It’s often been said that “necessity is the mother of all invention”. That certainly rings true for African entrepreneurs. Many of their business ideas are born in a situation of scarcity. Entrepreneurs are often the only people with enough courage and creativity to find a solution. The lack of resources is what makes their journey into business quite taxing, which often makes theirs a harder battle to win than businesses elsewhere.
Some of Africa’s entrepreneurs lack basic infrastructure such as water and electricity, others struggle to convince banks to grant them loans or credit. And, when they eventually overcome these initial barriers, there are additional challenges such as finding well-designed premises from which to operate, hiring skilled staff and sourcing readily available inputs to produce their goods. The fact that they are able to rise above these limitations is a testament to their ingenuity and fortitude. However, struggling to get things done shouldn’t be the definitive marker of entrepreneurship on the African continent. Something needs to give.
Through our weekly television programme Africa Business Report, on BBC World News, we have met numerous entrepreneurs. The majority are young and ambitious self-starters who have defied convention to start an enterprise. Most of those who have had their stories broadcast on BBC World News are thriving despite their businesses being at an embryonic stage.
While they are bold and sometimes colourful in their personalities, they clearly have a long way to go in making the transition from small to big business. Yet their stories are fascinating.
Where entrepreneurs thrive
This new generation of businessmen or women is cultivating new companies in fields as diverse as food, media, fashion, retail, communications and technology. They make products as varied as haute-couture clothing, craft beer, artisanal honey, local blend coffee, garden wine and bespoke bicycles.
They even design software, write code and produce internet platforms in the vernacular.
It’s a testament to the wealth of talent in Africa and the drive to match their international counterparts. However, any well-established business leader will tell you that the human spirit alone can’t grow a business. That requires a little bit of art and lots of rigorous (almost scientific) interventions. Unfortunately that level of technical support is something most young entrepreneurs find difficult to access.
This leads me to an interesting conversation we had with Jude Kofi Bucknor in Accra, Ghana. Mr Bucknor is a renowned financier who is prominent in the private equity space, through his role as the African partner for Kingdom Zephyr, a Saudi investment company with extensive reach on the continent.
Private equity: key to success
Bucknor argues that more attention needs to be given to private equity as a category of investments that could enhance the growth of medium enterprises. In other words, private equity could be the thing that takes local businesses from good to great.
The philosophy is simple, based on the noble idea of identifying a home-grown entity that has risen against the odds and grown into a company that employs dozens of people. In the evolution of a successful business, there comes a point when it is too big to be called small, but too small to be called a corporate.
At that moment, private equity investors step in to give it a much needed boost. They buy shares in the company, lend some international expertise, review the strategy, upgrade the technology, purge the wastage, groom the management and hopefully turn an even bigger profit.
After a few years they disinvest and leave a better company in the hands of its founders.
Mr Bucknor says they have registered return-on-investment upwards of 20%, mainly because of the growth in local economies, the rise of a middle class and benefits of expanding a company beyond local borders.
Private equity is obviously not for everyone, and it’s not the remedy for every struggling new entrepreneur, but it does offer a different approach to recapitalising and reinvigorating a business. It is an avenue beyond what the banks, insurers or the social saving clubs are doing.
Private equity also mitigates against some of the risks that commercial lenders believe to exist inherently within young African companies. That does not nullify the work of banks. Obviously it’s a generalisation to say that big banks don’t support small and medium enterprises purely because of the perceived risks. However, lenders are incredibly cautious, preferring to pair the risks or at least share them. Perhaps this is the reason that leading financial institutions such as Standard Bank, Ecobank, Standard Chartered and BankABC are opting for syndicated loans where governments take on part of the burden alongside development agencies and major corporates.
Yet there are signs that something is changing.
Solutions from the African Development Bank?
In a recent interview Dr Akinwumi Adesina, the President of the African Development Bank, spoke to us about the launch of a US$5-billion fund that will support young people in their businesses. This single assertion ignited Twitter, which is evidence of how desperate young Africans are for this kind of good news.
On Twitter, they asked questions about how to access the funding. They also wanted to know which types of business idea were deemed ‘bankable’ by development agencies. Others’ comments were more measured, urging the AfDB not to pay lip service to the principle of youth entrepreneurship, using the fund only as a means to tick a box.
Although very little is known about the fund, the fact that it has been established is an indication of how serious the issue of youth employment has become, and the recognition that it may be the way to address the problem. This is perhaps one of the most urgent issues in Africa today, and policy makers really need to galvanise resources and channel policy towards finding lasting solutions in this area.
That could be the reason the United Nations Economic Commission on Africa, based in Addis Ababa, has made innovation the hallmark of its programmes around youth.
Despite their shortcomings, African governments have a critical role to play. They don’t need to dabble in business, but simply create an enabling environment. In this instance it may be to unlock reserves for youth training programmes, invest in quality education, sponsor facilities for e-learning, open up procurement to younger service providers and deregulate key sectors such as banking, energy and telecommunications. Fewer slogans are required and more tangible actions are needed. At the heart of it, African economies need to be transformed by moving away from commodities, towards a modern way where innovation can excel.
