Challenges for Africa’s Entrepreneurial Leaders in the Digital Era
Africa is booming with entrepreneurs, from women selling vegetables in a roadside shack, to youths launching innovative technology startups. According to the African Development Bank, 22% of Africa’s working-age population are starting new businesses — the highest entrepreneurship rate in the world. At a glance this sounds promising, but once you dive in you realize that Africa has a lot of what can be called ‘survival entrepreneurs’ who are forced to start businesses due to high unemployment rates.
Only 20% of Africa’s entrepreneurs are introducing new products and services and can be defined as entrepreneurial leaders. There is an important distinction between entrepreneurs in the general sense of ‘doing business’ and entrepreneurial leaders. An entrepreneurial leader is an entrepreneur who is influencing people to innovate by creating new products and services, leveraging accelerating technology, and/or anticipating future market trends. Africa requires entrepreneurial leaders to harness the massive opportunities in the continent and to compete in the global marketplace.
Africa’s current population of 1.2 billion is expected to double by 2050. This means Africa will be a massive market of approximately 2.4 billion people with 25% of the world’s population by 2050. Sixty percent of Africa’s 1.2 billion people are under the age of 25, making Africa home to the youngest population in the world. According to a report by the Brookings Institution, Africa is one of the fastest-growing consumer markets in the world. Household consumption is growing at a much faster rate than the gross domestic product (GDP) and it’s predicted to reach 2.5 trillion USD by 2030. Income levels amongst different demographics are also increasing, leading to a growing middle income population. Africa’s annual GDP growth is increasing at a higher rate than the global average with a number of countries such as Ethiopia, Rwanda, Tanzania and Ghana leading the pack. And, according to the African Union, the establishment of the African Continental Free Trade Area (AfCFTA) agreement creates a continental free-trade zone with a combined GDP of 3.4 trillion USD. This trade agreement, when implemented fully, would become the largest in the world.
Given the massive market, growing middle income population, increasing household consumption and a burgeoning youth population, Africa presents an untapped opportunity for entrepreneurs to thrive. Yet, African entrepreneurial leaders face a unique set of challenges. The challenges are further exasperated with Covid-19, as this has accelerated the need to embrace a digital strategy. Going digital could be a challenge or an opportunity, as an entrepreneur in Africa is now competing at the global stage with other entrepreneurs, and any previous geographic advantage is obliterated. It also means an African entrepreneur can digitally sell products or services to anyone in the world. Based on my experiences living and working in both Silicon Valley and East Africa, I’d like to highlight key challenges facing African entrepreneurial leaders in the digital era. My own startup — Kizo Ventures — is working to address these challenges and is positioned at the tip of the coming digital and entrepreneurial transformation in Africa.
Access to Finance
Financing a business venture is the biggest challenge for entrepreneurial leaders. According to African Development Bank, African businesses are 19% less likely to obtain a bank loan than other businesses in comparable countries. And when they receive a bank loan, they often have to repay at double digit interest rates from local banks. In addition, startups in Africa are less likely to have collateral assets, thus they have to rely on the reputation of their business or their personal connections to get finance. Venture capital is as yet extremely low in Africa. According to WeeTracker, startups in the entire continent of Africa attracted 1.34 billion USD in venture capital during 2019. This is approximately 1.6% of the 130 billion USD in venture capital investment in the US in 2019.
