For decades, Africa bore the image of a fragmented continent, where corruption and poverty were rampant, institutions were fragile, and economic growth had stalled. Presently, these issues remain prevalent as young governments lack experience and expertise, leading to losses of over $60 billion annually for the continent as a result of corruption (World Bank Group, 2015). Nigeria for example, still faces a host of issues despite recently becoming the largest economy in Africa. Its poverty rate has doubled in the last five years, while unemployment rates reached 23.9% in 2012, up from 5.8% in 2006 (Nigerian Unemployment Rate, 2015). Although the number of active Sub-Saharan Africa stock exchanges since 1989 have increased from five (South Africa, Zimbabwe, Kenya, Nigeria, Uganda) to the current 16, most are in their nascent stage. Stock market capitalization remains low with exceptions to Nigeria and South Africa. Most exchanges are characterized by low turnover, liquidity, and international trading activity. Corporate debt markets are almost nonexistent. Benchmark yield curves on debt markets do not extend further than five years, and are limited to a few countries. However, despite the development challenges ahead, pockets of optimism can still be found.
A new wave of venture capitalists, angel investors, and young entrepreneurs have a grander vision for Africa in the coming decades - one revolutionized by technology hubs and improved infrastructure. Educated African Millennials inspire innovation and debate through their self-defining Pan-Africanism - the notion that all people of African descent are united and empowered by their cultural identity. The returning African diaspora, waves of doctors, business professionals, engineers, and humanitarians, are eager to turn the wheels of economic development forward. For example, the growing tech hub in Nairobi, Kenya has been keen to attract world-class investors including Microsoft, IBM, Toshiba, Google, and Apple. On the whole, Kenya's IT sector accounted for 5% of its national GDP in 2014. The government wishes to raise it to 35% by 2030 (Globe and Mail, 2013).
Kenya's ambitious development goals are met with support from global institutions and investors. World Bank analysts put Africa at a similar stage as India was 20 years ago. The World Bank further estimates that GDP growth will continue to soar above other regions if governments decide to implement sound macroeconomic policies. Kenya's expanding underground market must be combatted with acceptable tax compliance levels; the rising integration of regional economic communities such as the Common Market for Eastern and Southern Africa (COMESA) call for harmonized regulatory frameworks. As Pan-African integration is realized, governments will need to be cognizant of effective policies to encourage growth.
Overall, we have already seen progress in Africa's mobile banking, cellphone markets, and app-development spheres. Dubbed the Silicon Savannah, Nairobi has a growing young and digitally savvy population; amidst its three million people, 5,000 are millionaires and 74% of the population use mobile money. Mobile banking in transaction volumes was worth $655 million in 2014, and could be worth as much as $1.3 billion by 2019 (Caulderwood, 2015). It is a transitory solution for poor infrastructure and an institutional efficiency that enables millions of people to connect to health care and other services through their mobile phones. M-Pesa is a mobile money system launched by Safaricom in 2007 that offers cash transfers via text message, and has integrated farmers, local businesses, and customers into a substitute banking network (The Economist, 2013). M-Farm is another success story built by a software and agribusiness company that introduced its application to Kenyan farmers (Globe and Mail, 2013). The application enables one to learn market prices in cities throughout the country via texting service.
There is even potential for innovative solutions to public health issues in countries like Ghana, where patients in rural areas often have to travel long distances for healthcare, as hospitals are limited in number and infrastructure is underdeveloped. This has created a market for fake medicine, to which many individuals fall victim. According to the World Health Organization, around 100,000 deaths per year in Africa are linked to counterfeit drugs use. An application called m-Pedigree helps to verify whether or not medicines are genuine. Other applications such as Ushahidi, Naila, and iHub add to an ever-growing list of innovative solutions for citizens that top-down government and corporate approaches are unable to deliver.
While entrepreneurial sentiment is burgeoning, there are some fundamental issues that divide its potential for impact and actual success. One of the key issues facing policy makers and international investors is that necessity seems to be a key motivator of entrepreneurial activity. While total early-stage entrepreneurial activity is high in many countries, such as Zambia (42%), Ghana (37%), and Nigeria (35%), there is a significant lack of higher education and training, technological readiness, financial market sophistication, entrepreneurship education, and internal market openness in order to attract the attention of angel investors and venture capitalists (GEM Consortium, 2012). Although a third of funding for Silicon Valley ingenuity comes from these sources, only a mere 2% of Kenyan startups attract external funding (GEM Consortium, 2012).
This does not come at a surprise; most African economies are factor driven, meaning that key drivers of growth are the agricultural sector and natural resource extraction. "There is a shortage of great startups that are also ready to take off" , says Amrotte Abdella, director for start-up engagements for Microsoft in Africa (Nyambura-Mwaura, 2014). Venture capitalists often find themselves in situations of high risk when bureaucratic red tape, inefficient taxation, and other macro-factors restrict business support. As most investors in this field will seek returns of 2-3 times their investment in periods shorter than five years, policy makers need to seek means of generating greater foreign interest and domestic support.
Thus, governments should turn towards supporting early-stage entrepreneurial activity to established business activity, where businesses can begin to hire other employees. 82% of entrepreneurs in Malawi and 59% in Ghana have no employees and thus characterize themselves as self-sustaining entrepreneurs (GEM Consortium, 2012). Despite this, 33% of Nigeria and Botswana's entrepreneurs expect to add more than five employees to their business in the next five years, which could play a major role in reducing youth unemployment and fighting the human capital drain. Policies need to be oriented towards integrating private public partnerships and promoting R&D transfers and financial restructuring. Only then will we see sustained business activity in the SME sector that can create real employment.
As sound financial systems are the foundation for business development, new funding models that are not solely based on the asset-based financing structures of current banks could enable entrepreneurs to obtain seed capital easier, without providing collateral that is currently required by commercial banks (Deutsche Bank, 2013). Furthermore, private individuals and corporations should be incentivized to provide equity, grants, or loans to new ventures through tax reforms. Lastly, knowledge-intensive research initiatives should be supported through public-private partnerships and investment in higher education. To address the problem that investors face in trying to find ready-to-go startup ideas, it is necessary that assistance programs and mentorship be more readily available to entrepreneurs.Overall, there is vast potential for Africa to realize instrumental growth as GDP levels are set to parallel those of Southeast Asian nations. Though governments are still tasked with harmonizing uneven development and creating a welcoming business environment for both its citizens and foreign investors, there is much promise as hubs of heightened business activity are expanding. The booming service sector of Kenya, its high-speed mobile banking initiatives, and optimism amongst intended entrepreneurs set a unique development trajectory that other African nations could model. If carefully managed and respected, Africa could very well be the success story of the 21st century.