Emmanuel Kwesiga

Why your startup in Africa is likely to fail.

The different reasons for failed start ups in Africa that you need to know as a diasporic investor.

Not very many years ago, with the increase in the usage of the internet and smart devices, fintech and startups on the African continent sprung up. The technology wave that swept through the West came crushing through Africa and swept a lot of resources with it. Taking a closer look at the statistics, Africa’s untapped potential is so immense in fact in many a time more than can be utilized by the people on the continent. But as a Diasporic African looking to invest back into the continent and to have impactful change on the communities back home, is it worth it?

Scrolling through a smartphone’s applications store or an internet download manager, you’ll be surprised at the number of applications and software that have been developed by different people around the world to serve different or similar client segments regardless of where they are in the world. This begs the question, why then aren’t start-ups and fintechs on the continent of Africa doing so well despite the brilliant ideas and people. Why have many Africa-Focused startups failed continuously? Just to mention but a few, Lazerpay, Paxful, Zumi, and Hytch.

Side note: Africa has got one of the youngest populations in the world, with a median age of 18.8, meaning that the future middle class within the next 2 decades will be coming from Africa. Africa is the future.

With these numbers in mind, the sustainable development of the continent of Africa would seem largely hinged on this population. But by such a long shot is Africa yet to get there, not only in Technological advancements but also in sustainable energy and industrialization.

Africa has become the hub for a huge number of startup incubator programs and yet, countless numbers of these startups never seem to “Start Up”

In October 2019, when Rwanda announced the release of the “very first smartphone to be made in Africa entirely”, the Mara Phone, everyone was happy about the prospect and the sales projections of 10,000 units being sold per month.  The drop in the sales of the phone in the first quarter of 2020 were evidence of a trend that was far from the fairytale from earlier, and it’s still worth noting that producing on the African continent is not as cost efficient. With even the large smartphone tech companies in the world such as Apple and Samsung having over 50% of their components manufactured in China, its definitely a trend that can’t be missed. In Africa, different companies have attempted to “manufacture” but it’s always evident that in many cases only the design and or the casings as well as the research and development are the activities that end up being done locally. That’s the story for very many of these companies such as SICO Technology in Egypt.

Africa is poised for radical change. The world is experiencing a digital revolution, which I believe has the potential to be not only the most transformative but also the most inclusive technological revolution we have ever seen. Today, anyone with a smartphone can get a loan and start a business. Mobile technology and the internet have put access to countless products and services in the palm of every person’s hand. The digital revolution has the potential to drive tremendous — and inclusive — economic prosperity for Africa. But we need digital entrepreneurs to create the companies that can make all this possible.

Skeptics might point to Africa’s infrastructure and say the continent isn’t ready for the digital era. In fact, Africa is perfectly positioned. Strong infrastructure is actually detrimental in this new world. When the current system works too well, there is resistance to change and too much legacy to overcome.

Its lack of infrastructure is an advantage, just as it was in China. But the continent also has other ingredients for success. It has 1.3 billion people, 40 percent of whom are under the age of 16.Six of the 10 fastest-growing economies in the world are in Africa. And smartphone adoption rates are growing rapidly.

Jack Ma

Jack Ma the founder of the Jack Ma Foundation and is co-founder and the former executive chair of Alibaba Group.

Looking to start up? Here are some prevailing truths on the continent.

In recent years, Africa has emerged as a promising hub for entrepreneurial ventures, showcasing a growing startup ecosystem that holds the potential for innovation, economic growth, and job creation. However, beneath the optimistic narratives lies a stark reality – the journey for startups in Africa is fraught with challenges that can often prove insurmountable. We shall discuss a few of the complexities that make the path to success for startups in Africa more of an uphill battle than a smooth ascent.

Infrastructure hurdles

It’s easy for many e-entrepreneurs to trash infrastructure in Africa as an issue when it comes to the ability of many e-businesses and start-ups to thrive, after all Africa hasn’t yet gained the spotlight as an entrepreneurial hotbed. One of the most prominent obstacles facing startups in Africa is the inadequate infrastructure. From unreliable power supply to a lack of efficient transportation systems, entrepreneurs find themselves grappling with the foundational elements necessary for business operations. In many cases, the lack of reliable infrastructure can lead to increased operational costs and hinder a startup's ability to scale.

Access to Capital

While the number of bodies interested in funding startups in Africa steadily grows, we can not brush off the fact that, most of these are not able to sustain the harsh start of many of these startups and many a time, the initial funding which for very many ends up being the sole source of finance for the projects is not by a long shot sufficient to get the startups to the level of breaking even. But an even bigger problem is securing the funding in the first place. This remains a substantial challenge. Limited access to venture capital, coupled with the risk-averse nature of traditional financial institutions, often leaves innovative ideas starved of the necessary resources to thrive. This lack of capital not only stunts growth but also make sit challenging for startups to weather unforeseen economic downturns or disruptions. So its important to factor in the access to capital whilst starting to even think about starting up.

Regulatory Roadblocks

When it comes to regulations and regulatory bodies, there are no bigger forks in the road. Treading the paths of regulations is certainly not a walk in the park, if anything it’s walking a thorny road in the middle of the jungle.

Navigating the regulatory landscape in Africa is akin to traversing a labyrinth for startups. Divergent and complex regulations across different countries pose a significant barrier to entry and expansion. The bureaucratic red tape and inconsistent enforcement of laws can create an environment where compliance becomes a perpetual struggle, diverting attention and resources away from core business activities.

Talent Drain

Now more than ever before, brain drain has posed a larger threat to the growth and scaling of startups on the African continent than ever before and the rates are alarming. As skilled professionals seek opportunities abroad. So it gets extremely risky to bank on African bred talent on the continent for production and scalability as there’s low numbers of highly skilled individuals who will require a higher pay.

The scarcity of experienced and skilled workers poses a formidable challenge for startups looking to build high-performing teams. Retaining top talent becomes a herculean task when global opportunities beck on with promises of better pay, career growth, and stability.

Market Fragmentation

The markets on the continent come as diverse as the people in the various regions of Africa.

The African continent is incredibly assorted, comprising 54 countries, each with its own unique market characteristics, languages, and cultural nuances.

For startups, achieving scale across this fragmented landscape proves to be an intricate puzzle. Customizing products and services to cater to various markets requires significant resources and adaptability, which many startups may struggle to maintain.

What Now?

This begs the question, what now?

While the allure of Africa's entrepreneurial landscape is undeniable, the harsh realities cannot be ignored. The challenges outlined here are not insurmountable, but they do necessitate a strategic and adaptive approach. As the startup ecosystem in Africa continues to evolve, addressing these issues head-on will be crucial for ensuring the success and sustainability of ventures in this dynamic and promising region. Only by acknowledging these obstacles can entrepreneurs begin to chart a course toward overcoming them and carving out a meaningful and enduring presence in the African business landscape.

Subscribe to the weekly newsletter
No spam. Just the latest releases, interesting articles, and exclusive interviews in your inbox every week.

More stories Read more