Review: Challenges And Opportunities Of Incubators In West Africa: A guide to understanding support structures for entrepreneurs in West Africa (PART 5)

SPECIALIZED SUPPORT STRUCTURES

To conclude this series on Challenges And Opportunities Of Incubators In West Africa: A guide to understanding support structures for entrepreneurs in West Africa we are going to be examining the types of support structures that have specific characteristics that are made to meet specific needs. Although, support structures can be generalist in nature, meaning they promote all types of entrepreneurship across all sectors. Increasingly, however, they tend to specialize in:

  • A particular target customer segment: women, young people, higher education graduates, etc.
  • A sector: agribusiness, health, tech, etc.
  • A theme: promoting social entrepreneurship, combating climate change, etc.

The Reason For Specialized Support Structures

Specialization allows support structures to better tailor programmes that meet their beneficiaries’ specific needs. Specialized services also allow support structures to mobilize other ecosystem partners that are invested in the same issues, thereby forming or strengthening networks of experts in certain sectors or topics.

Finally, when it comes to product innovation, it is necessary for support structures to invest in laboratories or identify partners who could make their equipment available to prototype and test beneficiaries’ products, so specializing by theme allows support structures to more effectively mobilize and share resources where possible.

Written below are some areas of specialization of Support Structures in Africa:

  • Contributing To Fintech Development

Growth in mobile usage in Africa has been spectacular, with the fastest mobile penetration in the world (0% in 2000 and 75% in 2016; 350 million smartphones on the continent). Progress on some online services, such as mobile phone payments, has also been impressive (122 million active accounts in sub-Saharan Africa and 57 million accounts in West Africa). These services, especially those relating to Fintech applies new technologies to the field of finance. The sector is expected to grow considerably across the continent in the coming years to nearly $3 billion by 2020 compared to $200 million today.

According to Bill Gates, by 2030 two billion people worldwide will use their mobile phone to save and borrow money and make payments. In Africa, mobile phones have become a powerful tool for financial inclusion. The continent is ahead in developing its financial technology sector compared to other parts of the world, with around 100 million e-wallet users today. Indeed, Africans account for more than half (57.6%) of all mobile wallets in the world.

Thanks to Fintech companies, the mobile phone has become a formidable vehicle of financial and social inclusion. Even without banking infrastructure, in the depths of the countryside, armed only with a mobile phone, it is now possible to receive money, make payments and access services across all sectors like agriculture, health, education, etc.

African startups specializing in Fintech are deploying digital tools to create credit profiles for the formerly ”unbanked,” as well as provide electricity to rural households and even use artificial intelligence to diagnose health problems remotely.

Few support structures specialize exclusively in the Fintech sector, nevertheless those structures dedicated to digital technology often support Fintech startups.

  • Promoting Green Startup Development

Sub-Saharan Africa will have 2.5 billion inhabitants by 2050, nearly three times the current population.

The figures are particularly striking in the case of Nigeria: by 2050, its population is expected to reach 400 million, which will make Nigeria the fourth most populous country in the world, nearly three times the current population, exceeding that even of the United States.

This demographic growth will also bring major challenges for policymakers and other economic stakeholders, particularly in the field of the environment. These challenges include putting in place the right conditions for sustainable agriculture, finding solutions for waste recycling and sanitation in cities and providing access to clean energy to as many people as possible.

In the energy sector in particular, demand is skyrocketing as an African middle class with new energy needs emerges.

West Africa’s electrification rate is still the lowest in the world (the rate of access to electricity in the ECOWAS region is less than 40% with an average of just 8% in rural areas). Despite an energy production growth of 70% in the last ten years, two-thirds of which is renewable, investment still needs to increase ten-fold in order to meet unsatisfied demand and generate future growth. At the current pace, 50% of the African population will still be without electricity by 2030.

In light of this, more and more African entrepreneurs are mobilizing to provide green solutions to resolve environmental challenges. As a result, some support structures are focusing on businesses with high environmental impact but whose technical needs often involve large resources to invest in R&D and expertise.

  • Encouraging Social Entrepreneurship

Many West African countries rank among the poorest in the world. While international aid focuses primarily on emergencies and support for major structural investment programmes, small local economic initiatives that can provide solutions to social needs are struggling to find support.

Nevertheless, West Africa’s circumstances can be interpreted not only in terms of constraints but also as opportunities for frugal innovation, that is, innovations that require little means to be developed and implemented, and that could easily be exported outside their original local markets and even to developed countries.

This is the purpose and philosophy of social entrepreneurs.

A social enterprise is a company whose objectives are twofold: to be profitable and to achieve the social mission it has set for itself. While the concept of ”social entrepreneurship” is widespread in other regions including Europe, it is still too often ignored in West Africa. Nevertheless, the region’s entrepreneurial spirit is beginning to show itself and many West African entrepreneurs are already seeking to resolve the social and environmental problems in their communities. Suffice to say that social entrepreneurship is a worthy venture in West Africa.

