Africa is a continent packed with amazing potential, and African start-ups are leading the way for the post-Covid economy. In spite of skewed indicators and biased data, Africans are rewriting the start-up narrative.
Business innovation in Africa is being driven by home-grown innovators championing African-led solutions to African challenges. Those solutions are transparent, simple and affordable, and more importantly, relevant and meaningful to Africans.
Yet the data and indicators put out by international (mostly Western-dominated) institutions continue to be skewed and biased against Africa. They are being used to support strategies focused on “conquering” what is seen as a $1.4 trillion consumer market, expected to become a $2.1 trillion market by 2025, for all the goods that can be exported to (or dumped on) Africa. Meanwhile, African start-ups are disdainfully characterized as “survivalist” or needs-based efforts, obviating the fact that these efforts are supercharging the continent’s path to sustainable, inclusive development.
Who in the world is starting up the most?
There are a number of organizations, most of them U.S.-based, that say they measure entrepreneurship in the world. The two leading organizations are the Global Entrepreneurship Monitor (GEM) and the Global Entrepreneurship Index (GEI), but the latter bases many of its individual assessments on GEM data. So GEM is the best example to understand how results are arrived at and to what extent those results are biased.
According to the 2021 GEM Report, in 2020, about 12% of what they consider to be the world’s working age population (25-65 years), equivalent to 5 billion people, are active in trying to get their businesses past the initial launch and through the initial three years of operation. If we do the math, this represents a total of about 600 million people trying to get a business going. Yet the GEM report, which purports to be representative of world entrepreneurship, indicates that only 297 million people are trying to get 192 million businesses going, of which a third or 64 million are launched. What happened to the other 303 million entrepreneurs?
The problem here is that:
1) GEM only represents 50 countries (the world has 195). Together they represent 45% of the world population and 68% of world GDP, which, as Lorenzo Fioramonti argues in his book entitled The World after GDP (Polity Press, 2017), only measures material output (even if it depletes a nation’s physical, human and environmental wealth) and only counts transactions occurring in the formal economy;
2) of those 50 countries, only 3 are in Africa – Morocco, South Africa and Sudan, and all three are considered C-level countries (economies with a GDP per capita of less than $20,000), despite very different realities and contexts; and
3) the definition of working age population ignores the millions of 15-24 year-olds that compose the youth population, as defined by the United Nations, that in developing countries are already working; in Africa, there is an estimated 282 million youths.
Extrapolation from the GEM report to the other 55% of the world population not covered by its assessments, or 4.3 billion people, most in developing countries, would suggest that there are at least 303 million additional nascent entrepreneurs who are trying to start at least 197 million firms of which approximately a third, or at least 66 million, are launched. In other words, GEM isn’t even counting the one half of the entrepreneurial world that has the most potential.
According to GEM, younger people (18-34) have a slightly greater entrepreneurial rate than older age groups (35-64). But if we honor the United Nations definition of youth as 15-24 year-olds, we see that in Africa youths represent 19% of the global youth population of 1.2 billion. That’s a total of 228 million youths, of which the majority are excluded by GEM in its reports.
Africa’s youth population is expected to represent 42% of the continent’s total population by 2030, which at an average population growth rate of 2.5% could reach 1.71 billion people. That’s 718 million youths, which makes for an awful lot of potential young entrepreneurs that are being ignored in the monitoring and mapping of world entrepreneurship.
What really“counts” as a start-up?
It’s important to point out that GEM is a U.S.-based effort that collects its data and analyzes it according to criteria and indicators - such as entrepreneurial attitudes and behaviors, opportunities and motives, knowledge and technology - defined through a Western lens that decontextualizes entrepreneurship in other geographic and cultural contexts. Entrepreneurship at all stages is analyzed based on Western societal and cultural norms.
It’s therefore no surprise that GEM shows the U.S. is leading in the number of startups and total start-up investment raised. According to the U.S. Census Bureau, in the first 9 months of 2021 the U.S. registered a record number of 1.5 million new business applications, of which, by the way, 25% were immigrant start-ups, and $270 billion was raised in start-up investment. This represented an 8% start-up rate increase from 2019. In the U.S., 2021 was also a particular year because the surge in startups paralleled a surge in the number of Americans quitting their jobs, not for survival or out of need, but for a better quality of life.
