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The Rise and Perils of West African Startups

By Raindolf Owusu                          

Every week an African startup is showcased on CNN or Forbes for building innovative companies that are addressing critical local issues. Taking inspiration from global tech successes, a number of African startups have adapted these business models to become sustainable and profitable, such as iROKOtv, launched in 2011 and dubbed the “Netflix” of Africa, providing thousands of Nigerian films on-demand.

With these successes, a number of international foundations, such as Indigo Trust UK, Omidyar Network, and the Bill and Melinda Gates Foundation, have looked to support African startups that show potential for growth and innovation, while being committed to social change. Through technology hubs, week-long hackathons, tech bootcamps, and competitions, these efforts have helped African entrepreneurs share information, receive funds, and find mentorships that allow them to further develop their companies.

However, despite the attention paid to Africa’s successful entrepreneurs and the international funders that support them, many African startups face a host of obstacles, which hinder their success and profitability. Before we can have the next Microsoft in Africa, such challenges must be addressed.

To begin, western foundations, tech hubs, and hackathon organizers fail to provide long-term support for winners in terms of evaluating and monitoring their business growth. Since there is a vast difference between developing a startup in a one-week competition and maintaining a startup business in the market, entrepreneurs often give up their business after a few years because they struggle to maintain their operations and navigate the brutal reality of founding a company.

Furthermore, African startups face a number of structural obstacles. In 2014, 27 percent of Africa’s 1.1 billion population were connected or had access to the Internet. Therefore, from the onset of developing a startup, the user base is already quite limited. High rates of illiteracy in most African countries also hinder the success of technology startups because illiterate consumers are unable to understand or utilize such technology.

In addition to the shortage of Internet access in Africa, startups must develop an efficient and affordable marketing model—hardly an easy task. Social media is a useful marketing model when a startup’s potential users are the more tech savvy younger generation. However, if the startup business is geared toward the general public, then traditional marketing models, such as TVs, radios, and billboards, are more appropriate, though generally more expensive. Payment methods for the services that online startups render have become even more difficult because many West African countries remain blacklisted from Paypal as a result of the considerable rate of credit card scams in the early 2000s.

Although government policies play an integral role in facilitating the smooth operations of technology entrepreneurs in their respective environments, these policies are not always effective. In 2013, the Ghanaian legislature implemented the Ghana Investment Promotion Centre Act, or GIPCA, which increased the minimum amount a foreign firm must invest in a Ghanaian startup company to $200,000. While this is surely a significant amount, it does not align with current investor preferences. At present, organizations abroad are willing to invest in Ghanaian startups, but usually at the $5,000 to roughly $100,000 level—well below the amount required by the GIPCA. Local investors do not fill this gap, as they are currently unwilling to make investments in startups, preferring instead to give their money to foreign funds for management.

To overcome these obstacles, tech startups in Africa must be recognized for their potential to boost their respective national economies—similar to how Silicon Valley has generated both wealth and employment in the United States—with governments implementing policies that will support the growth of startups.

One possible way this could be done, particularly in Ghana, would be to amend sub-clauses in policies in favor of startups. Governments should regulate the multinational corporations that dominate the software services industry in Africa and ask them to contract local companies for at least 40 percent of their technology needs. In 2014, for example, IBM signed a $66 million five-year contract with Fidelity Bank Ghana to manage information technology infrastructure and services. Similar efforts are being taken in other African countries, but more need to happen—and at a quicker pace.

Furthermore, long-term support of startup businesses should not only come from foreign investors, but also from local and regional investors. Although collaborations between the Eastern and Western African technology scenes are few and far between, there has been a recent push to promote intra-African collaboration and communication. The problem with the tech community in Africa, however, is that there are isolated pockets of expertise. African entrepreneurs are more likely to work independently and compete with other entrepreneurs, rather than collaborating. Such competition among locals also leaves the door open for well-organized foreign companies to come into Africa, which could further hinder the progress of startups. Internet-backed technology startups will therefore only be able to successfully develop and stimulate economies across Africa when the right structures are in place.

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Raindolf Owusu is a Ghanaian software developer and founder of Oasis Websoft. He is a strong advocate for free and open-source software (FOSS) and believes technology is a powerful tool to boost economic growth, reduce poverty, and solve most of Africa’s problems.

[Photo courtesy of Wayan Vota and U.S Embassy Ghana]

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