world, many have been pushed into starting businesses because of high unemployment rates. Furthermore, only 20% of African entrepreneurs are introducing new products and services. And while replicative entrepreneurship remains instrumental to economic growth, much more can be done to increase innovation and establish Africa as a strong competitor in the global market. For that to happen, however, the abovementioned fundamental structural challenges must be addressed.
Empowering African talent
Access to talent is a critical factor for the success of any tech start-up, but the shortage of digital skills is a major stumbling block to Africa’s tech industry. The most lucrative industries of the future are becoming increasingly digital, and future generations will need relevant skills to access them. Low-skilled and labour-intensive work sectors are contributing less to the GDPs of many technology-driven countries, so the success of Africa’s economies could soon rely on the skills relevance of their workforces.
Educational institutions are often unable to provide the exact skills needed by the private sector, which necessitates more agile institutions, such as hubs and incubators, for a faster and more dynamic way to upskill tech entrepreneurs. Africa’s young, tech-savvy population is growing rapidly, and other countries are beginning to see significant cost-savings by outsourcing their business functions to African countries – which is great for our local economies.
Finding foreign capital
The World Economic Forum has highlighted that between 2015 and 2020, the growth of African tech start-ups receiving financial backing was nearly six times more than the global average. And yet, despite this exceptional growth, many of these start-ups do not make it to the later stages of funding because of various challenges within the business landscape. Joint private-public partnerships could address this, as investors are more likely to finance start-ups where local governments are also invested stakeholders and contributors, adding credibility and stability to the tech ecosystem.
A new generation of investors is looking for under-explored opportunities in African markets, which is why we need governments to improve policy frameworks and regulatory environments to attract FDI, as well as provide support for tech start-ups through action-oriented strategic partnerships.
Toward the future
While mobile Internet subscriptions across Africa have increased dramatically in the last decade, only 40% of Africans had access to the Internet in 2020. Most of these Internet users do not have access to fast, reliable, and more affordable fibre connectivity, and are severely limited by the high costs and unreliability of mobile connections. Improving Africa’s IT infrastructure to make connectivity more accessible, affordable, and reliable is the first step to propelling our tech ecosystems into the future.
The more Africans we connect to the Internet, the more our continent will be able to participate in today’s digital economy and have access to the countless opportunities of a connected world. When governments and private organisations come together to build and support an ecosystem where technology empowers African entrepreneurs, our future becomes limitless.
(Patrick Ndegwa is the Business Sales Lead at SEACOM Kenya).