According to a report by the Africa Development Forum and the World Bank, only 43% of Africans have access to electricity. This is a much lower rate than comparable regions and the global access rate of 87%. Besides the low access issue, regions already connected to the grid may still have a low consumption rate due to high costs or low reliability. This is a significant constraint for high-tech entrepreneurial leaders who have to deal with unreliable electricity supplies and are often too small to afford efficient generators for their businesses. According to a recent publication by Statista, internet penetration rate in Africa is at 39.3% and widely varies from one region to another. For example, Kenya boasts the highest internet penetration in Africa at 87%, while Chad is lagging behind at 6.3%. Also worth noting is most of the web traffic in Africa is from mobile devices. For example, in Nigeria, one of the countries with the most internet users, 74% of the web traffic is via smartphones and only 24% is via desktop computers. This is due to the fact that mobile connections are much cheaper and do not require the infrastructure needed for traditional desktop computers. According to Ericsson Mobility Report 2020, mobile data traffic in Sub-Saharan Africa is estimated to grow by 12 times the current figures by 2025. Transport and logistics stands out as another major infrastructure challenge for entrepreneurial leaders. Recent studies have shown that poor road, rail and port facilities add 30% to 40% to the costs of goods traded among African countries, thus directly impacting entrepreneurial leaders net earnings.
At a minimum, an entrepreneurial leader requires a working knowledge of digital skills to be aware of innovation opportunities. To compliment digital skills, essential skills such as creativity, communication, collaboration, critical thinking, adaptability and more are needed. The same skills are also needed for employees to be able to innovate and build new products and services. One of the challenges voiced by entrepreneurial leaders is finding the right talent. According to PwC’s 22nd Annual Global CEO Survey, 87% of African business leaders were concerned about the availability of key skills, far exceeding global rates. Demand for digital skills exceeds supply, thus entrepreneurial leaders are struggling to compete with large firms who are providing better incentives to attract tech savvy employees. The current digital era requires urgent saturation of new skills and life-long learning for youth and people of all ages.
Government Regulation and Enabling Environment
In reviewing the World Bank’s annual report on ease of doing business, it’s clear there have been massive regulatory reforms making it easier to do business in some African markets. Out of the 190 countries evaluated, Rwanda ranks 38, while Morocco ranks 53. But then, 7 African countries are in the bottom 10 positions. Thus, there is still a lot of work to be done to ensure governments are creating an enabling environments for entrepreneurial leaders and doing away with burdensome bureaucracy, corruption and weak rule of law. Fortunately, a number of countries such as Ghana, Kenya, Nigeria, South Africa and others have taken steps in the right direction and have streamlined and digitized the process to legally register a business; thus reducing the cost, time and potential for corrupt deals. Additional examples of policies that could help create an enabling environment include: giving tax breaks and incentives to new businesses or businesses in certain sectors, providing simplified and standardized trade and labour laws, and enforcing the rule of law.
Other than Nigeria and South Africa, two of Africa’s biggest economies, the rest of the market is fragmented and small, thus reducing market potential and economies of scale. The establishment of trading blocs such as the East African Community (EAC), Southern African Development Community (SADC) and Economic Community of West African States (ECOWAS) has made it easier for businesses to trade outside their territories. However, the full potential and benefits of trading as a single African bloc will only be actualized once the African Continental Free Trade Area Agreement (AfCFTA) is fully implemented. Once this happens, AfCFTA will remove tariffs on 90% of goods and create a single African market of over a billion consumers with a total GDP of over 3 trillion USD.
There are two important mindsets required by every entrepreneurial leader — an exponential mindset (ability to anticipate technology trends that follow exponential growth in terms of decreased price and improved performance), and an abundance mindset (ability to see new possibilities and view challenges as opportunities). Thus, an application of exponential and abundance mindset can help entrepreneurial leaders to leverage accelerating technologies with a perception of opportunity regardless of the resources at their disposal. Despite all these challenges, I remain convinced that the biggest opportunities for entrepreneurial leaders in the world are in Africa. With an array of accelerating technologies becoming smaller, faster and cheaper, Africa has an opportunity to leapfrog and not only catch up, but even pass the rest of the world in creating our future. For this to happen, leadership from the government, private sectors and other key stakeholders need to create an enabling environment that will help entrepreneurial leaders to thrive. And African entrepreneurial leaders will need to tap ever deeper into perhaps their greatest asset — incredible resilience and ingenuity to solve challenges.