Africa is a World Leader for Start-ups

Entrepreneur Regina Agyare is the founder of Soronko Solutions,

a Ghanaian software development company.

From ambitious teens taking on the world and tech pioneers breaking boundaries to maverick slum dwellers dreaming big and trailblazing innovators tackling social problems, CNN's African Start-Up has been following the efforts of the continent's innovative and determined entrepreneurs to make their business dreams become reality.

Indeed, all across the continent, a growing wave of grassroots self-starters are taking risks and defying obstacles to bring their money-making ideas to life. Armed with a can-do attitude and hopes of striking it big, they're navigating a conundrum of challenges to pursue opportunities at a time when many African countries enjoy unprecedented levels of economic growth.


"The entrepreneurial landscape in sub-Saharan Africa is absolutely excellent," says Mike Herrington, executive director of Global Entrepreneurship Monitor (GEM) and professor at the University of Cape Town in South Africa. "It's on the increase because Africa, at last, has been emerging and the economies are booming -- several countries are starting to really increase entrepreneurial activity and move to opportunity entrepreneurship, rather than necessity entrepreneurship," he adds. "Opportunities abound and a positive spirit is emerging amongst the population of these countries."

So, Africa's entrepreneurial spirit is alive and thriving -- but how does it compare to the rest of the world?

Earlier this year, GEM published its annual report looking at the state of entrepreneurship globally. It found that sub-Saharan Africa is the region with by far the highest number of people involved in early-stage entrepreneurial activity (TEA), with Zambia and Nigeria leading the world rankings.



It's a woman's world
Africa also leads the world in the number of women starting businesses, with almost equal levels of male and female entrepreneurs. In fact, in countries like Ghana, Nigeria and Zambia the women outnumber the men.

Source: Global Entrepreneurship Monitor 2013 Global ReportINEZ TORRE/CNN

Overall, the continent has a much higher proportion of female entrepreneurs compared to other regions, with Nigeria and Zambia (both 40.7%) coming on top and countries like the United States (10.4%), the UK (5.5%), Norway (3.6%) and France (3.1%) lagging far behind.

According to Herrington, the main reason for this is because women in Africa "need to earn an extra income" to be able to afford "to send their children to school."

Getting off the ground

Source: Global Entrepreneurship Monitor 2013 Global ReportINEZ TORRE/CNN

Yet, does the high number of both male and female entrepreneurs tell the whole story? And do these impressive figures translate to sustainable startups that are able to grow and provide employment to the continent's young population?

Factor-driven economies are mainly based on low-skilled labor and national resources. By comparison, efficiency-driven economies develop more efficient manufacturing processes and increase product quality, while innovation-driven economies are engaged in the production of new products by combining sophisticated technologies with a high-skill workforce and research.

In its analysis, GEM groups countries into geographic regions, but also according to their development stage: factor-driven, efficiency-driven and innovation-driven, each suggesting an increasing level of sophistication in the operation of the economy (see fact box on the left).

Most African nations surveyed are placed into the factor-driven stage, where early-stage entrepreneurial activity rates tend to be higher than the rates of owner-managers in established businesses (running more than three and a half years).

In other words, "a high entrepreneurship rate does not necessarily mean the creation of a lot of jobs," explains Herrington. "Those countries with low GDP per capita tend to have a very high entrepreneurial rate, because the larger corporations are not taking up a lot people to provide them with the so-called formal employment," he adds.

Calling it a day

Source: Global Entrepreneurship Monitor 2013 Global ReportINEZ TORRE/CNN

Similarly, the continent might be buzzing with startups, but how long do these last?
According to GEM, the rate of business discontinuance tends to decrease as economic development increases. As a result, countries like Malawi and Angola that see many new businesses also experience high numbers of people abandoning their efforts after failing to make profits.

"The discontinuance of businesses in the factor-driven economies is very high," says Herrington, citing "the lack of education, market research and access to funding" as the main reasons.

Fearless entrepreneurs

Source: Global Entrepreneurship Monitor 2013 Global ReportINEZ TORRE/CNN

There are several factors hindering the survival and growth of small businesses in Africa -- little government support, bureaucracy and lack of financial backing to cite a few more. Yet, all these constraints do little to prevent the continent's budding entrepreneurs from trying their luck.

True, entrepreneurs might be optimistic by nature, but nowhere else in the world is this key drive toward success as present as in Africa.

The continent's entrepreneurs boast the lowest levels of "fear of failure," with just 24% responding that it would stop from starting a business and seizing business opportunities. In countries like Zambia, Uganda and Malawi the figure drops to as little as 15% -- compare that to countries like the UK (36.4%) and the United States. (31%).

