Why Africa needs to scale up investments in incubators and entrepreneurial ventures

(By Adetayo Bamiduro) 

While other regions such as Europe are still learning to deal with fear of failure, Africa already has more than its fair share of entrepreneurs. However, this seeming advantage has not translated into global mega corporations that grew from within the continent. The reasons are not far fetched. Out of the wide range of possible reasons for starting a business, empirical studies have shown that survival and the need for alternative income are leading motivating factors.

Incubators and accelerators have now emerged as a potent entrepreneurial resource for kick-starting and accelerating high-potential innovative startups across the world. However, each region has its nuances, and that includes Africa.

While other regions such as Europe are still learning to deal with fear of failure, Africa already has more than its fair share of entrepreneurs. However, this seeming advantage has not translated into global mega corporations that grew from within the continent. The reasons are not far fetched. Out of the wide range of possible reasons for starting a business, empirical studies have shown that survival and the need for alternative income are leading motivating factors. Essentially, entrepreneurship is viewed as a potential parachute that could be used to escape the pit of poverty. The negative implication of this is that the few enterprises that initially succeed do not have world domination wired into their operating framework, and lack a strong motivation to take over the world, since that was never the objective. Enterprises also tend not to survive more than 2 generations, due to weak regulatory and institutional support mechanisms, and poor corporate governance.

Incubators and venture support systems in Africa should take note of these peculiarities as they work with entrepreneurs in Africa. Unlike Europe, entrepreneurial activity is already high, so the focus should not be to motivate Africans to start businesses. Rather, strong mentorship should be provided to aspiring entrepreneurs in visioning, corporate governance and long-term strategic thinking. In addition, access to basic resources and physical infrastructure is a significant barrier for entrepreneurs. The very high cost of doing business, especially in major African cities such as Lagos and Nairobi are also a major obstacle. Venture incubation programs should provide shared resources such as internet access, electricity, office space and food as these are absolute necessities for budding entrepreneurs, who often have no reserve income to draw on while working on their venture. Incubators may also need to go beyond idea validation. They need to provide robust target market evaluation and product launch support for African entrepreneurs, as there are not very many independent success stories just yet.

 

Let’s now explore the relevance of western entrepreneurship ideas to Africa

Unlike in the West where there is a wide range of mature industries, Africa’s best growth opportunities are concentrated mostly in four or five broad industries, based on the McKinsey’s “Lions on the Move” report. Therefore, entrepreneurial efforts in Africa should be focused on sectors that offer the best opportunity, based on market demand, quality of regulatory framework and the overall macro-economic ecosystem. Technology and mobile startups across the world have a fairly similar approach to launching and scaling their products but sectors such as consumer goods, agriculture and infrastructure tend to be more sensitive to local or regional nuances. In 2014, Nigeria’s ranking on the Ease of Doing Business Index was 147, Ghana was 67, South Africa was 41 and Rwanda was 32. These figures show that African countries have very different environments, and the Regulatory and institutional frameworks are at different stages of maturity. Each country has its peculiar strengths (and weaknesses) based on its resources and strategic priorities. The general lesson here is that there is no such thing as an Africa strategy. Africa is a continent of 52 unique and peculiar nations with varying interests and differing levels of political and economic maturity and stability. Therefore, entrepreneurship approaches should be evaluated and optimized for each country, and should incorporate internal and external risk assessment frameworks that are relevant to the economic and political realities in each country. A one-size fits all approach is never going to work.

 

I’d like to offer an opinion on a question that many people have asked me which is this: Is the Copy-Cat model relevant for Africa?

This is like asking whether products built in Europe would find application in Africa – of course! Interestingly, this question isn’t that relevant today, because a European company (Rocket Internet) already has built more than a dozen copy-cat startups across the African continent, and a good number seem to be doing well.

They now have investments in Nigeria, Ghana, Kenya and counting. I know this because I worked at one of Nigeria’s fastest growing ecommerce platforms just last summer and my host company’s greatest competitor was a Rocket Copy-Cat Company.

As I said earlier, Africa has 52 markets that are unique in their own right. The odds are that there is at least 1 of these 52 markets that is amenable to the wonderful startup ideas that have their roots in the Europe, America or Asia. One of my mentors once told me – “ideas are a dime a dozen! Execution is what matter most!”.I’d like to conclude by saying Africa is very open for business, and all ideas that create value and produce wealth are very welcome. Rwanda, Ghana and many more African countries are seeking the influx of foreign capital and foreign ideas to rapidly grow their economies. Today, nobody really cares about where ideas come from. They just need to make sense, and they need to be executed to perfection!

Adetayo Bamiduro

MBA Candidate | Class of 2015

MIT Sloan School of Management

“Opinion pieces of this sort published on RISE Networks are those of the original authors and do not in anyway represent the thoughts, beliefs and ideas of RISE Networks.”

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