From entrepreneur to Africa’s Richest Man
A master of this reinvention is Alhaji Aliko Dangote, the founder of the Dangote Group and Africa’s richest man. Mr Dangote is essentially an entrepreneur. He once shared with us a very personal story of his early years in business. As a 21-year-old he saw an opportunity to import sugar, fish and rice into his hometown. He received a generous loan from his grandfather that would set him on course. After three years he was able to repay the debt. Most importantly he had now honed the business skills that would enable him to stand on his own feet. He did not become an instantaneous millionaire, but having the buffer of family support, he ostensibly had been given the freedom to try different things without worrying too much about the consequences. He credits his grandfather for mentoring him and for the tough-love, by which he insisted on having the family loan repaid. There was moral support, but no mollycoddling.
It is the sort of carrot-and-stick treatment that experts argue this new generation of African entrepreneur also needs. The yearning for encouragement, incentives and financial aid is valid, yet there ought to be consequences for reckless investing, failure to execute plans, a lack of professionalism and living off debt. But even this must be tempered. From the entrepreneurs we speak to, there is generally a view that the system is keen on punishing failure, more than it rewards the potential. This is unlike in the United States, where titans of industry often say they once filed for bankruptcy only to rise amidst the ashes.
African entrepreneurs must be given a chance to make a mess of things, then given the latitude to fix it, through a mix of mentorship, extended credit terms, technology and patience in the market.
The future of entrepreneurship in Africa
Kevin Ashley, the co-founder of a very successful Nairobi coffee-shop chain, once said: “The journey is forever. Do not ever let yourself feel like you have arrived, because if you do someone else will come and run right past you. You have to keep going because you haven’t reached the mountain top yet.” These words apply to life but more so in the business world.
As a frontier market, the African continent has vast untapped resources and opportunities; hence one could argue that for a new crop of businessmen and women the sky is the limit.
The emergence of disruptive technologies has changed the shape and face of business, forcing sectors of the economy to regroup. Simply look at the rise of Airbnb, Uber journeys and Juma. The challenge is for the entrepreneur to keep pushing, playing and dreaming. Leaders must create the eco-system that allows these dreams to come true.
Meet the young entrepreneurs
Our favourite young entrepreneurs on Africa Business Report
1 Nicholas Haralambous
Nicholas Haralambous, the founder of the NicHarry brand, is a 31-year-old designer of colourful custom-made socks, pocket squares and handkerchiefs for men. He describes himself as a “serial entrepreneur” who since graduating from university has started eleven businesses. Nine have failed. A previous technology venture yielded results; he sold it and, with that equity, started a textile manufacturing business, with his girlfriend, making socks for an elite clientele. NicHarry was established in the Western Cape, a region of South Africa where the clothing industry has almost been decimated by cheap imports from China that have flooded the market. In an attempt at self-preservation, Nic has merged design and manufacture with online retail. The business was started with the equivalent of US$500 and has now multiplied ten-fold.
2 Mutoba Ngoma
Mutoba Ngoma is a Zambian graduate in aeronautical engineering who was born into a family of five. Unfortunately, he lost his job in 2009 when the airline he worked for went into liquidation. However, his love of engineering led to his experimenting with chemicals in his parents’ garage. After a few months, playing with chemical mixtures led to a ‘eureka’ moment when he discovered a way to process biofuel from vegetable oil. This was the genesis of Tapera Industries. Initially they made washing soap and diesel fuels, but found that they couldn’t compete against the local industry that was subsidised. A stroke of luck came when women buyers discovered a cosmetic benefit to his glycerine-based soap. That was the inspiration to expand on his product offerings. His fledgling business has grown to a turnover of nearly $US5000 a week, he employs 12 people including his mother, and they are now moving into bigger premises this year.
3 Sara Abera
Sara Abera is the founder of Muya Ethiopia, a fashion design studio, tailoring and retail centre on the outskirts of Addis Ababa. Sara loves fashion and has a passion for indigenous designs which have deep symbolic meanings drawn from Ethiopia’s more than 80 local languages. She also knew that drawing these patterns was a skill only found in Ethiopia as it’s passed down from generation to generation. She built her artisanal fashion studio, hiring women threaders and male weavers from across the breadth of the country. Her scarves, cushions and blankets are made from pure Ethiopian cotton and are being sold in France, UK, South Africa and Saks Fifth Avenue in New York.
4 Sarah Boulos
Sarah Boulos is a ballerina turned medical administrator turned proprietor of a dance company in Lagos, Nigeria. Ten years ago, Sarah, a Nigerian of Lebanese heritage, had itchy feet and she yearned to dance again. She also wanted to teach local children who were involved in impromptu musical groups and hip-hop dance troupes on the streets of Nigeria. Without any funding she used her savings to set up a dance studio in her garage. Eventually word spread and more students were signing up for dance classes. Today, she runs a large dance school known as SPAN Nigeria. Corporates have stepped in as sponsors and recently her dancers were selected to participate in the World Dance Day in April this year.
5 Donald Gichane
Donald Gichane is the chief executive officer and co-founder of Elpis Farms. After studying in the USA, Donald returned home to Kenya with a desire to be part of an authentic Kenyan enterprise. Flower farming was the natural choice, since the country is the third largest exporter of cut flowers worldwide. However, many of the large commercials were run by multinationals, which did not make sense to Donald. Donald gathered many of the smallholders around the Naivasha area, urged them to pool resources and, using their well-honed farming skills, together built an 18-hectare farm that employs 120 people. Three days a week their roses and hypericums are flown to the Netherlands and sold through a centralised auction, before hitting the supermarkets in Europe.