All you need is confidence

Source: Global Entrepreneurship Monitor 2013 Global ReportINEZ TORRE/CNN

It's no surprise then that African entrepreneurs are also the most confident in the world in their ability and skills to start a business. In comparison, people in Malawi feel twice as self-assured about launching a startup as those in the UK.

Likewise, sub-Saharan Africa claims the top five spots for countries where people see good opportunities for starting a business and feel positive about entrepreneurship.

Herrington says that it's these qualities, coupled with a need for better education and a focus on moving entrepreneurs from necessity to opportunity, that will drive the continent's development.

"Africa is going to have to rely on small businesses (SMEs) to provide the bulk of the employment," he says. "In a lot of countries the SMEs contribute more than 50% of the GDP and more than 50% of employment, so if you're going to employ people in Africa and other developing countries it's SMEs are the ones that are going to provide that."

Source: CNN

How Smaller Businesses can help Africa thrive

International investors, representatives of international and regional organisations, and African leaders from government and civil society, who attended the World Economic Forum on Africa in Abuja, Nigeria last month are seeking to translate the region’s economic promise and youthful demographics into employment opportunities and poverty reduction.
 
Sub-Saharan Africa is a rare bright spot in a still-sluggish world economy, with the International Monetary Fund projecting 6% output growth this year. A decade of expansion has been driven by peace, better economic governance, investment and high commodity prices. But make no mistake: it has not just been about resources. Some of the best performing countries are not rich in natural resources, such as Rwanda, Ethiopia and Burkina Faso. Services such as retail and communications, together with agribusiness and manufacturing and exports, have driven growth more than is generally recognised. Business incubators and accelerators are spawning technology startups from Accra to Dar es Salaam.

That said, Africa faces daunting challenges. The extractive sector propels growth in several countries but does not directly create many stable jobs. By 2050, the continent’s labour force will be bigger than that of China or India. Creating jobs for hundreds of millions of labour market entrants will mean the difference between a demographic dividend and a social time bomb. Africans don’t just need more jobs; they need better jobs. Prosperity hinges on getting people out of subsistence agriculture and marginal self-employment into more productive activities.

Growth without diversification, technological improvement, and increased productivity is easily reversed: all it takes is a dip in commodity prices. This is where trade and SMEs fit in. Trade demands competitiveness. Exporting firms are more productive, and pay higher wages than their domestically focused counterparts, especially in places like sub-Saharan Africa. If firms manage to thrive in world markets, they tend to increase their productivity even more.

A key subject at the Abuja summit was the bottlenecks that prevent existing and yet-to-be-founded firms in African countries from exporting value-added goods and services, and think about how best to encourage investment and hiring in modern, tradable sectors.
Just take a look at the success story that is M-Pesa .The impending launch in Europe of this mobile money transfer service that has transformed the way banking and business are done in East Africa, is more than a feel-good story about a Vodafone technology pioneered in one of the world’s poorest regions being imported to one of its richest. M-Pesa is a powerful example of the gains to be had when the development community works together creatively to empower people and businesses in developing countries. From a modest pilot project focused on microfinance repayments, M-Pesa – ‘pesa’ means ‘money’ in Kiswahili – has grown to the point that an estimated one-third of Kenya’s $44bn annual economic output now flows through it. M-Pesa has turned mobile phones into both offices and banks.
Responsive governments committed to improving the broader trade facilitation and business environment can help companies of all sizes by improving infrastructure: roads, transportation, ports, information and communication technology, and electricity. For enterprises to capitalise on opportunities to grow, they need access to finance. This can be difficult for SMEs that are too big for microfinance institutions but too small to interest commercial lenders. Meeting export markets’ health and quality standards, together with the dizzying array of private voluntary standards, is especially tough for smaller firms, although the rewards for compliance can be considerable. The recent World Trade Organisation agreement on trade facilitation should cut customs-related red tape which weighs heavily on SMEs, making it easier and cheaper to bring goods across borders.

The International Trade Centre works to internationalise SMEs in developing countries. Some of our work is with governments to improve policies and to strengthen their institutions in trade and export development. The rest of our work is with the private sector: creating free intelligence tools to help them learn about conditions in potential markets; assisting them to connect to value chains; helping with product branding; and tackling non-tariff measures.

