Why Technology Would Not Create African Billionnaires
The year 1995 was a significant year in Africa’s history. South Africa hosted and won the 1995 World Rugby Championship beating New Zealand by 15 – 12. Nelson Mandela handed the Cup to Francois Piennar in a move that catapulted the entire nation’s mood from uncertainty to renewed hope. However while this was going on, a young boy from Welkom, a gold mining town in South Africa has just started what would be called one of the biggest internet certificate company in the world.
His name is Mark Shuttleworth. Mark founded Thawte, his internet security company right in college in 1995. At age 26 Mark would go on to revolutionalize web site certification. In 1999 Mark sold his startup to Verisign for $575 million making him one of the richest African.
Till date that marked the biggest exit of an African tech startup. In recent years we have seen big exit like Visa acquisition of Fundamo for $110 million and First Data acquisition of Gyft for around $70.
All around the continent we find several entrepreners who are trying to build great products. In Ghana, Seth Akumani and Emmanuel Yirankyi had built Claimsync, an electronic medical claim company. Claimsync would later be sold to Genkey, a netherland based biometric identity company. In Nigeria the likes of Jason Njoku and Iyin Aboyeji are creating tremendous impact with their startups.
However despite the growth of technology, Africa is yet to see its first billionaire from the tech industry. What then could be responsible for this?
In 2012, the World Bank published a report on Poverty in Africa. In the report it shows that the share of the African population in extreme poverty declined. This good news however looking at the rapid population growth poverty challenges still remains an issue. If we examined the report carefully we will see that while extreme poverty has reduced more people are poor today than in 1990, two in five adults are still illiterate, and violence is on the rise. How does this affect technology and adoption of the internet.
Between 2015 and 2016, Africa as a whole shrank in GDP per capita to a lowly -115. Twenty one out of 56 Africa countries experienced a negative growth in GDP per capita with the continents biggest economies Nigeria and South Africa experiencing a -503 and -709 growth between 2015 and 2016. Simply put there isn’t enough purchasing power for Africans and technology might just be an option B.
How do you build a thriving startup in a “jungle”. Africa operates a largely informal sector that has become its cause. Infrastructure is still under-developed and shacky. According to Ndubuisi Ekekwe in a Harvard Business Review, “the indirect costs faced by African firms at around 20 to 30 percent of total costs, a value often higher than labor costs. The impact of such production costs on Africa’s competitiveness seems to be above and beyond what is experienced by other regions in the world”.
Data is the oil of internet and the future of many African internet startups will be shaped around affordable data cost. Facebook is aware of this problem and want to make internet free for all Africans. No doubt the cost of data has gone down due to intense competition from telecom providers; it is still relatively expensive compared to other developed regions in the world.
A report from The Internet Society published in 2012 sheds more light on internet penetration and cost in Africa. According to the report, Internet penetration levels are on the rise in the African continent (from 0.78 percent in 2001 to about 20 percent as of 2014 with mobile broadband access accounting for more than 90 percent of Internet subscriptions). It is also stated that Internet costs for mean users in the continent remain considerably high with users paying 30 or 40 times more for Internet access than their counterparts in developed countries.
Africa tech startups need more funds but it also needs its advocates. These are investors who believe in the long-term viability of african startup because the road is long and tortuous. If Africa is to scale appropriately it needs more advocates than investors. In 2015, a promising online furniture store, showroom.ng shut down due to cost of operation. It marked a dark moment for tech. In 2016, a total of $1 billion flowed to African tech startups, these could rise significantly in 2018.
No doubt, technology will leapfrog Africa into global economic relevance but for now its citizens are hungry, energy devoid and in desperate need of their factories, a situation in which its richest man, Aliko Dangote is well aware of. This article was culled from my blog coffeetimes.com.ng
**About the Author**
Seyi King is a content marketing consultant for tech startups and brands. Reach out to him on [email protected].