African startup ecosystems must embrace radical change to truly evolve

Lagos startup ecosystem

It’s no longer news that tech startups in Africa are spearheading the continent’s journey to sustainable development. M-PESA and its mobile money success are hard to forget. The same goes for Africa’s fintech scene, an environment some analysts believe Silicon Valley startups can learn about longevity. 

Despite the bright future Africa and its growing fold of brave entrepreneurs have, a recent study found that its ecosystems are miles behind their competitors across the globe. The list of high-ranking startup ecosystems features names like Silicon Valley, New York City, London, Los Angeles,  and Tel Aviv. 

While Europe and North America dominate the list, it’s worth noting that Latin America (São Paulo) and Oceania (Sydney and Melbourne) are represented, though mildly. Moving on to the list of emerging startup ecosystems, Nairobi, Lagos, and Cape Town represent Sub-Saharan Africa. Cairo also makes the list, though it’s classified as a member of the Middle East and North African (MENA) region. 

Sub-Saharan Africa accounts for a paltry 3% of the list of emerging ecosystems. MENA is slightly above, with a share of 4%. Europe, North America, and Asia enjoy the major share with 41%, 29%, and 16%, respectively.  

Report on emerging startups in Africa
Why has Africa failed to make it into the big league? 

An article describes Africa as “a future tech superpower.” It notes that while it has a fast-growing network of startup ecosystems, it lags behind other regions. The previous section corroborates this argument. 

Regarding Africa’s ecosystem challenges, it’s easy to identify the lack of funding as a primary factor. While this isn’t a misplaced decision, the issues go beyond a shortage of checks. Africa has a significant infrastructure gap that affects the delivery of services not limited to electricity and internet connectivity. 

According to data from the United Nations, Africa has an annual infrastructure funding gap of up to $100 billion. This hurdle makes it difficult for startups to operate at their full potential, thus raising the chances of failure. 

Another notable roadblock is the absence of a uniform regulatory framework. When every country has a different licensing regimen, it complicates market expansions for startups.  

Consider this story we reported yesterday. SpaceX (makers of Starlink) doesn’t consider South Africa a high-priority market for a potential Starlink launch. The reason for this was the licensing issues it had encountered so far. So while satellite internet service is accessible in markets like Nigeria and Kenya, South African remains on the sidelines.  

Imagine if the continent adhered to a universal law that companies must satisfy before obtaining licenses. That would eliminate the bureaucracy factor and improve the situation. 

Read also: 4 problems the Nigerian tech ecosystem failed to solve in 2022

How Africa can invoke radical change 

Although African ecosystems are behind their counterparts, the continent has made major progress in recent times. Sub-Saharan Africa registered a 227% increase in early-stage funding. 

The early-stage deal count also rose by 43.8% between 2018 and 2022. Lagos tops in terms of ecosystem value ($8 billion) followed closely by Nairobi ($7 billion). These stats resonate with the region’s steady growth amidst existing challenges.  

The private and public sectors must strengthen their collaborations to make a strong case for the region. If the region grows, everyone thrives, and vice versa. 

4 technology ideas newbie startups can leverage to become successful

As such, the first recommendation would be to establish a conducive environment for startups. This includes boosting internet penetration in the ecosystems, making laws that support startups, and driving interest in home-based tech innovations. 

Consider electric vehicles, a nascent but promising segment in Africa. If African leaders mandated workers in ministries, departments, and agencies to use locally-assembled EVs, this could send a positive signal to citizens. But most importantly, it would increase patronage, thus growing local EV startups.

Another growth strategy would be to close the funding gap. To do this, every African country should establish a startup fund. This fund would not replace venture capital firms or angel investors but serve as a support mechanism. If fintech startups were to experience a funding drought, the government-managed fund would ensure that the business keeps moving. 

Following the rapid growth of startups and the tech sector, some countries have taxed these businesses as part of their revenue generation strategy. For instance, Kenya’s recently passed Finance Bill targeted content creators and digital asset exchanges. Although the intent is to bolster the country’s coffers, it places startups at a disadvantage. Reviewing their taxation approach would be a great way to support startup ecosystems. 

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