In our experience, modest, targeted interventions can yield substantial rewards. Facilitating contact (and contracts) between Southeast Asia and Western and Central Africa yielded over $150m in deals for cashews, rice, and cotton in the space of a few years. Bringing experts from Bangladesh spinning mills to the United Republic of Tanzania to train cotton farmers and gin operators on how to reduce contamination, led to higher prices for the farmers and better raw material for the mills. Connecting women in rural Burkina Faso to a rising star in Italian fashion meant more sales than ever for their traditional prints which helped Stella Jean’s high-end customers do some good while being fashionable.

Governments, African business, foreign investors, and civil society groups have an opportunity to pool their ingenuity and their resources to find innovative new ways to strengthen the African private sector and help SMEs access capital and markets.
The broader development community can support the private sector to improve productivity and generate jobs which can free people from unemployment or the drudgery of subsistence labour. Prioritising the private sector will require some development policy experimentation. The policy makers and policy takers at the Abuja meeting could take a lesson from M-Pesa’s success where small risks can have huge payoffs. They can think about how they can work together to help the continent’s biggest job creator: its immense ecosystem of micro, small and medium-sized enterprises. Empowering the African private sector to tap into value chains would bolster prospects for growth and job creation.

Arancha González is Executive Director of the International Trade Centre, Geneva.

Sharing Space makes Work easier for Entrepreneurs in Africa

Modupe Macaulay, founder of CapitalSquare

“Lagos is a difficult place to do business. There’s the high cost of rent and poor infrastructure – unreliable electricity and unreliable internet connectivity are some of the major issues affecting modern businesses in Lagos today. And, with that, there are still a lot of people going into entrepreneurship because of the high rate of unemployment. There is clearly the need for an easier and more affordable way to do business.”
 
This is why Modupe Macaulay believes there are opportunities for co-working spaces in Nigeria’s commercial hub, and towards the end of last year she officially opened one, CapitalSquare. She had been inspired by the concept a few years earlier when she discovered that one of her heroes, Maria Popova, a writer living in New York and founder of the blog Brain Pickings, had used a co-working space.

“It just seemed like an amazing idea to me; the ability to share a workspace with people doing interesting and not necessarily related things. There would be so many opportunities to learn, to work together, to come up with new ideas, to start great things… At that point, it was the community aspect that caught my attention, and I thought it would be great to have something like that in Lagos,” Macaulay told How we made it in Africa. “So I wrote it down as something I’d like to do someday and forgot about it.”

When Macaulay returned to Lagos after finishing her master’s in the UK in September 2012, she struggled to find a job, and by 2013 she was still unemployed. At that time she was looking to start a business with a friend and needed an affordable and professional place from which to work, which was also hard to come by. Macaulay saw the potential for a shared working space in Lagos, and so the idea for CapitalSquare was born.

It’s all about flexibility
Before coming up with the membership model for CapitalSquare, Macaulay did a lot of research on co-working spaces around the world and realised the membership options needed to be flexible in order to succeed.

Today, CapitalSquare has four membership levels that address the needs of those who have a day job and need another place to work part-time or on weekends, to those who need to use the space full-time. The fees range from US$87-$202 a month and include unlimited high speed internet, uninterrupted power supply and extras like printing, meeting rooms, mail handling, virtual phone numbers, office supplies and tea and coffee.

There is also a $7 full day pass, and a virtual membership option where members don’t physically use the space but can make use of a business address, virtual phone number and mail handling.

According to Macaulay, sharing office infrastructure is not only cheaper for entrepreneurs, but also means they spend less time paying electricity and other administrative bills, and more time on developing their businesses.

“Another huge plus, which really appeals to me, is the free networking opportunity that the entrepreneur gets from working alongside other entrepreneurs,” she continued. “Co-working spaces are a breeding ground for innovation, simply because they are full of people with ideas, who are crazy enough to try to make them happen.”

The pros and cons of being an entrepreneur
Macaulay was able to get most of the startup capital for CapitalSquare from her family after much time studying the market and running the numbers.

“You have to prove that your idea will work because nobody, not even family, wants to put their hard-earned money into something that isn’t worth it.”

She added that the best part of being an entrepreneur is having control over her life, despite the fact that all hours are office hours for the self-employed. However, Macaulay noted that the negative side is not having a regular, guilt-free paycheck.

“I say ‘guilt-free’ because it’s hard not to feel guilty when you’re paying yourself and the business is having a bad month. And yes, you do have to pay yourself (even if it’s something small), especially if you don’t have a day job.”

Source: How We Made It in Africa

Business is not a Short Sprint, it’s a Marathon

Carol Ngige, founder of Beauty Bee

Entrepreneurs should be patient and make “continuous investment” in their businesses before expecting rewards.

