Why SA’s tech start-ups should look to Africa

[By Gareth Knight]

There is no shortage of entrepreneurial energy in SA, with many talented people with great business ideas jostling for attention. Yet very few of the country’s technology start-ups manage to grow into sustainable businesses.

Against that backdrop, it is worth taking a closer look at the strengths and weaknesses of the country’s entrepreneurial environment as well as the opportunities and threats it holds for local Web, mobile and tech entrepreneurs.

SA is on the doorstep of a potentially huge market in sub-Saharan Africa. In addition to our geographical proximity, we also have an understanding of the continent’s cultural, business and infrastructure issues that companies from other parts of the world will struggle to compete with.

This is a big strength that we can build on as we grow into the rest of Africa. It is the reason that the likes of MTN, the major banks and the large retailers are doing so well in the rest of the continent.

We are well placed to lead the continent since we have by far its best technology infrastructure, its largest pool of technical skills and its most well-developed technology industry.

A shortage of skills and funding are the major challenges that local entrepreneurs face as they seek to build Web and mobile-focused businesses. Although we have a handful of business visionaries and technical geniuses in SA, we have only a shallow pool of top-notch technology skills to draw on as we try to build new businesses.

Entrepreneurs face stiff competition for these skills from large companies and international organisations. We are especially weak in the skills needed to commercialise product concepts and get them out into the market.

The dearth of venture capital and angel funding is another challenge — entrepreneurs either need to “bootstrap” themselves or be very well connected to find a financial backer for a promising business in its earliest phases of development. Sure, we have a few incubators, but nothing that really scales up to provide the backing entrepreneurs need to thrive.

Local investors are risk-averse. They prefer mediocre returns from an established business to higher-risk investments that promise high returns. This puts a cap on the potential of SA’s technology industry as well as the growth of the entire economy.

Africa is one of the last frontiers for growth in the world. It is a continent with 300m people classified as middle-class and well over 500m mobile subscribers. Within a few decades, it will provide more of the world’s working population than China.

As smartphones become cheaper and move into the mass market, they will create big demand for a range of mobile data services from mobile commerce and banking to news and entertainment.

Consumers will want local content and services and they will be willing to pay for it. As yet, there aren’t many international companies able to serve their needs. This combination of an untapped, fast-growing market and a lack of competition is a great opportunity for SA entrepreneurs.

And once they have nailed Africa, they can even start looking to the booming emerging markets of South-East Asia, Latin America and Eastern Europe for more growth.

Threats
There are a range of complex threats to manage across Africa and SA, many of them natural risks of doing business in emerging markets. There is a threat of political and social uncertainty in some countries as well as the danger of too much or too little regulation in some markets.

Africa is also still vulnerable to global economic shocks, which can reduce the money that people have available for technology products and services. Most of these threats are short-term in nature, since the overall trend in Africa is towards better governance, policy and economic management.

That leaves competition from offshore companies as the most significant threat to local entrepreneurs. We are already seeing the global giants such as Microsoft and Google climb into African markets with localised content. More competition from Chinese, Indian, Russian and European companies is sure to follow as the market grows larger and more attractive.

SA entrepreneurs have the will, the ideas and the talent to build world-beating technology businesses. What we lack is the confidence to turn our strengths into products, as well as some basic supporting infrastructure in terms of regulations protecting intellectual property and sources of financing. With the right enabling environment, our start-ups could be an unstoppable force across Africa.

  • Gareth Knight is MD of the annual Tech4Africa conference. This year’s conference, to be held on 27 and 28 October, will feature top local and international perspectives on growing Africa’s technology industry. More information is available on the Tech4Africa website.

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