However, it is not so simple to combine a business with the intention to deliver a societal good, particularly in countries with little resource-consumption or limited available resources locally. Moreover, the economic imperative to go to scale and ensure sustainability of the business model does not always align with fulfilling a social mission. Supporting these social entrepreneurs and structuring their ecosystem so that it is conducive to their development is therefore extremely important.

  • Stimulating Agricultural And Agribusiness Entrepreneurship

Agriculture is particularly strategic on the African continent, representing on average 65% of jobs (200 million farmers) and 35% of GDP. African agriculture has not always been of interest to entrepreneurs.

Nevertheless, a new dynamic is emerging, due to a growing aspiration to return to farming, combined with a rebalancing of agricultural policy (particularly since the 2008 food riots)

Entrepreneurs are increasingly seeing business opportunities in agriculture and imagining new business models to start their ventures.

However, the challenges associated with agribusiness enterprises are numerous relative to other sectors (climate change, seasonal supply, regulatory risks, market risks, land rights, etc.) and can undermine business sustainability.

Removing these constraints and addressing the specific challenges facing the agricultural and food sectors are therefore essential.

Not surprisingly, some support structures have chosen to specialize their services and expertise in these sectors.

There are different types of agribusiness incubator models: those linked to research and universities, those incorporating stakeholders across a value chain, those focused on technology transfer, etc.

Each incubator has its own strategy and governance model.

Note that entrepreneurs operating in the agribusiness sector need specific technical skills. Concepts such as value chains, certifications, regulations, standards and traceability are specific to these companies and therefore require tailored support.

Moreover, agricultural and food businesses have particular budgetary and financial constraints, particularly due to the seasonality of their supply and production cycles. Financing these businesses hence requires the use of appropriate solutions.

  • Promoting Women’s Entrepreneurship

More and more private and public initiatives to support women entrepreneurship are appearing across the African continent.

Generally initiated by support structures or networks of women entrepreneurs, such programmes seek to level the playing field in male-dominated sectors, as well as work towards a more inclusive model of entrepreneurship. While many economic studies highlight women’s central role in development, the World Bank recently found that the rate of female entrepreneurship is in fact higher in Africa than in any other region of the world.

In 2014, 25% of working-age women had started their own business. Despite this, however, the obstacles that push African women into economic marginalization remain numerous and overwhelming, including:

  • Inequality in schooling outcomes between girls and boys: In Africa, nearly 28 million girls between the ages of 6 and 15 are still deprived of education and the probability of a girl not attending school is 57% higher than for a boy. This gap rises to 83% for high school-aged girls and boys
  • Very limited access to capital and assets: Almost 70% of women-owned SMEs in developing countries are excluded from financial institutions or are unable to receive adequate financial services to meet their needs. In Uganda, for example, 38% of registered companies are owned by women but they only benefit from 9% of available financial services. In Kenya, in 2017, meanwhile, 48% of micro and small enterprises led by women receive just 7% of the total granted credits according the World Bank;
  • Legal discrimination (in particular in land and inheritance law), which tends to deprive women of the necessary assets for collateral loans, for instance);
  • Social norms that push women towards less lucrative sectors or encourage spending more time and money on domestic chores and the health/education of their children or elderly relatives, often at the expense of their own business.
  • Targeting Higher Education Graduates And Researchers

Incubators housed in universities and public research institutions have been gradually growing throughout Africa. Partnering with academic institutions is an opportunity for support structures to transform students and scientists’ ideas into high-value, job-creating business ventures, as well as introduce innovation into national economies to strengthen their competitiveness.

Support for young ventures with a strong technological component or breakthrough innovations requires specialized support and resources.

In addition to the risk of business creation, there is the risk of innovation, while the time between the conception of a new idea and its commercial feasibility is often longer than in conventional fields with proven pathways to success, because these startups often need to prove their concepts first.

This requires developing prototypes, experimenting and testing assumptions in real life and sometimes even educating customers and partners on the changes in consumption or practices their products may induce that are often not self-evident.

On the other hand, the return on investment has the potential to be especially important: with a patent that protects its technology, the company may be in a position to operate a monopoly and/or benefit from royalties by granting a portion of their intellectual property.

Support structures can also specialize in sectors and themes like culture, tourism, big data, biotechnology, health, media and even e-commerce.

Conclusion

In closing, a support structure’s specialization allows it to deploy a range of more sophisticated support instruments and services, by mobilizing experts in the ecosystem around this theme or sector.

Challenges And Opportunities Of Incubators In West Africa: A guide to understanding support structures for entrepreneurs in West Africa is written as a collaborative production between the World Bank Group and Afric’innov; and serves as a guide to anyone who wants to have in-depth understanding of the current state of the Entrepreneurship ecosystem in West Africa.

The research and production of this guide to the support structures for entrepreneurs in West Africa was developed and managed by Alexandre Laure and Simon Duchatelet at the World Bank Group. Two smart development bureaucrats I had the pleasure to meet while I was the CEO of the Tony Elumelu Foundation. To them we owe a dept of gratitude for this well researched report.