Tech start-ups are the solution to boosting economic growth in Africa

Africa is trailing behind the world in developing a knowledge-based, digital economy but governments can change this by supporting tech start-ups through incentives and investment in workforce skills, says the World Economic Forum.

Businessman holding a tablet showing holographic chart that portraying rising growth

The World Economic Forum (WEF) believes that digital transformation can boost economic growth in Africa by connecting the region to the global digital economy. According to a new report, written in partnership with Deloitte, this will not only open new opportunities for small businesses but will also increase intra-Africa trade, which currently sits at 16% compared to intra-Europe’s 65-70%.

Africa may sadly be trailing behind the world in developing a knowledge-based digital economy, but the WEF believes this can be changed by governments fuelling tech start-ups and other small businesses through incentives and investment in workforce skills.

And the interest is there, as a study by World Mobile reported that African business leaders believe the expansion of the African middle class, coupled with government support, is driving demand for innovation.

Local experts are key to overcoming Africa’s biggest challenges

With the challenges facing Africa now and in the coming years, from rapid urbanisation and population growth through to climate change and food security, Meredith Ettridge, Head of Sustainable Development at the Royal Academy of Engineering (RAE), believes that on-the-ground solutions by local experts are key to tackling issues effectively and sustainably.

“The more under-represented groups involved in the design of solutions, the more those solutions keep the needs of under-represented groups in mind,” she says. “African entrepreneurs are best placed to create solutions for where they live and develop bespoke solutions that suit their communities.”

Investing in tech entrepreneurship is laying the foundation for a new future for Africa. What makes the continent so difficult is also what makes it the best place to be from a tech perspective, as it’s the fastest growing continent and home to an abundance of opportunities that innovation and technology can solve.

Tech start-ups such as online retail giant Jumia, Africa’s first unicorn, represent what the continent’s vibrant small business sector is capable of, and examples of exciting African start-ups keep coming.

Take Social Lender for example, a digital service that provides immediate access to formal financial services to those with little or no previous access. It’s creator, Faith Adesemowo, was a finalist in the RAE’s Africa Prize for Engineering Innovation.

“More than half of Africans lack this access, most of these being farmers, traders, artisans, young professionals, small business owners and students. Social Lender partners with service providers like banks and microfinance institutions to offer access to financial services based on ‘social reputation score’,” says Ettridge.

Then there’s the Health and Safety Dialogue Company, which began by changing South Africa’s approach to safety in industrial environments through the use of communication technologies, while Nigerian start-up, SecureID, developed an identity management solution that enables African governments to verify the identity of their citizens.

Africa’s ‘big four’ start-up ecosystems

These are just a few examples of the myriad start-ups being created across Africa, but you’ll find that the majority of successful start-ups come from Africa’s ‘big four’ economies – Nigeria, South Africa, Egypt and Kenya – which have well-established tech start-up ecosystems.

“Nigeria is seen as the leading light for African tech thanks to its abundance of developers and start-ups already, but it isn’t the easiest environment for founders to navigate when it comes to regulation and infrastructure,” notes Daan Sanders, an investor at VNV Global.

“Kenya is another growing hub thanks to its extremely fast internet speeds and the impact of global tech companies such as Facebook, Microsoft and IBM setting up offices here.”

Barriers to success

Exciting new ideas can be found all over the continent, but the opportunities for entrepreneurs can differ greatly depending on the country they call home.

“Ultimately, where markets are more mature, access penetration is high, where there’s broad access to capital and transactional capabilities, tech start-ups are better set up for success,” says Wesley Lynch, CEO of edtech company Snapplify.

Corruption is still a concern in many countries, but experts agree that the biggest barriers to entrepreneurialism and tech innovation in Africa are a lack of reliable infrastructure and funds.

“Innovation is dramatically hampered when access to power and connectivity is either unaffordable, unreliable or non-existent. As technology costs reduce and access improves, I expect the barriers to reduce,” says Kevin Gaskell, an angel investor in Africa-based technology companies.

More funding and access to capital for entrepreneurs will also help, continues Sanders. “Though levels of funding going into Africa are growing ­­– last year start-ups on the continent raised US$5.4bn – that’s still a fraction of the levels going into Europe and the US.

“More investor money and attention will help companies scale, but it requires international investors taking the time to understand the particular challenges and opportunities across the continent,” he notes.

Things are looking positive in this area however, as a new report by World Mobile shows that more than half (54%) of African senior executives expect spending on tech start-ups on the continent will more than double by 2025 to $10 billion, with one in six (16%) believing this figure will reach over $15bn.

“Africa is seen as ripe for economic expansion by its own business leaders and technology will play a vital role in delivering the development, says Micky Watkins, CEO of World Mobile.

“The potential is huge as currently Africa only accounts for 0.2% of the global money invested in technology start-ups so there is capacity for growth and huge interest from Western and Chinese foreign direct investment.”

Increased governmental and regional support can also help, and a number of African governments have introduced different schemes that could be adopted by other nations.

For example, in the Republic of Côte d'Ivoire the government introduced a tax incentive that directed investment away from commodities and into innovation, while Rwanda is investing heavily in promoting the country as a tech hub, including the establishment of Kigali Innovation City. In Tunisia the government offers state salaries for up to three founders per start-up during its first year of operations, with a right to return to their old job if the venture fails.

There’s also an ever-growing tech start-up community across the continent, highlights Tingting Peng, Chief Capital, Strategy and Impact Officer at Nigerian-born fintech Moove. “Thanks to organisations such as AfriLabs, which provides physical spaces for start-ups as well as advisory and legal services, start-ups across the continent have access to the support and guidance they need to grow and thrive,” she says.

“There are also an increasing number of early state funds, such as Endeavor Catalyst investing in Africa, local funds like Future Africa and company builders including Antler. Not to mention, former founders are coming together to support the next generation of entrepreneurs, such as Norrsken VC, with its African Tech Growth Fund.”

The future of tech innovation in Africa

There’s a strong correlation between entrepreneurship and economic development as it enhances the productivity, capacity and size of the economy with the help of creativity and increasing competitiveness.

Africa has a relatively young and ambitious population, with around 22% of adults starting their own businesses says Sanders, showing its potential to become a hub for tech innovation and entrepreneurialism.

Peng believes that Africa has the potential to be like South East Asia in terms of tech adoption, “so the foundations being laid now will help pave the way for long-term sustainable growth. It’s an exciting time to be in African tech, and it will only grow from here,” she concludes.