startup-africa
Business Management

German View on Startups: South Africa vs. Nigeria

South Africa and Nigeria are the biggest markets in Africa. Recently Jim O’Neil highlighted Nigeria as one of the next emerging global powerhouses, and while many individuals on the ground had issues with this prediction, it recently replaced South Africa as Africa’s largest economy.

“Starting a business in South Africa is about 85% like Germany,” says Manuel Koser, “[whilst] starting a business in Nigeria is about 25% like Germany.”

Koser knows from first-hand experience. Over the last few years he has worked with Rocket Internet to launch two highly successful African startups: Zumia in Nigeria and Zando in South Africa. He is now based in Cape Town and is a founding partner of Silvertree Capital, a business incubator that focuses on Sub-Saharan markets.

All over the world people are focusing on the startup scene and things are no different across Africa: “Most people don’t really know what happens behind the curtain of startups,” as Koser. “They just read about things in the press. [The] reality and press are quite different. This means you end up with a herd mentality where people follow something that isn’t real.”

“My example is that there are startups which get huge PR attention across Africa. [Many of] these aren’t fundamentally good businesses, they just have very good connections and can market themselves very well. That leads to more businesses running in the wrong way.”

“One of my favourite examples was a wine rating app that was launched two years ago and attracted famous South African investors. But fundamentally the market was so small it was super tricky to make this model profitable.”

Overall, South Africa is a lot easier than Nigeria to start a business in but Koser still feels there is an erroneous attitude from outsiders: “Something works elsewhere and people think they can just plug it into South Africa. They don’t understand that the ecosystem is quite different. One part is the funding environment. They’re used to having hundreds of millions of dollars in a structured form that they [as an entrepreneur] can tap into.”

This isn’t the case at all in South Africa. “You are in the old way of doing business 40 years ago, where you have to fund it privately through bank loans, or actually run a business that is operationally profitable and can fund itself,” he explains.

Nigeria of course, is another thing entirely. “People who live and study abroad think it is the holy land of opportunity but the reality is that it is a very tough environment. It is a rollercoaster ride. It is one of the most interesting countries to be an entrepreneur in Africa. But it also one of the most difficult ones to crack.”

Koser describes the small circle of people who have influence. This means “you don’t know how things are done until you’ve met the right people”. He also explains that structurally the market is extremely far behind and cash focused.

However, he believes that one of the biggest problems for foreigners coming in is that there are a lot of missing amenities which outsiders expect, not least the issue of power. “One problem for me,” says Koser “is I can’t imagine myself living in Lagos for five or ten years,” and that is the kind of commitment you need.

“There are so many opportunities [though],” he adds. “Just driving from the airport, you think: this could work here, this doesn’t exist, there would be demand for this - and there would be - it is just a very difficult environment. You would have to want to live in the country for a while. Things don’t happen the next day. It takes years to establish the [right] relations and the business.”

Koser trialled two startups that failed in Nigeria. “It was the wrong strategy: too much emphasis on foreigners, we didn’t like living in Lagos. It is trickier than you would think to get stuff done there. Things happen that you wouldn’t expect to happen. It is a little bit of a fight to get things done each day.”

Many outsiders are looking at Nigeria at present. And someone will corner the market soon to make it big. The trouble is, like in India, it is likely to take both a lot of money and a lot of perseverance for ideas to work.

At present, back in South Africa, Koser and his partners are focusing “on businesses that will turn profitable quite quickly so we’re not dependent on future capital injections. The market [South Africa] is so young from a funding and experience perspective,” he concludes “it is very important for us to be close to the day-to-day running of the business.”

 

 

IDG Connect publishes a variety of information on markets across Africa:

 

Spotlight: The Tech Startup Scene in Cape Town

Country Spotlight: Nigeria

Buea: 8 Startup Profiles from Cameroon’s Leading Tech City

 

 

Kathryn Cave is Editor at IDG Connect

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