Africa’s state of entrepreneurship according to Seedstars World

Over the past 12 months, we have travelled through 13 countries in Sub-Saharan Africa with the mission to find the best entrepreneurs, connect them with investors, partners and media and to study each local innovation and entrepreneurship ecosystem.

After travelling through the continent for an entire year and observing all of the different startup ecosystems, we couldn’t be more bullish on the potential for entrepreneurs on this continent. There is still a long way to go in order to make starting and running businesses easier, facilitating trade and traveling and creating policies that allow companies to grow and investors to invest into them. Despite this, if things keep improving at the current rate in all corners of the continent, we are certain that it won’t be long until we see successful high growth companies popping up from across Africa to compete on a global scale.

During this journey across Africa, we collected valuable insights on each startup ecosystem, got to know what makes them unique, what are their strengths and what’s still interfering with their development. It led us to develop our own Seedstars Index (SSI):

The Seedstars Index Methodology

We developed the Seedstars Index (SSI) to measure the quality, maturity and future potential of the 54 ecosystems we interacted with in 2015 . The SSI is made up of three pillars:

1. Culture: How prevalent is the entrepreneurial mindset in the country? How much are entrepreneurship and risk taking celebrated and promoted?
2. Environment: How conducive is the legal, political and financial environment to build and grow companies in that country?
3. Opportunity: How possible is it to grow and scale within local and foreign markets?

We believe these three pillars are fundamental in building a successful entrepreneurial ecosystem and, that success is both the desired output and catalyst.

These three pillars have been measured across over 15 underlying factors, hundreds of on-the ground interviews as well as the qualitative research and quantitative research that our teams conducted while visiting every country. Each factor is benchmarked against the United States or Silicon Valley that receives 100 points. Scores range from 0-100 (0 worst, 100 best) and they can go above 100 implying a more favourable situation than USA/Silicon Valley. The index score is correlated with the GDP per capita of the country, to indicate how much the entrepreneurship ecosystem is over or underperforming compared to the general economy.

The Results in Africa: Overview

While travelling across the continent, it was inspiring to see a buoyant entrepreneurial spirit emerging across the board. There was no country or city without entrepreneurs working to reinvent domestic and international industries. People are taking matters in their own hands and are building companies to solve local and international problems. The money is also following, with over $185 million being invested in startups across the continent in 2015 alone.

However, compared to the rest of the world, Sub-Saharan Africa is still behind other regions in terms of entrepreneurship development and support systems, averaging 52.4 points on the SSI while Latin America, the front runner in our study, reached an average of 63.8 points. There is also a large disparity between the top and worst performing ecosystems in Africa, with South Africa, the best ranked African country in our study (and second best globally), performing nearly twice as well as Angola, the country ranked last in Africa (and second to last globally). However, the rate of growth at which things are improving across the continent, especially in the countries that are ranked low today is mind-blowing and makes us confident that we’ll see significant improvement already by next year’s edition.

Taking a deeper look at the African results, we see that out of thirteen entrepreneurship ecosystems that we studied, six performed in line or above the average of the continent while seven of the studied countries performed below the continental average. Beyond that, three countries performed significantly above their GDP per capita while three were in line with it and seven countries performed worse than their economy in terms of entrepreneurship ecosystem.

The Results in Africa: Highlights per country

A few observations and anecdotes that stand out from these results:

South Africa: Cape Town is stealing most of the attention when it comes to startups in §South Africa as it has an incredibly vibrant ecosystem and support infrastructure from investors, government and private institutions. However, Johannesburg is the promising new kid on the block which is churning out solid, ambitious and sophisticated businesses while most people are still focused on Cape Town.

Rwanda: With forward thinking policies and one of the highest ease of doing business scores on the continent, Rwanda has made it incredibly easy and attractive to start and grow a business in the country. It is positioning itself as a test bed and laboratory for African startups, where one can test a business in a small, but stable and business-friendly African market and expand it from there once it’s validated.

Senegal & Ivory Coast: Francophone countries are different than most African countries. The low rate of English fluency, even in the entrepreneurship ecosystem leads to a culture that sees France as the role model for entrepreneurship and as the main market to scale into. This significantly reduces the potential for companies to learn from knowledge and content available only in English (such as every important VC blog, tech blog, most of twitter etc.) and to scale to the rest of the world. The language barrier also means that non-french speaking VCs, corporates and ecosystem players will avoid francophone countries for as long as possible, further reducing the opportunities for entrepreneurs in these countries to succeed.

Ethiopia: The second most populous country on the continent, double-digit GDP growth for over 10 years, rapidly growing internet penetration and a heavily regulated market are the main reasons why Ethiopia is one of the most promising countries for entrepreneurship in Africa. It has high entry barriers, but it’s a market where every industry is still pretty much untouched by technology and innovation. There are few countries on the planet with 100 million citizens, a fast growing economy and a complete green field regarding innovation and technology, and Ethiopia is one of them.

Botswana: Botswana is one of the few entrepreneurship ecosystems in Africa that is basically kickstarted and run by the government rather than by private initiatives that eventually received the government’s attention. The government of Botswana has realised that 75% of its economy is dependent on Diamonds & Nickel, which won’t last forever. This is why the government has launched the Botswana Innovation Hub, focused on diversifying the economy and driving innovation in the country. To date, there are no major private initiatives (co-working spaces, accelerator programs, ecosystem initiatives) active in Botswana and the ecosystem is primarily run by the government.

Angola: Dominated by Oil & Gas and big corporate and with Luanda being the most expensive city in the world, the word entrepreneurship is still fairly new in Angola. However, initiatives to bring together entrepreneurs in physical hubs and a government-backed investment fund are slowly changing the game and creating a more conducive environment for entrepreneurship in the country.

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This article by Marcello Schermer originally appeared on Seedstars World, a Burn Media publishing partner.

Feature image via Seedstars World Blog.