The 10 biggest issues facing start-ups in Africa

March 11, 2015

An American friend recently asked me what are the main issues African start-ups are grappling with.He’s among several friends who’ve come to appreciate that one Contador Harrison has gained enough insights about tech industry in the region.According to an accountancy and business advisor firm that recently conducted a survey of its clients and staff to identify main challenges facing the start-up industry. The advisory firm highlighted ten key challenges that any start up in Africa must overcome before any success.They included, cloud computing,exit strategies, currency exchange like the Uganda shilling has lost more than 20% value since mid December 2014, governance and political uncertainty which was pointed out as Kenya’s strength in World Bank report that ranked East African country as among the fastest growing economies in Africa, growing pains as witnessed by start-ups in Nigeria and Ghana, another issue is how to hire and keep staff or let them go quickly, a challenge that South Africa tech sector has been grappling with for close to a decade.Stagnant and falling consumer consumption is another issue facing start-ups and and unfavorable tax regimes has continuously impeded the growth of young business.

The ninth issue was funding.The survey describes Funding as the hardest challenge for start-ups in Africa.Raising money is tough in World’s poorest continent especially if you have few assets and no useful network but Contador Harrison advises don’t give up! There are opportunities out there.The banks are usually very restrictive when it comes to lending money to start-ups, especially if you have little or no assets yourself. So is Africa forever destined to be an also-ran? Perhaps, but there’s more to emulating the famous Silicon Valley in California model than access to capital and specialized VCs. A more realistic outlook sees Africa settling into a role as a second and third-tier player after a renewed focus on innovation from both government and key industry talent. “I don’t think African countries are going to be able to replicate Silicon Valley,” Contador Harrison thinks.What African countries need is embracing culture of openness to innovation and working towards the future, it’s that mindset that America’s Silicon Valley has that is pretty unique.Having been to Silicon Valley tens of times, what I found all the times I’ve been there are a lot of brain-box with the ability to access capital markets and unlike most other parts of the World there’s pro-technology bias, and that’s what drives the Valley to where it is.

In dozen of African countries I have visited, culture and attitude towards innovation that involves participation from everyone from universities, large or small tech companies,and talent that moves between all of them is lacking and only four countries have managed to do that successfully namely Kenya, South Africa, Egypt and Nigeria.Others are just mere copy cats and have failed miserably.That’s one of the problems with African countries where they don’t have a big enough talent pool and nothing is being done to address the issue. Kenya has a much richer talent pool than Nigeria does according to a survey done last year. But that’s a country of forty million people, I think. Compared to Nigeria’s 200 million, or something like that. For a country that has 160 million more people than Kenya does, there are fewer appropriately skilled technology workers.Over the last two years the Kenyan government, very smartly, has chosen to bring technology companies into Kenya by making it very compelling for those companies to set up there and they include IBM, Microsoft, Google, Huawei, Samsung, LG, GE, Alcatel among many other global brands.

And now what you have is this pool of very talented Kenyan people who are currently working at Google or Microsoft you name it.All those companies are in Nairobi and at scale, so when a company wants to expand operations in Africa,they compare locations and the obvious place to recruit and to grow is Kenya. Still, there are opportunities, it all depends on experience, how long have you been in the industry you’re planning to start the business in Africa and references.Great support and how to carry yourself are equally critical. If you want to get a bank loan,polish and perfect yourself and your skills, organize credible references, produce an outstanding business plan, keep a clean credit history and start your business in different steps with the funding you getIn my experience of driving Somocon Oy expansion to Sub Saharan Africa, I can confidently say that it largely depend on what business you’re starting, but if it’s not cost intensive, maybe the balance on your bank account could be enough.

Of course, if you’re going into manufacturing or industrial business then other solutions are necessary.There is a lot of hype around angel investors, seed capital and crowdfunding, so people might not be as willing to go to the bank.Contador Harrison knows this better than anyone else as co-founder of an investment firm.In my case, I take a minority equity stake in internet companies and in return provide seed capital, connections and the lifecycle for African entrepreneurs is four years.The web-based businesses in Africa are mainly working in an environment characterized by low costs and high speed.The entrepreneurs that go through funding programs in the continent are walking out with $100,000 to $150,000 after a year.So there is hope out there for your business too and ensure you can identify good funders who will believe in you.Alternatively seek Government grants or crowdfunding.However, if all fails, seed funding where an investor purchases part of a business is an ideal solution.

Contador Harrison