By Dr. Sangu J. Delle, Chief Executive Officer, CarePoint and Executive Chairman, Golden Palm Investments Corporation
Africa is the world’s youngest continent, with a median age of 19.7 years. The size of the African population will grow from 1.3 billion people today to 2.5 billion in 2050, when 1 in 4 people will be African. Many scholars have debated whether these projections foretell a demographic dividend or a demographic disaster. The answer will lie in how the continent handles myriad challenges, including climate change, energy poverty, the food crisis, education, healthcare, conflicts and the continent’s massive infrastructure gap.
One of the biggest challenges Africa will face is creating jobs for young people. The African Development bank estimates that 10 to 12 million young Africans join the labour force every year, where they find just 3 million formal jobs. While entrepreneurship is not the panacea for Africa’s socio-economic challenges, it most certainly is a lever for turning a potential disaster into a promising dividend.
Writing as an investor, an entrepreneur and a scholar, I believe that we are unprepared for the imminent demographic explosion in Africa, but I remain optimistic and have never been more excited for the future. Technology is democratising opportunity, and young entrepreneurs are innovating in exciting ways. In 2019, I published a book Making Futures: Young Entrepreneurs in a Dynamic Africa based on interviews with 600+ young entrepreneurs across 45 African countries. I would like to share three key insights about challenges African entrepreneurs face.
The first concerns education. In every country I visited, almost every entrepreneur I met reported that finding talent was a major challenge. They highlighted a skills gap between industry requirements and what students are taught in the classroom. This calls for comprehensive education reform and new models to tackle the human capital challenge. I have seen the power of innovative models for education. While I was hiring employees for my company, I kept coming across exceptional students who had one institution in common: Ashesi University. Ashesi was founded in 2002 by Patrick Awuah, Jr., an engineer who quit his job at Microsoft in Seattle to move back home to Ghana and start a university to solve what he identified as a leadership problem. Ashesi’s vision is an African renaissance driven by a new generation of ethical, entrepreneurial leaders. Ashesi has also been leading a coalition of like-minded institutions and universities across Africa, sharing best practices and collaborating on pedagogical innovation and curriculum reform.
The second insight is on financial capital. In Silicon Valley, which is flush with an oversupply of venture capital (VC), the mantra is ‘don’t worry about money, just focus on the best ideas.’ The African entrepreneurs I met laughed at this. For them, access to capital is the difference between success and failure. I know this from my own work at Golden Palm Investments – for every dollar we invested in an African start-up, there were nine other compelling high-quality companies we could have invested in (and several thousand more looking for capital). We need to implement policies that will promote the equity financing of start-ups. For example, governments should consider allowing for a small percentage of pension funds to be allocated towards seeding local venture capital funds. African assets under management have been growing at a remarkable pace and were projected to reach USD 1.1 trillion in 2020 in 12 African countries. We should also consider policies that reduce or remove taxes on capital gains for long-term investments in start-ups as an incentive to invest in them.
Additionally, we need capital that will support the growth of big companies. Acha Leke et al. in Africa’s Business Revolution argue that ‘Africa’s relative lack of big companies matters not just for shareholders but for society, because these firms are the primary drivers of economic growth.’ A 2014-2016 McKinsey study revealed that the top 20% of companies were responsible for 90% of economic value created in the world, which they defined as the profit a company makes after repaying its investors. Micro-finance and micro-investing will not create big businesses.
We also need to pay attention to diversity and inclusion in our allocation of capital. Apart from the obvious social and moral imperative, there is a compelling economic case. A 2007 study found that Fortune 500 companies in the top quartile for female board representation outperform those in the lowest quartile by at least 53% return on equity. Some Africans funds are already leading the way. Alitheia is a pioneer investment VC firm run by Tokunbo Ishmael, one of the few women VC investors on the continent. We need more Ishmaels and Alitheias.
The final insight is on the role of government. At conferences on entrepreneurship in Africa, people advise entrepreneurs to avoid government at all cost, yet my experience and research lead me to conclude that we cannot achieve an optimal level of development without involving government. The private sector in many African countries is small compared to government. No private company, no matter how large, can match the scale and legitimacy of national governments and they have a prominent role to play.
African governments need to adopt policies to enable start-ups to scale. For instance, the government of Rwanda has partnered with start-ups, granting them tax holidays and co-investing in their model to train developers. Such public-private partnerships, focused on training a tech workforce, are critical for success in the new global digital economy. Why shouldn’t a company like mPharma be managing the drug inventory at public hospitals for national governments and using their technology to save national treasury costs?
At the regional level, we need deeper integration and expeditious operationalisation of the African Continental Free Trade Area. We also need regulations and policies to enable easier connectivity and intra-Africa scaling across borders. Imagine if we had a special African Union (AU) visa for entrepreneurs that allowed travel access to all AU member countries. Imagine we had a special ECOWAS (Economic Community of West African States) or AU business registration that allowed you to operate in all member countries with just one registration process.
I also believe it is important for young entrepreneurs to consider public service. David Sengeh is a successful example in his new role as Minister of Basic Education and Chief Innovation Officer of Sierra Leone. Africa’s leaders, with just one female president, do not represent its youthful demographics. This needs to change.
For the international community and multilateral institutions focused on investing in African entrepreneurship (yes, I’m talking to you development finance institutions) – it is time to invest in African entrepreneurs. While it is impressive that VC flows to Africa have reached unprecedented levels (USD 5 billion in 2021), that capital, mostly dominated by foreign VC firms, is funding non-African at the expense of African entrepreneurs. Case in point: the portfolio of Novastar Ventures, a DFI packed impact fund, of which 80% of companies are run by non-African CEOs. To state the obvious, African-focused funds need to primarily fund African entrepreneurs.
I believe in Africa. I believe in our young people and our young entrepreneurs. And I believe, with the right support, we will forge a different narrative for our children and our grandchildren.