Intra-Africa Entrepreneurship:

Nurturing Africa’s Economic Renaissance

A wave of entrepreneurial vitality is sweeping the African continent, with more people daring to establish and nurture enterprises within and across the continent. The African Development Bank has previously indicated that 22% of working-age people in Africa start a new business, more than anywhere else — the highest rate of entrepreneurship in the world. These businesses are also innovative, with 20% of new African entrepreneurs introducing a new product or service. At the same time, funding for startups and African businesses has witnessed unprecedented growth in the last decade, albeit more muted following the aftershocks of COVID-19. Still, this intra-Africa entrepreneurship is playing a pivotal role in creating jobs and spurring growth. As a collective, Africa could emerge as one of the world’s largest economies by 2050. Fostering its entrepreneurial spirit could be catalytic in propelling us toward this milestone.

Three Key Challenges

The scale of this potential is hampered by recurring challenges. One of the main hurdles faced by entrepreneurs is the lack of access to reliable funding, given the ebbs and flows of international financial markets. Second only to March 2023, January 2024 has so far been the slowest month for fundraising announcements in the last six years. This poses a direct threat to the momentum generated by the entrepreneurial wave. Additionally, there is a lack of coordinated effort among African nations which is prioritising intra-Africa trade but instead, placing less emphasis on intra-Africa entrepreneurship. In the absence of a unified strategy, entrepreneurs face inconsistent regulatory frameworks, varying taxation structures, and disparate policies across Africa’s borders. This creates a labyrinth of complexity, discouraging the very essence of entrepreneurship — the freedom to innovate, and scale without unnecessary barriers.

Third, cross-border financial infrastructure remains in issue. African businesses face challenges in accessing banking services and conducting crossborder transactions efficiently, limiting their ability or inclination to grow across the continent, even if successful in their subregion. This impact isn’t confined to the vibrant small businesses driving the continent’s economic pulse; even institutional operators are affected. These hiccups underscore the urgency for the continent to prioritise investment in- and promotion of efficient payment mechanisms that enable seamless and cost-effective fund transfers between African countries.

All of these hurdles raise crucial questions about the strategies African sovereigns, corporates and entrepreneurs can adopt to finance long-term growth projects, develop local businesses, and expand seamlessly across African markets.

Evolving Dynamics in International Financial Markets

A look at the Eurobond issuances by African entities— sovereign and corporate—over the past five years relative to the current year, tells a story. It reveals a pronounced decline, signalling a noteworthy shift in Africa’s access to international capital markets. This shift in dynamics necessitates a deeper examination of how Africa can adapt to the changing face of international financial markets. Multiple factors interact to shape this scenario. First, the surge in interest rates in Western economies has reverberated worldwide. African issuers face the brunt of this, grappling with less favourable borrowing conditions. Elevated rates in turn make borrowing more expensive for African businesses, deterring international financing opportunities and exacerbating the financial exclusion.

Second, risk profiles are not necessarily aligned with risk appetites. Despite efforts by African issuers to improve their risk worthiness, persistent misconceptions continue to dampen investor confidence. The reluctance of investors seeking stability amidst uncertain economic climates, results in a diminished appetite for risk associated with frontier markets, muting capital flows into the region.

Local Financing Solutions

Strengthening local capital markets is pivotal for powering intra-Africa entrepreneurship. Robust financial markets are the backbone for efficient capital allocation, enabling businesses to thrive. This necessitates a commitment to supporting and fortifying critical financial infrastructures for stocks, bonds, and an array of financial instruments that collectively breathe life into the entrepreneurial spirit of a region. It goes beyond creating a space for financial transactions; it’s about creating an ecosystem where ideas can transform into tangible businesses, and where innovation is rewarded.

Deepening local financing solutions also involves prioritising homegrown private credit funds and capable financial institutions that deploy private equity funds in local currency. A challenge arises when venture funds predominantly operate in US dollars, expecting returns in the same currency. It begs the question: where will the dollars come from? This is particularly pertinent when facilitating businesses in countries like Nigeria, where transactions predominantly occur in the local currency, the naira. Solving for this means incentivising local venture and private equity funds from the start, to raise in local currencies. This aligns with the practicalities of day-to-day business operations, enabling entrepreneurs to access funding that corresponds with their operational currency; in time, reducing exposure to currency risks.

A Coordinated Approach

Imagine if Africa functioned as one country. It could streamline and harmonise regulatory frameworks; creating standardised processes for business registration, taxation, and compliance, reducing the bureaucratic hurdles faced when operating across borders, and creating an environment of nimbleness essential for Africa’s entrepreneurs. It could establish pan-African institutions dedicated to supporting entrepreneurship: providing mentorship, funding, and resources tailored to the unique challenges and opportunities faced by entrepreneurs operating across regions.

For this ideal to be effective, creating safeguards for raising funds across African borders, especially for business expansion, will be instrumental. Mainstreaming risk mitigation instruments like credit risk, cross-border risk, political risk and other transaction-related guarantees and insurance products, can attract ambitious investors by alleviating their concerns about political and market risks.

As the continent leans into its entrepreneurial spirit, let us be certain that we are fostering an ecosystem where financial empowerment becomes a shared reality. Let us also make a real commitment to creating avenues for African businesses to flourish, for investors to find opportunities aligned with their aspirations, and for the collective vision of a continent to materialise in the form of sustainable economic growth.