The State of Entrepreneurship Ecosystems Across the African Continent
The Seedstars Index for Africa
Over the past 12 months, I have traveled through 13 countries in Sub-Saharan Africa with Seedstars World, with the mission to find the best entrepreneurs, connect them to investors, partners, and media and to study each local innovation and entrepreneurship ecosystem.
While traveling through all these countries, we gained significant insights and learned a lot about how different startup ecosystems work, what makes them successful and what hinders their development, which led us to develop our own Seedstars Index (SSI, see methodology below).
The Seedstars Index Methodology
In order to be able to benchmark the different startup ecosystems on a regional and global scale, 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 consists of three pillars:
- Culture: How prevalent is the entrepreneurial mindset in the country? How much is entrepreneurship and risk taking celebrated and promoted?
- Environment: How conducive is the legal, political, and financial environment to build and grow companies in that country?
- Opportunity:How big is the opportunity to grow and scale within and outside of the home market?
These three pillars determine the success of the ecosystem, which then in turn reinforces each of these pillars and makes them stronger and more capable of replicating successes.
These three pillars have been measured across 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. After studying each country, a score is calculated on a scale of 0–100 (0 worst, 100 best) with Silicon Valley representing the benchmark of 100 points. This means that the closer a country comes to 100 points, the stronger their entrepreneurship ecosystem is. Lastly, 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: Overview
While traveling 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 me 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 13 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 where in line with it and seven countries performed worse than their economy in terms of entrepreneurship ecosystem.
The Results: Highlights
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 realized that 75% of its economy is dependent on diamonds and nickel, which won’t last for ever. 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 and gas, big corporations, 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.
After traveling through the continent for an entire year and observing all of the different startup ecosystems, I 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, I am certain that it won’t be long until we see successful high growth companies popping up from across the continent to compete on a global scale.
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Originally published by Marcello Schermer on medium with the editing help of Tiffany Obser.