This is according to Kenyan entrepreneur Carol Ngige. For the last seven years Ngige has been running Beauty Bee, a company that locally manufactures mother and baby related products such as breastfeeding pillows, nursing covers, maternity briefs, changing mats and travel neck pillows for babies.

Ngige also runs Baby Banda Fair. The annual event brings together health professionals and firms specialising in baby and pregnancy products and services to train and advise parents in Kenya.

“Business is not a short sprint, it’s a marathon,” says Ngige. “It’s for the long haul. You need to be patient with yourself and take time to nurture whatever business you have and grow it. There are projects we have done that did not translate into money immediately but we have kept at it. In fact, we did not break even in the baby fair until the third year.”

Ngige started Beauty Bee in 2006 after seeing a breastfeeding pillow at a friend’s house. The product was not available in Kenya and most mothers imported it or used ordinary pillows for breastfeeding.

Ngige borrowed a sewing machine from her mother, hired a tailor and started manufacturing at her home. She says she continued operating the business from her home for three years because she did not see it as a serious business.

“It was always something I did part time because I had another business that was occupying my time. I was really hustling. I had my hand here and there. I had a networking marketing opportunity that I really believed in and pursued with all my heart. This was always a nice to do side job. I never really focused on it,” says Ngige.

When Kenya plunged into the 2008 post-election violence, the network marketing business floundered, as did the pillow making venture.

“This was a very definitive period for me. I needed to decide what I wanted to do with my life. The two businesses were both not working,” she says. “One night I had a dream and I saw an event, very clear and vivid. When I woke up I knew what I needed to do.”
As the violence subsided and business picked up, Ngige visited a local shopping mall and began organising the first Baby Banda Fair.

The fair provided her with a platform to market her pillows and build the Beauty Bee brand.
“It became an opportunity for me to actually relaunch the business in a very serious way. I began to focus on the brand and our products. After the event we moved out of my home, rented a small office and I hired my first full-time employee.”

The company has since expanded its product portfolio, hired more staff and moved to a bigger office space. Beauty Bee products are stocked by leading supermarkets in Kenya, as well as baby shops and hospitals. Ngige says she had to “knock doors tirelessly” to get her products stocked by supermarkets.

“[A local supermarket chain] took three years before they agreed to stock our products. We were patient, we kept knocking for three years [and] made a compelling case on why they needed to stock us,” says Ngige. “These days they call us when the stocks are depleted. When they open a new branch they ask for our products. Times have changed but it has come with hard work and investment in the brand.”

Another challenge Ngige has faced is accessing good talent and retaining staff.
“Getting skilled workforce for our production department has been a challenge. Quite unlike the other personnel, tailors and artisans don’t develop their CVs. You don’t have a pool to choose from. Therefore being able to ensure that whoever you are hiring is aligned to what it is you want to do can be quite hard.”

Growth markets
Beauty Bee’s flagship product, the breastfeeding pillow, retails for KSh. 1,650 (US$19).
A study by Transparency Market Research shows the global baby care product market was worth $44.7bn in 2011 and is expected to reach $66.8bn in 2017.

Developing countries are seen as growth markets due to their large baby populations, increasing numbers of women joining the workforce and an upsurge in the disposable incomes of parents.

“Today’s mother is more informed. We have access to various channels of getting information and people want to find things that make life easier and more comfortable. You can’t ignore the fact that we have a growing middle class, people have a bit more disposable income and that places products such as [ours] in the considerations set when one is doing purchases.”

The lessons
Ngige’s seven-year journey in entrepreneurship has come with many lessons. She says she honed her skills in the IT industry where she worked in the marketing department of a leading firm. This background has helped her utilise technology to improve her business operations.

“Technology is an enabler… It levels the playing ground for the big and small alike because it is relatively more affordable in terms of marketing communication. I may not be selling online solutions but we use technology a lot to uplift this business.”
She advises other women entrepreneurs to build relationships with their peers and improve their professional competency by advancing their education and reading widely. Nginge went back to school in 2010 to study an MBA in order to improve her business management skills.

“Sometimes I wonder to myself, did I really want to be a CEO? It’s a tough job. The buck always stops with you. When things are not working it is up to you to fix them. I think it is important to invest in yourself professionally and also as a person. Professional competency is important if you are looking to be a business leader.”