If that seems noteworthy, the figures in sub-Saharan Africa are much more remarkable. This is the poorest region in the world, with 40% of its 1.37 billion inhabitants living below the $1.90-a-day poverty line (compared with a U.S. population of 329.5 million where 11.4% of the population lives below the federal poverty line; for an individual in the U.S., the poverty line is $12,880 a year, or about $35.28 per day). Yet Africa holds 7 out 10 of the fastest growing economies in the world and is evidencing an entrepreneurial revolution that is invigorating the continent. It has seen an estimated average increase of 20% in Total early-stage EntrepreneurialActivity (TEA) since the beginning of the pandemic.
Yet, contrary to the reality in Africa, the GEM report concludes that, in general, the pandemic has been accompanied by falls in the rate of entrepreneurial activity between 2019 and 2021. This belies the evidence that as COVID hit Africa's economy hard, young entrepreneurs found creative ways to resolve added challenges caused by the pandemic. In fact, the African startup scene has thrived throughout the pandemic. Faced with the choice of “innovate or die” African entrepreneurs adapted and the start-up landscape is booming.
Reports on African entrepreneurship are biased
In general, international (i.e. Western-focused) reports on entrepreneurship in Africa tend to be colored (conceptually and practically speaking). They argue that although Africa may be the most entrepreneurial continent in the world and boasts the world's highest entrepreneurship and female entrepreneurship rates, its entrepreneurial potential is mostly “survivalist” and therefore doomed for failure and has a limited contribution to economic growth.
The “survival is bad” definition of entrepreneurship not only belies the proven age-old saying that “Necessity is the mother of all invention”. It also ignores the fact that it is the millions of needs-based start-ups that have the greatest practical ability to generate jobs for family members as well as income in a way that improves their socio-economic status.
Those who focus on innovation and start-ups in Africa generally point to the fact that between 2019 and 2021, Africa saw a whopping 17.3% rate increase in tech start-ups, practically double that in the U.S.. Venture capital investments (the majority foreign) hit a record high, more than doubling from $2 billion to more than $4.9 billion. Unfortunately, this one-eyed view of investment in Africa has skewed the valuation of African entrepreneurship even more.
Most tech funding in Africa has gone to FinTech start-ups. While FinTech creates efficiency gains by opening up the financial services value chain and carries significant gains for financial inclusion, it also deepens inequalities and introduces imbalances between what Rana Foroohar (Makers and Takers, Crown Publishing Group, 2017) calls the “makers”, businesses serving the real economy, and the “takers”, those stifling job creation while lining their own pockets.
It is the African “makers”, entrepreneurs in the non-FinTech start-up sectors, who are developing Africa’s untapped entrepreneurial potential and growing markets and creating new ones … without subsidies and without privileged access to financing and funding. A previous article (COVID has NOT killed Africa) argued that Africa is booming with home-grown innovations that provide solutions not only in the health area, but also for logistics and distribution, manufacturing, education, agriculture, and better public-service delivery. These are the sectors that contribute the most to real, concrete, inclusive, equitable, and solid economic growth.
In Africa, it is non-fintech, and other non-Western-defined tech start-ups, that are driving change for the better and contributing the most to African prosperity and competitiveness. They not only generate employment. They also:
- generate competition through directly impactful value-creation and value-addition that are immediately applicable and don’t require a specific level of knowledge or tools or access;
- grow the creativity and innovation quotient of their country;
- build new talent pools and upskill existing talent; and
- produce new, context-specific industries that over time can develop into engines of wealth creation thereby upgrading the standard of living and improving economic growth.
African start-ups are leading in the post-Covid economy
African entrepreneurs are having a real (not virtual) direct impact on building economic prosperity by boosting inclusive and resilient economic activity that can lead towards solidly sustainable development. It's all about context-specific and culturally-respectful adaptability and innovation.
Technology cannot be limited to ICT; this is a way to deepen the divide between the empowered and the disenfranchised. Africans must be given their due as innovative entrepreneurs who are showing newand better ways of thinking and doing things. African innovation is special because it is being used to do great things in Africa for Africans.
Progress is not about harnessing a limited and instrumental view of entrepreneurship and technology to reroute Africa towards the economic interests of others. Entrepreneurship cannot be appraised or measured from a decontextualized and colored approach.
Africans, both young and not so young, have the most advanced capacity for adaptability in the world, and it is driving innovation and entrepreneurship in ways that is disrupting established structures in Africa and beyond the continent.
If we look above and beyond the limited understanding of entrepreneurship and technology that underlies Western-dominated, early-stage entrepreneurial activity analysis, we get a much fuller and authentic picture of what is really happening in Africa: exciting, creative start-ups that are energizing the continent to realize its amazing potential as a catalyst for new ways of doing things in benefit of Africa and Africans.