5 things African governments can do to stimulate startup ecosystems

A famous quote by, author and New York Times columnist, Thomas L. Friedman goes “every morning in Africa, a gazelle wakes up. It knows it must run faster than the fastest lion or it will be killed. Every morning a lion wakes up. It knows it must outrun the slowest gazelle or it will starve to death. It doesn’t matter whether you are a lion or a gazelle. When the sun comes up, you better start running.” By this he means that entrepreneurs should be adaptable to whatever environment.

We have seen startups adapt successfully in tough circumstances in Africa– yes, but governments could also help shape the way entrepreneurs can thrive and not merely survive. In this article we highlight five crucial areas on which African governments should focus in order to improve their startup ecosystems.

Tech development and digital job creation

In terms of infrastructure, many people have debated the relationship between ICT (Information Communication Technology) development and general economic growth. Startup culture however, is stimulated by this growth, as communication, information and general practicality of businesses are improved.

Rwanda is a classic example where ambition is successfully met by ICT development. The Economist even suggests that Rwanda is Africa’s new Singapore. Although there are similar African countries who underwent significant ICT development, Rwanda shows how a landlocked country that lacks an abundance of natural resources, can use innovation to spur growth of a knowledge-based economy.

At the top of this, we find kLab — an innovation hub in Kigali, Rwanda. The innovation hub is part of a host of others across the continent. Among many other things, these hubs mainly stimulate growth of IT entrepreneurs. Although outdone by Mauritius and South Africa, the World Bank ranks Rwanda the third best place in Africa to start a business.

Apart from a successful commitment to its ICT sector, the Rwandan government has molded its ecosystem in a way to encourage startup culture. As mentioned in The World Bank Doing Business Report for 2013, Rwanda has improved access to credit, streamlined procedures for starting a business, reduced the time to register property, simplified cross-border trade and made courts more accessible for resolving commercial disputes in the last decade. These, among other policies, makes the Rwandan environment attractive for startups.

Upgrade skills and motivate

Tech development should go hand-in-hand with skills development. Improving the sector requires more software engineers, for example. Although innovation and focus on ICT can help spur the growth of startup culture, it still only provides the framework or tools that help stimulate innovation.

In a recent communication essay, IBM gives the example where a handful of people who know how to code mobile apps, get together and decide to start a company. That’s ambitious and sounds like good news. However, when it comes down to brass tax — running a sustainable company that generates profit — many of those people fail. Too often startups don’t understand the fact that it’s not a question of if your idea would work, it’s a question of how it would work.

Managing and building a business requires various skills. These are found through education and experience. As mentioned by Nigeria’s minister of finance, the country’s graduates need to be “job creators, not job takers.”

As noted in the Omidyar report, only 7% of tertiary education institutions have an entrepreneurship centre that is dedicated to entrepreneurial development. More so, only 28% offer courses specialising in entrepreneurship, and even less (10%) offer a course in innovation and technology.

Governments should promote success stories of Africa’s startups to inspire younger generations. Also suggested by the report, “Africa needs institutions that are designed from the ground up to prepare young people to be leaders and entrepreneurs.” For example, the Nigerian government is developing training programmes with universities and industrial partners that provide technology and entrepreneurship skills.

Promoting startup culture through exposure

The continent has made groundbreaking strides in the last decade and is continuing to do so. Africa’s culture however, is still very traditional. Many students and families would rather focus time and finances on subjects such as law or medicine than they would on business or entrepreneurship.

Startup competitions like DEMO Africa or innovation hubs such as Afrilabs inspire both potential startups and investors to join the scene. LIONS@FRICA is a partnership consisting of organisations such as the US Department of State, Microsoft, DEMO, the African Development Bank and infoDev and focuses on celebrating technology entrepreneurs. The partnership also tries to find ways in which the public and private sector can cooperate to improve Africa’s ecosystem. Partnerships and initiatives likes these should be celebrated and encouraged.

Exposure can also help attract potential investors both locally and internationally.

Funding can go a long way

One of the most crucial hurdles to overcome is probably funding. It’s not just the process of finding willing investors that is difficult, access to government funds and incentives are rare. Ventureburn has written a lot on the topic of how difficult it is for startups to get their hands on funds. International investors are too often filling this gap.

At the same time many of Africa’s new businesses are small-scale compared to international big-shots. Investors who’d rather place their money on more familiar, safer and bigger startups. According to IBM, venture capitalists usually aim for “US$250 000 and US$1-million. An East African tech startup with 10 employees can run on US$50 000 for a year.”

Angel investment should be encouraged and government funding should also be easier available for small-scale businesses. Seed financing can be made more professional to “make investing in small-scale ventures more efficient and cost-effective.” Angel networks also offer entrepreneurs access to business experience, as well as capital.

Cutting the red tape

Governments can establish healthy ecosystems and platforms where venture capitalists, entrepreneurs and thought leaders connect. For example, according to the Omidyar report, Singapore’s government has policies that enable investors in startups to receive tax deductions if the company fails. Also, if a company’s shares are sold at a loss, new businesses can receive tax exemptions for up to three years.

Government funding is viewed as difficult to access due to bureaucracy and nepotism. Governments can reduce bureaucracy for early-stage companies to access government funding. Cut the red tape.

In Rwanda, for example, registering a firm takes three days and is considerably cheap. As the Omidyar report points out, recent improvements to business registration processes have significantly decreased administrative burdens for new businesses in Kenya. On top of that both Kenya and Rwanda have made great strides in improving and focussing on corruption levels in government.

Dear governments, helping startups means helping your country prosper. Hop to it!