Startups can help fuel the next big leap in Africa’s economic growth

..by Ayobamigbe Teriba, Venturing Sourcing Lead, Founders Factory Africa

In the two decades leading up to the pandemic, many Sub-Saharan African countries have seen unprecedented growth. In fact, in 2019 the five fastest-growing economies on the planet were all African. The region as a whole, meanwhile, has seen its economy quadruple since the year 2000. Much of that growth was driven by increased domestic demand, improved macroeconomic management, a growing middle class, and advances in political stability.

Post-pandemic, however, Sub-Saharan Africa has struggled to return to the same kind of growth rates that had characterised the previous two decades. In 2022, for instance, economic growth decelerated from 4.1% in 2021 to 3.3%. Much of that decline was due to a slowdown in the global economy, coupled with rapidly rising inflation sparked by Russia’s war in Ukraine. That does not, however, say that the region can’t return to the growth rates it enjoyed a few years ago.

But if it is to do so, while also shielding itself from further global economic shocks, it has to look beyond the factors that drove its first wave of growth. One way to do that is to focus on ensuring that the region’s startups have the support and conditions they need to help fuel the continent’s next wave of growth.

Read also: “Almost 4000 attendees, 90+ exhibitors,” Lagos Startup Expo was a smashing success

Conditions coming together

In many ways, the right conditions for startup growth are coming together organically. Take connectivity for instance.

A growing number of undersea fibreoptic cables have landed in Africa in recent years, with more set to come. Each of those cables has helped drive up internet speeds on the continent while driving down connectivity costs. That means more people are able to access better quality internet more affordably. As an illustration of how big an impact that growth in undersea cables is having, consider the fact that Google’s Equiano cable is expected to indirectly contribute to the creation of 180 000 jobs and increase GDP by up to US$7 billion by 2025 in South Africa alone.

That growth (twice as many people in Africa now have internet access as did in 2015) will be pivotal in ensuring that the continent’s middle class keeps growing and is more robust than it currently is. By one estimate, Africa reaching 75% internet penetration could see the continent create 44 million new jobs.

That increasingly connected middle class could form the large domestic base that can be so critical to startups growing and thriving before expanding globally. With a population that’s younger (60% of Africans are aged below 25) than most other regions around the world, that same middle class is also likely to be more willing to embrace new technologies – especially if they address real-world problems. 

Building on recent growth

But if that growth is to reach its full potential, a healthy startup environment will be crucial. You only need to look at how much value startups have added to the global economy, to see how much of an impact they could have in Africa. According to the World Economic Forum, the value that startups create is now nearly on par with the GDP of a G7 economy.

But it’s also worth noting that Africa is still in the early parts of its startup growth journey. Evidence of that can be found in the fact that of the 1000-plus unicorns found globally (startups valued at US$1 billion), just seven are African. Further evidence can be found in the funding raised by startups on the continent. While African startups raised a record US$5.4 billion in 2022, that’s still just a fraction of the more than US$200 billion that North American startups raised in the same period.   

Imagine what impact African startups could have and the difference they could make to its billion-plus people if they had anything like the same kind of funding.

Unleashing potential through support

Of course, allowing startups to reach their full potential requires more than just funding. It requires support across the full breadth of the ecosystem, including from major companies.

A few years ago, big businesses supporting startups may have seemed like the business equivalent of turkeys voting for Christmas. For big, established players agile technology-enabled startups represented a new form of competition that was almost certainly coming for their lunch. Today, those same corporates increasingly recognise the value of startups, especially when it comes to building the technology companies needed to drive their own growth and expansion.

Further incentive for private sector backing of startups comes from the principle that a rising tide lifts all boats. So, if startups are successfully fueling economic growth, then established players stand to benefit too, simply by having bigger customer bases with more disposable income.

There are numerous other benefits too, especially when established entities find the right investment partners. We’ve seen this first-hand at Founders Factory Africa, where our corporate collaborators are offered a de-risked investment model of innovation, alongside opportunities to test concepts and learn with novel technologies across new markets. 

Choosing the best path

It should ultimately be clear then that startups can, and should, play a significant role in Africa’s next big economic leap forward. But it should also be clear that, by giving them the best chance of playing that role through funding and support, everyone (including established corporations) stands to win.