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Entrepreneurship and New Business Models in Africa

Entrepreneurship and New Business Models in Africa

November 7, 2019, Campus WU

This panel discussion was organized by the Competence Center for Emerging Markets & CEE and the Institute for International Marketing Management. We also would like to thank Nella Hengstler and Johannes Brunner from Advantage Austria/Austrian Economic Chamber for their help in the preparation of the panel.
 

Panelists:

Moderator: Arnold Schuh, Competence Center for Emerging Markets & CEE, WU Vienna
 

The “Africa Rising” narrative has increasingly captured the attention of the international business community in the last years. High growth rates, a young and growing population and middle class, fast urbanization, a continued abundance of resources and accelerating technological change are shaping the perception of Africa today. Successful local entrepreneurs and innovators see the continent’s unmet needs as opportunities. They share this view with entrepreneurial-minded foreign firms, which offer innovative solutions for African markets. In this panel discussion, we shed light on entrepreneurship in Sub-Saharan Africa, the role of innovative business models for the economic development and forms of cooperation between African and European firms.

The panel started with brief introductions of the businesses/organizations of the panelists and a statement on their view on the topic – some of these presentations are available below.

The debate centered around the following questions:

  • What role does digital technology play in the creation of business models in Africa?

  • What drives entrepreneurs in Africa today?

  • Which barriers exist that hinder technological progress?

  • How important is frugal innovation or solutions for the bottom of the pyramid?

  • Which type of cooperation can we find among local and foreign firms?

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Here you find selected main statements by the panelists.
 

Q: How important are new technologies for bringing African economies forward?

Uwaje-Begho: Technology plays a major role in the start-up scene. The entrepreneurs use already available technology in a creative and innovative way. Mobile phone based solutions have still a huge potential, especially in the banking sector. However, national politics needs to be more open for innovations; we still miss a lighter legal framework for start-ups. Governments are more interested in how to get a share in the sales of these new businesses (by taxing them) than to understand the transformative potential of those initiatives for the economic development of the whole economy. Additionally, the African states have to cooperate to create a more open market that is easier to enter from outside.

Arnold Schuh: May I add one point here: The recent launch of the operational phase of the Africa Continental Free Trade Area is a step in the right direction to facilitate stronger trade, investments and commercial interaction between the African countries. Of course, it will still take a lot of time to see the first results – just think how long the completion of the Single European Market took. But imagine the potential: Intra-African exports were 17% in 2017 (compared with 68% in Europe and 59% in Asia).
 

Q: How do African business models differ from those in developed countries?

Uwaje-Begho: Business models in Africa are addressing the real needs of the population. Digital solutions are driving commercial business models and social entrepreneurship. Digitalization is important for Africa. It allows Africans to get more affordable services and products and to solve pressing problems. We cannot wait until the deficiencies in hard infrastructure are totally removed, therefore many digital solutions have to make use of existing systems and have to solve logistics too. Crypto-currencies are highly appreciated because they allow you to transfer money across borders faster and cheaper than the classic money transfer. The transfer of money via banks from one African state to another still goes via a European or US node, takes long and incurs fees of up to 10%.

Hoetzl: As the managing director and co-founder of an Austrian-based business accelerator I got deeper interested in Africa three years ago. I knew already North African countries from previous trips but was now impressed to see a thriving start-up scene in Kenya. The tech hubs are vibrant places. Local firms and entrepreneurs have changed the business environment. M-Pesa is Africa's most successful mobile money service. It provides access to financial services to the millions of people who have a mobile phone but do not have or have only limited access to a bank account. In Hannes Eckmayr‘s both ventures, Pawameand Ilara Health, M-Pesa plays a key role and the firms would probably not exist or grow as fast without the underlying mobile phone payment solution. You can find highly motivated entrepreneurs who want to change the situation for the better and who bet on digital technologies. My visit to Andela showed me how important it is to trigger off training facilities for software programmers, as they are needed urgently in Africa and globally to staff the digital take-off. Andela provides distributed engineering teams with Africa's top software developers for a global market. So it contributes to solving the global tech talent shortage while catalyzing the growth of tech ecosystems on the African continent. The other example is Zipline, that delivers medical products (blood, plasma) to hospitals in remote areas by drones. Founded in California, the focus has been on providing delivery services in Africa. Ruanda was the first country where the service was successfully introduced, later Ghana followed.

Uwaje-Begho: Building programming capacity is one of the most important and urgent problems. 10 years ago African businesses outsourced programming jobs to India and Estonia. Today they are looking for software engineers locally. First because there is a supply now and second because the locals understand our problems better. However, it is difficult to find good programmers. We have to empower people to create and invent more. The development of human resources in general as well as technical and digital skills in particular has to have highest priority in the national economic development agenda and business plans of firms.
 

Q: Are your solutions (Ilara Health, Youniqx) transfers of existing models in Europe or USA or were they locally developed?

Eckmayr: Conventional models from Europe and USA will not work in Africa as one has to consider the local circumstances. Otherwise, business models will not be successful. I learned this already in my first job as sales manager of off-grid solar systems M-Kopa Solar in rural Kenya. Coming up with a solution that allows the household to pay back the installation via mobile payment system is hard to figure out in Europe. The new venture Ilara Health is bringing affordable technology-powered diagnostics at about 10% of normal costs to patients living in the urban-perimeter and rural areas of Kenya. Our solution allows for low upfront payments by doctors and includes automatic mobile-payment of the fee to us – circumventing most of the red tape related to processing bills. The funding structure is local too - local venture funds are on board to finance the roll-out.

Brudl: While our solution is universally applicable, the problems are very different when comparing Europe and Africa. In Sub-Saharan Africa only every second person has a proof of identity. This is a huge burden for those individuals without any documented identity as it hinders their access to education, a bank account or the establishment of a business. Through our MIA app (My Identity App) we are closing the loop because people can transparently identify and authenticate themselves in both the physical and digital world. Thus, technology is helping Africans to participate in the economy and being recognized by authorities.
 

Q: How to be successful in Africa? What do you tell Austrian/European firms?

Brunner: First, we have to understand that Africa is a continent of 54 states and conditions for doing business are varying. Second, solutions should address an urgent, unmet need and be affordable. Kenyan fresh-fruit distributor Twiga links farmers and vendors via a digital platform to fair, trusted, modern markets. It provides a complete supply chain in Kenya for quality produce in urban areas. It guarantees farmers stable sales markets and higher returns by eliminating brokers and reducing post-harvest losses to under 5%. Third, products and solutions based on frugal innovation, i.e. about delivering more value at lower costs to more people, have a better chance to succeed. That is one of the reasons that Advantage Austria of the Austrian Economic Chambers is running the Africa Innovation Challenge to facilitate the transfer of ideas and solutions to Africa and to develop them further locally with other firms and partners. Fourth, one should not forget to develop the skills of the workforce. Austria can export its successful dual education system that brings together apprenticeships in a company and vocational education at a vocational school. Without the improvement of technical and digital skills, many of these projects cannot even be launched due to skill shortage. Finally, every investor has to take the long-term view. Just flying in and striking a deal will not work.
 

Résumé:

  • Business models in Africa are different: They focus more on unmet local needs and are often driven by social purposes.

  • Frugal innovations are important in this environment: how to create more value for the many with less.

  • Success in Africa demands deep local insights and a long-term view.

  • Cooperation between foreign and local firms is welcome, is happening (as the examples show) and comes in different forms: developed in the USA/Europe and implemented in Africa, developed locally for the local market as well as developed in Austria and jointly tested in Africa in the case of the Africa Innovation Challenge.

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