African Start-ups Need An Enabling Ecosystem To Succeed
The thriving African startup market is well-positioned to become a pillar of the continent’s digital economy, fostering local innovation through relevant solutions to societal challenges. According to research, funding for African startups more than doubled to $3.14 billion in the first half of 2022. Nigeria, Egypt, South Africa, and Kenya are the continent’s top investment destinations, though funding is also increasing elsewhere, with Fintech remaining the dominant sector.
Investments in Africa’s start-up ecosystem are increasing at a rapid pace. According to the OECD, more than 640 tech hubs are active across Africa, accelerating innovation and creating jobs, particularly among the youth.
However, while Africa has enormous potential to become a world leader, the African start-up market currently accounts for less than one per cent of global venture funding. So, what is preventing African start-ups from achieving global success? There are numerous factors at work, but systematic impediments in the startup innovation ecosystem have an impact on the likelihood of success.
To be sure, one company cannot have the necessary impact on its own; it takes a network of companies and organisations working together to develop market-appropriate consumer and customer solutions. The power of ecosystems is highlighted in an Accenture report, Tech Start-ups Will Support Africa’s Growth stating that “An ecosystem is defined by the depth and breadth of potential collaboration among a set of players: each can deliver a piece of the consumer solution or contribute a necessary capability.”
The start-ups themselves, market makers, potential clients (corporate or individual), governments and regulators, and tech development partners are all part of the start-up ecosystem. Not only must the start-up be at the centre of the ecosystem, but the right development, financial, and government partners must be involved from the start to make the journey inclusive and sustainable.
Start-ups require not only the right technology to succeed in the long run, but also the right operations, a blueprint for their people’s requirements, and the right type of business architecture. For start-ups to manage the growth phase of their business, the ecosystem must address these concerns holistically. Experienced mentors from large corporations and venture capital boards, as well as access to skilling resources, can play an important role here. Recognising the need for comprehensive support, Microsoft launched the Founders Hub, a self-service hub that offers a wide range of resources to startups. Currently, the platform benefits over 1,000 start-ups.
Artificial intelligence (AI) technology is one sector that has the potential to significantly contribute to the Middle East and North African economies by 2030. Synapse Analytics is an AI company based in Egypt that helps businesses develop, build, manage, and scale their AI solutions to optimize and expand their operations while maintaining sustainable growth (MaaS). Working with Microsoft ATO, Synapse was able to significantly accelerate development and launch its product earlier than expected. Microsoft’s support teams and access to technology accelerated the product timeline by nearly three months in an 18-month projected timeline.
A narrow sector focus directs the attention of both startups and the companies and potential investors who interact with them. Start-ups that align with the business priorities of potential partners, customers, or funders will be valuable to them.
Tech accelerators play an important role in creating an enabling environment that assists start-ups in identifying and being very clear on what sectors they are targeting, what problems they are attempting to solve, and the opportunities available within that sector. Recognising the critical role that accelerators can play, Microsoft has signed partnership agreements with tech accelerators across the continent to collaborate on supporting startups through a combined business and technology curriculum.
Health tech has the potential to solve Africa’s problem of a lack of healthcare facilities and skills, particularly in remote areas. Deepecho, a Moroccan start-up, uses AI and deep learning to mimic functions normally performed by a trained sonographer, assisting radiologists and clinicians with prenatal ultrasound video diagnosis. These diagnoses can then be used to help prevent birth defects, preterm birth, low birth weight, and the potentially dangerous outcomes that are associated with them. This is especially important in areas where hospitals are typically understaffed and under-resourced.
The story of the company emphasises the critical role that start-ups continue to play in the African healthcare space, as well as the importance of providing local innovators with much-needed financial and technical support. Indeed, through its collaboration with the ATO, Deepecho has been able to progress its product through various stages of development, to the point where it is now ready for deployment in hospitals.
Start-ups with a viable product in one market may decide to expand to other countries after weighing the potential economic benefits. Governments and regulators can help by developing business-friendly policies and regulations that are not overly burdensome for startup compliance.
Governments can foster a supportive ecosystem by establishing and encouraging collaboration networks between large corporations and start-ups, such as private sector incubation programs and joint ecosystem innovation, such as that promoted by Microsoft through its Africa Transformation Office.
When the ecosystem supports start-ups that serve SMEs, these micro-companies benefit from the start-ups that are developing novel solutions to their problems, whether in AgriTech, FinTech, or other sectors. Start-ups enable SMEs to follow their own growth trajectory by developing solutions for the SME market.
There is no one-size-fits-all solution for assisting start-ups and preparing more of them for success. However, with key players and drivers working together in a supportive ecosystem, there is the potential for significant growth in Africa’s start-up sector, which will drive economic growth across the continent.
Gerald Maithya is the Start-ups Lead, Africa Transformation Office