PWC surveyed 600 executives back in 2018 and found out 84% were implementing the blockchain. This was back in the day when the technology was reaching out for institutional adoption. The International Data Corp suggests organizations and governments will raise their blockchain spending to $12.4 billion by 2022.
Africa is embracing blockchain technology at a comparatively high rate. Different startups are rising and implementing smart blockchain solutions into contracts, transactions and ecosystem transparency. All of which have a big shot at jumpstarting financial infrastructure, the healthcare industry, democracy and supply chains.
For some frugal reason, Africa’s economic ecosystem remains fragmented and disconnected from progressive innovation and financing. As a result innovators across the continent are amassing the power of emerging technologies (Blockchain, AI, machine learning, data) to create capital markets, disrupt existing economies and collect resources.
The blockchain is enabling these breeds of millennials to tweak startups from the ground and gain crucial support for launching, growing and scaling. Something which is not an easy thing to do, especially in a growing continent.
Let’s have a look at problems facing innovation, startups and growing business in Africa. Then we will analyze how emerging technology is backing the continent’s entrepreneurial culture.
Corrupt Value Chains
In an interview with the BBC, Nailab founder and CEO Sam Gichuru claim Africa’s value chain is the biggest problem for digital startups. Nailab is a startup incubator in Nairobi, Kenya which is building an intervention strategy for solving the biggest challenges facing young African entrepreneurs. Upcoming capital markets and economies are solely dependent on trust. The lack of high-value systems prevents ethics, discipline and integrity – all of which are key to a successful digital business landscape.
Unfavourable Regulations and Government Policies
Sometimes the cost of operation is high due to unfavourable policies. It’s upon African leaders to democratize the process of creating an enabling environment for businesses. Leaders and policymakers need to review the regulatory frameworks of intellectual property rights, incentivised tax laws, legal disputes support and funding.
Limited Market Access
Africa’s economic markets have been growing gradually over time. Regional blocks are creating accessibility by building intra-trading zones within the continent. This is increasing the efficiency and fluidity of conducting business transactions on the continent. However, access to markets is still a challenge for Africa’s entrepreneurs. A study by the World Bank indicates market access is a key determinant of economic development in Sub-sahara Africa. The study emphasizes the importance of Sub Saharan Africa taking part in world markets to stimulate its trading relations. Instilling growth and expansion in the exporting and manufacturing industries positions the continent for economic success and widens potential markets.
Lack of Funding
African entrepreneurs face challenges in accessing finance to grow and expand businesses. Most of the problems encountered along the way include lack of collateral, extra bank charges, high-interest rates, limited financial knowledge and lack of skills for evaluating financial proposals. An article by Coindesk, entitled; ” African Startups Should Tokenize to Break Biased Funding Cycles” claims issues facing startup financing are structural. According to the article, investors find the financial space in Africa risky due to questionable intellectual rights, property right infringement, sudden shifts in policy and regulations and foreign currency controls.
Michael Kimani, the creator behind Crypotbaraza and an experienced fintech specialist argues of a longstanding conflict between white expatriate, local -bred and ex-ivy league entrepreneurs. Local bred entrepreneurs blame foreign expatriates for soiling the investment space for African founders by perpetuating racial-inclined venture funding. For example, Kenya’s business landscape is divided between local and white expatriate innovators. Nigeria and Ghana face a conflict between ex -abroad African students and local founders. All of whom aspire to own the startup narrative on the continent. Funding statistics from Gumroad also seem to point towards some level of bias in finance allocation.
What are Entrepreneurs Doing to Counter the Challenges
In 2015, two South Africans came together and formed Wala. The duo was poised to provide millions of unbanked Africans with access to remittance, insurance, loans, banking services and deploying a full suite financial ecosystem. Wala would go for crypto two years later and launch its utility crypto-tokens called Dala. This was with the hope of operationalizing and scaling blockchain enabled-financial systems and taking advantage of emerging economic opportunities.
For the first few days, Financing wasn’t a problem for the South-African based startup. The founders were able to raise capital funding from Newtown Partners, clinch a startup grand prize of $100,000 from the Zambezi Prize for Innovation in Financial Inclusion and over $1.2 million from token sales. The startup also attracted over 150,000 users from Uganda’s financially excluded populations. Unfortunately, the successes were shortlived and the blockchain baby ran into problems.
Technology infrastructure crumbled as a result of large user volumes. It turned out that users could no longer transact. Funding began to become a problem and the company went into a frugal spending stretch operation along with a tight budget.
Tricia Martinez – one of the founders says she travelled across the world searching for investors. She met over 100 investors during her journey and despite their large user base and growing numbers, she wasn’t able to secure funding for Wala. To say the team was devastated is an understatement.
Here was a startup that had done all it could, to build a financial ecosystem, that solved a big problem in Africa. Yet unable to raise funding to scale its operations.
On 8th July 2019, Tricia Martinez and Sameer Sab called it a day and shut down operations of the company.
This is a common problem in Africa. World-changing startups and ideas do not receive the traction they deserve due to lack of support.
But we cannot talk about startup funding and forget the story of Paystack.
Paystack, a Pan-African payments processor is the brainchild of Shola Akinlade and Ezra Olubi. The duo was enrolled at the prestigious seed-stage Y-combinator accelerator program. Olubi and Akinlade had cut their mark with their idea and were now aiming for the highly coveted position that no Nigerian company had ever reached. At the time, Y-Combinator required startups to be registered in the United States as LLCs. With a US registration, Paystack had a bet in YCs $120,000 seed funding. The startup went on to register in Delaware at $500.
Such a move was going to appease investors and give the startup good financial backing. Eventually, Paystack was able to raise #1.3 million in 2018 and some more $8 million from Y-Combinator, Tencent, Visa and Stripe. During 2018 Q3, Stripe acquired Paystack for $200 million.
For Africans, this was nice and gave them enough confidence to keep innovating. And to the world, this was enough validation for African tech startups. But remember this came at the cost of registering operations in the United States.
And while Africa rested on this one excitement, came Jumia.
Jumia grew from costing a few dollar cents to a listing on the New York Stock Exchange and raking over $1.1 billion from 17.6% of its shares. But here is the kick, Jumia’s founders are former McKinsey consultants and they are German. The duo had spotted an eCommerce opportunity in Africa and armed with the expertise of packaging retail commerce, they registered a company in Germany.
With help from Nigerian locals, the company grew its operations to over 14 markets across Africa within 7 years. Jumia’s success story made the African entrepreneur feel discriminated against and side-lined. Unlike Paystack’s Nigerian founders, Jumia was the brainchild of two Frenchmen. It is whispered Jumia hired locals to conduct ground operations and a team of white executives to represent the company during investor occasions.
I don’t know who is to blame for the startup ecosystem in Africa. However, blockchain pundits suggest the need for African startups to trade themselves out as digital tokens. Experts feel this is the only means to distribute investment potential and help businesses gain more early-stage investors. A Nigerian startup, SureRemit has successfully managed to tokenize access to capital and urges African startups to follow suit.