Start-ups can help fuel next big leap in Africa’s economic growth
• Funding and support for young firms will help the continent
In the two decades leading up to the Covid-19 pandemic, many subSaharan African countries have seen unprecedented growth. In fact, in 2019 the five fastest-growing economies on the planet were all African.
Meanwhile, the region as a whole has seen its economy quadruple since 2000. Much of that growth was driven by increased domestic demand, improved macroeconomic management, a growing middle class and advances in political stability.
However, post-pandemic Sub-Saharan Africa has struggled to return to the same sort 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. But that does not say the region cannot return to the growth rates it enjoyed a few years ago.
But if it is to do so while 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 start-ups have the support and conditions they need to help fuel the continent’s next wave of growth.
COMING TOGETHER
In many ways, the right conditions for start-up growth are coming together organically. Take connectivity.
A growing number of undersea fibre-optic 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 effect that growth in undersea cables is having, consider that Google’s Equiano cable is expected to indirectly contribute to the creation of 180,000 jobs and increase GDP by up to $7bn by 2025 in SA alone. That growth (twice as many people in Africa now have internet access as did in 2015) will be pivotal in ensuring the continent ’ s middle class keeps growing and is more robust than at present.
By one estimate, Africa reaching 75% internet penetration could see the continent create 44-million jobs.
That increasingly connected middle class could form the large domestic base that can be so critical to start-ups growing and thriving before expanding globally.
With a population that is 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 GROWTH
But if that growth is to reach its full potential, a healthy start-up environment will be crucial. You only need to look at how much
value start-ups have added to the global economy to see how much effect they could have in Africa.
According to the World Economic Forum, the value start-ups create is now almost on a par with the GDP of a Group of Seven economy.
But it is also worth noting that Africa is still in the early parts of its start-up growth journey.
Evidence of that can be found in that of the 1,000-plus unicorns found globally (startups valued at $1bn), just seven are African.
Further evidence can be found in the funding raised by start-ups on the continent. While African start-ups raised a record $5.4bn in 2022, that is still just a fraction of the more than $200bn that North American start-ups raised in the same period.
Imagine what effect African start-ups could have and the difference they could make to its billion-plus people if they had
anything like the same kind of funding.
SUPPORT
Of course, allowing start-ups to reach their full potential requires more than just funding. It requires support across the full breadth of the ecosystem, including from big companies.
A few years ago big businesses supporting start-ups may have seemed like the business equivalent of turkeys voting for Christmas. For big, established players, agile technology-enabled start-ups represented competition that was almost certainly coming for their lunch. Today, those same corporates increasingly recognise the value of start-ups, especially when it comes to building the technology companies needed to drive their own growth and expansion.
A further incentive for private sector backing of startups comes from the principle that a rising tide lifts all boats.
So, if start-ups are fuelling
economic growth, established players stand to benefit too, simply by having bigger customer bases with more disposable income.
There are many other benefits too, especially when established entities find the right investment partners.
We have seen this at Founders Factory Africa, where our corporate collaborators are offered a derisked investment model of innovation, alongside opportunities to test concepts and learn with novel technologies across new markets.
It should be clear then that start-ups can, and should, play a huge role in Africa’s next big economic leap forward.
But it should also be clear that, by giving start-ups the best chance of playing that role through funding and support, everyone (including established corporates) stands to win.
A FURTHER INCENTIVE FOR PRIVATE SECTOR BACKING OF START-UPS COMES FROM THE PRINCIPLE THAT A RISING TIDE LIFTS ALL BOATS