PROBLEMS FACING STARTUPS – Starting up a business is one of the most challenging tasks to execute. It is not just about conceiving the idea alone, but it involves steady planning and a level of expertise in the business. The economy of Africa has been on the rise due to the impact of globalization and technology. Furthermore, there has been an improvement in human capital development than what we had back in the past decades where there was limited access to quality education and health services. The continent’s GDP has been majorly dominated by the primary sector of production with over 60% of the population making up the labor force of this sector. One of the key reasons for this is the presence of excess land and labor for farming and mining in rural areas.
Government and private organizations make up the remaining 40% of the labor force that is not into agriculture. As demand for goods and services is on the rise, there has also been an increase in innovation and business ideas which has led to more small and medium scaled enterprises being on the increase. Technology has also been the driving force of most startups in Africa today as they seem to be more effective and efficient than normal human labor.
HIGHEST GROWING INDUSTRIES IN AFRICA.
Fintech: One of the fast-rising industries in Africa is fintech because this is where technology is most useful. There has been a shift in financial institutions from manual to digital processes. Individuals and businesses can access loans without necessarily going to the bank which is always tasking with demanding requirements. Investors can also interact with investment agents and bankers online to choose what decision with bring the best returns. Moreover, cryptocurrency trade is also on the rise and has been muted as the next legal tender in the nearest future. Even countries like Egypt are imbibing it in their monetary policies.
E-commerce: With the large population of Africa and 500 million internet users, gaining a large market is hardly difficult when you have the right market strategy. The e-commerce industry has created an opportunity for small and medium-scale business owners to reach out to more customers. Furthermore, one of the positive influences of this booming sector is that it encourages a cashless and digital economy. With a smartphone and a stable internet connection, buyers and sellers can interact online and make transactions. This is also not limited to a particular geographical location, serving as a way to boost international trade between countries.
Tourism: Africa is dominated by an abundance of natural resources which makes tourism one of the highest contributing sectors to the continent’s GDP. East Africa, especially, depends solely on tourism to boost its GDP. 50% of Seychelles’s GDP is from tourism while Mauritius is 25%. There has been an influx of tourists from both Africa and outside Africa who come for sightseeing and relaxation and this has been estimated to be about 30 million tourists yearly. Before the pandemic in 2020 when there were no travel restrictions, tourism served as a strong provider of revenue for African countries that found opportunities brought by this sector.
TOP STARTUP COUNTRIES IN AFRICA
- South Africa: The first African country to make it to the top 50 countries globally with the most developed startup ecosystems. There has been a massive improvement in education, technology, transportation, telecommunications, software and data processing and even fintech. Capetown and Johannesburg are the leading cities to drive development in South Africa. This is due to the rise in the contribution of the private sector. Furthermore, encouraging policies by the government has made investment possible by both foreigners and home nationals.
- Kenya: Kenya has once been described as one of the best countries to do business in. with a growing middle class and a large consumer market that have internet access, the East African country has driven food technology, transportation, and energy forward. The fintech sector has also thrived over time in Kenya, with Nairobi being one the biggest centre for technology.
- Nigeria: With a very large and youthful population, Nigeria ranks third and the number one West African country on the startup index in Africa. It is even amazing to note that seven Nigerian cities are in the top 1000 cities of the world with the most startups. These cities include Lagos which is the home for e-commerce, retail and education technology. What drives these startups are innovations and investment by both the public and private sectors of the economy.
- Rwanda: Rwanda is the second East African country and the fourth African country on this index. The economy is mainly driven by the private sector which serves as an inspiration for other small and medium scaled businesses in the country. One of the strategies used by this East African country is the non-existent barriers for entry and exit which means investors are free to invest without any limitations. This boosts international trade among neighbouring countries and also creates a healthy business environment.
- Eygpt: The North African country surpasses Tunisia as the fifth African country on this index and it is the fastest-growing startup environment in North Africa and the Middle East. With cities like Cairo and Alexandra being the hub of transportation technology and fintech, the Egyptian government through the ministry of Investment and International Cooperation creates an enabling environment for investments in startup tech businesses.
FIVE PROBLEMS FACING STARTUPS IN AFRICA
One of the biggest challenges in Africa is ensuring a startup becomes successful because there is a 70% chance of the business not surviving in the long run which can be caused by so many factors which will be limited to just five.
- Access to Capital: One of the major challenges of African startups is how to generate capital. Many businesses are not well funded and do not have enough resources to meet up the production costs required to run that business. According to reports, 80% of failed startups are caused by poor funding. Furthermore, many entrepreneurs have limited financial knowledge on how to manage their businesses and raise capital through investments.
One solution for this is for entrepreneurs to gather the right knowledge on how to prepare a solid business and financial proposal which will outline their short and long-term goals quantitatively which includes a return on investment. This will attract investors from both public and private sectors and there will be a free flow of funding into their businesses.
- Poor Government Policies: Government policies are crucial to economic development and can positively or negatively impact productivity. One of the negative policies that have affected many fintech start-up companies in Nigeria is the banning of cryptocurrency by the country’s central bank. Other policies include the closing of borders which limits free trade among countries as well as irregular currency devaluation. These decisions made by the government of most African countries are said to be unfriendly to investors.
For startups to excel, there is a need for the government to create policies that will protect the interest of small and medium scaled enterprises. These policies may include tax reduction and easy access to government loans for startups.
- Infrastructure: One of the key challenges of startups in Africa is infrastructure. Many countries are struggling with poor energy and electricity, bad roads and poor transportation networks. This causes small businesses to increase their cost of production which will lead to an increase in the price of such goods and services to break even in which many times, they run at a loss. In addition to this, so many countries are losing investors due to the high cost of running a business in a place with a dysfunctional infrastructure.
There is a need for the government to invest in its infrastructure. Provide good roads, electricity and improve telecommunication services. By doing so, startups will be able to overcome the challenges of high production costs and grow steadily.
- Competition: Startup brands usually face the challenge of meeting up with more established brands in terms of quality of service and funding. This level of competition can negatively affect upcoming businesses that are not established enough to gather a reasonable market share. It is natural for consumers to go for brands that have been in the business because of the level of trust the brands have established with their customers.
For startup brands to survive, they must ensure that their quality of service is consistent and excellent. This will slowly build a level of trust in their growing consumer base over some time and their brand reputation will be improved as well.
- Market Access: Market access can be a challenge to startups in Africa. There is a large youth population on the continent with access to the internet in which information can be gotten easily. The challenge of this shows that poor market research can lead to poor marketing strategy and execution which may eventually lead to marketing to the wrong audience. Businesses must undergo thorough research before embarking on any product idea. This will ensure that they have the right market audience for marketing.
To sum it up, the problems faced by startups in Africa are solvable when the factors explained above work to their advantage. With the right policies, skillset and knowledge, infrastructure, and easy access to capital through the guidance of established advisory firms, startups can go far in the private sector.