Source: How We Made It in Africa

Entrepreneurship should be a viable Career path, not a last resort for Jobless

Patricia Jumi, co-founder and managing director of the GrowthHub

African youth should not view entrepreneurship as an “exit plan” because there are no jobs. This is according to Patricia Jumi, co-founder and managing director of the GrowthHub, an East African incubator and accelerator for early stage entrepreneurs and startups.
 
In recent years political and business leaders have been urging youth to start their own businesses because there are not enough jobs in Africa to absorb them.

Jumi says it is wrong to view entrepreneurship as “a last resort”. Instead, young people should be prepared from an early age to think of entrepreneurship as a viable career option.

“We all can’t be entrepreneurs. Unfortunately in Africa [people go into business] because they couldn’t find a job. To be in business you need to have a different kind of DNA,” says Jumi. “We need to… create that sense of entrepreneurship right from high school, for [young people] to see it as a viable career path and not [do it] because I failed in one area and this is the exit option.”

Founded in 2011, the GrowthHub works with East African startups that seek to create employment and contribute to social progress in various sectors, including mobile and IT, agro-processing, professional services and essential services like healthcare, education, water and sanitation.

“We felt GrowthHub should concentrate on working with early stage entrepreneurs who are solving the big problems in Africa. We wanted to take them in, accelerate them and provide them with training, mentorship, networking opportunities and access to investment. We wanted people who are solving real needs… [Entrepreneurs] who want to solve these problems in Kenya, for instance, then expand to Uganda, then… maybe even to India.”

The incubator held its first cohort of 18 startups in 2012. Last year it held two cohorts, bringing the total number of entrepreneurs with whom it has worked to 56. The startups have raised US$3m in total in funding.

The social enterprise focused incubator is currently running its 2014 agribusiness innovation programme of 13 startups drawn from across the region.

Jumi says the GrowthHub looks for entrepreneurs who have some level of experience in business even if they just kept rabbits when they were young. They should also have skills in the sector in which they are investing, passion and willingness “to take a back seat” if necessary.

“Most entrepreneurs want to be the CEO… To what extent are you willing to step back and concentrate on what you are really good at? If you really are telling us you are ambitious, you are committed, you are willing to scale and to grow, then you should be able to accept other people into the company. If you are a person… who believes it is only you who can do everything it means you are going to have trouble… with investors… and employees. That means we are limited; when you are ready to move is when we are ready to move.”

Jumi says plans are underway to open branches in Uganda, Ethiopia, Zambia and Rwanda as part of the incubator’s goal to be in 20 locations by 2020. Plans to expand to South Sudan have been put on hold due to recent conflict in the country, but Jumi says the GrowthHub will instead work with South Sudanese nationals who live in Kenya and showcase opportunities for them back home.

By the end of the year, the GrowthHub and the startups with which it has worked intend to have created 5,000 jobs and income generating opportunities.

Challenges
Jumi says getting entrepreneurs to understand the value they can obtain from the incubator, other than money, is a challenge.

“Trying to convince them that we need to take them through this journey to understand their business is almost like a hard sell. They ask: ‘Are you going to give me the money or not?’ The other challenge is the hype in the sector. [When] some early social enterprises…get a bit of press and attraction they concentrate on that at the expense of making their models work. So the [media] attention for some takes them away from concentrating on their businesses.”

Early stage entrepreneurs also tend to “hop from one programme to another” and attend many conferences, leaving them little time to grow their businesses.

Encouraging Africans to solve local problems
One thing Jumi would like to see is more local entrepreneurs active in social entrepreneurship. She explains that expatriates make up about three quarters of social entrepreneurs who apply for programmes and attend industry events. This, Jumi says, has even been the case with applications for the GrowthHub programmes.

“We see many passionate entrepreneurs from great universities abroad come and start great initiatives here and it would be great if we can transfer the same zeal and excitement to also young people in Kenya.”

Jumi says not having good local participation in solving African problems will lead to a repeat of history in which foreigners provide the solutions to certain issues.

“We keep having this… debate. It’s like we are just calling NGOs with a bit of financial component social enterprise. It’s like history is repeating itself.”

The biggest challenge social enterprises face is access to financing as most funds want to invest $500,000, which Jumi says is too much for most startups to absorb.

“We perpetually struggle with that. [Funds] tell us ‘your cohort is good but let them talk to us in a year’. We don’t have a lot of early stage investors [and] Kenya doesn’t have an angel network.”

Most investors, she says, want to be assured that the entrepreneurs and the team are the right people to steer the company, the model is scalable, the product actually solves a problem, the business has a corporate business model and a financial and social impact.

Source:How We made It in Africa