If you thought about the African technology space when you read the word “Ecosystem”, you are not far from the subject of this post. Having established this, we can also agree that a lot of buzz has being generated but nothing specific or redefining is being achieved. From being named one of the fastest growing economies globally, to some countries on the continent being credited with being Africa’s response to Silicon Valley type innovation, there are a number of factors responsible for the seeming obfuscation of these statements of fact when measured against apparent realities.
This is not to say that there is a decline in the growth of the ecosystem but contradictory to the belief of the general public, businesses started up by African entrepreneurs are not sustained because they are not focused on solving the social ills and daily problems faced in their immediate surroundings.
It is not enough to have a solution to a problem. With a lot of undeveloped ideas lingering in the minds of a high percentage of people on the continent, capital has always been the major stumbling block entrepreneurs in Africa have had to contend with. On paper, the documentation looks great but cannot be executed due to lack of capital. Capital has for a long time proven to be a major factor to unlocking the other factors of production – Land, Labor and Enterprise.
Finding the right capital to jumpstart an entrepreneur’s dream of birthing their startup continues to be a challenge. When founded, the businesses grow for a few years but the direction is often either into marginality or become bankrupt. In very few cases, they grow to become big and successful business institutions. If you take a deep dive into the triggers for these firms running into extinction, capital is often times a key piece of the puzzle. What the lack of capital does is it breaks the flow of sustainable value creation by the businesses.
When capital is efficiently deployed, entrepreneurs plan on the best ways to expand the reach of their business to accommodate a wider range of customers and deepen market penetration. The ecosystem is also rewarded because then they can trade equity because sustainable value has been created. Thereby making capital and value available to entrepreneurs and investors to seek incremental returns.
The African technology and startup ecosystem is in dire need of an efficient capital market as this will go a long way in helping solve problems of sourcing capital and enabling entrepreneurs plan for the long term. This will also empower them to create sustainable value and provide a platform for exits. The platforms for capital investments could be the typical Private Equity firms, Venture Capital and the more traditional Stock Markets with strong technology bourses.
With availability of Capital, the propensity to acquire labor becomes feasible. In an increasingly global ecosystem with strong emphasis on localization especially in Africa, (see my previous post on this here) the competition for talent becomes global. This is because businesses in developed markets will increasingly seek to enter local ecosystems to deepen their value in search for growth. Businesses from developing markets are also taking steps to be global in order to compete and diversify across markets. Talent to drive this value creation process will be a mix of both local and international individuals with requisite skill set.
With a catchment market and opportunity that is significantly much smaller than developed markets, the economics of the ecosystem then becomes mismatched with the realities it will have to face in the fast changing competitive landscape with a ton of international competitors. Specific areas include; global competition for talent, capital that is increasingly seeking minimal risk investment and enterprise capacity that seeks out the highest returns in stable environments.
With adequate capital, talent will be more available and the supply side more competitive and effective, leading to the continuous expansion of the African Ecosystem with particular emphasis on local businesses.
This article first appeared on LinkedIn.
