African technology hubs are buzzing with startup activity, but a buoyant sector still has hurdles to overcome
In April this year, online retail marketplace Jumia became the first African technology startup to list on the New York Stock Exchange. The business – dubbed the African Amazon – boasts around 81,000 active sellers and operates in 14 African countries.
The historic listing caps a momentous couple of years for African technology companies. Tech startups broke funding records in 2018, securing USD 334.5 million in investment. More startups in more countries received more funding than ever before.
Tom Jackson, co-founder of Disrupt Africa, the company that compiles the figures, said: “Investment levels are not the only way of gauging the health of local ecosystems, but they are a valuable way of following the sector’s progress and demonstrate that, increasingly, if you have an innovative tech solution to a problem, with a strong business model, there are pathways to funding should you require it to scale.”
NIGERIA LEADS THE WAY
The overall figures remain modest compared to comparable statistics for Europe or North America, but they reveal a concentration of successful startups in a handful of countries. Nigeria has emerged as the most attractive hub for startup funding in Africa, with 58 startups raising a total of USD 95 million in investment in 2018. It is no coincidence that Jumia, along with a number of other major African technology companies, is headquartered in Nigeria.
Lawrence Etukakpan, head of business development at Nigerian member firm UHY Maaji, says the sector is an increasingly significant contributor to Nigerian prosperity.
“Technology companies are very important to the development of the Nigerian economy,” he says. “More technology hubs are being established in the country, giving hope for a knowledge economy and improved job opportunities. Technology innovation is seen as one way out of poverty. Today, technology contributes 11.81% to the GDP of the Nigerian economy,” Lawrence says.
The success of the sector meant that Nigeria was able to overtake South Africa as the top destination for tech startup investment in 2018, with Kenya making up a strong top three. But ‘Disrupt Africa’ notes that new tech startups are emerging across the continent, with Egypt an especially strong contender. Uganda, too, is enjoying a spike in startup activity. Last year the country became the beneficiary of International Trade Centre funds aimed at strengthening the competitiveness of micro, small and medium-sized enterprises in the country’s information and communications technology (ICT) sector.
“Tech hubs in Uganda have been growing in number for the past seven years, since the first tech hub, Hive Colab, was set up,” says Sameer Thakkar, CEO at UHY Thakkar & Associates in the country’s capital, Kampala. “A year later, another hub, WITU, focusing on empowering women entrepreneurs and technologists, also opened.”
That picture is not replicated everywhere in Africa’s large and diverse continent. Some nations have no real technology sector to speak of; others have technology sectors that show less promise. Makafui Azasu, a senior associate at Ghanaian member firm UHY Godwinson CA, believes technology companies could play a significant part in helping to revolutionise the national economy of Ghana, but a lack of basic infrastructure is stunting their development.
“Tech companies are important to the economy of Ghana, but current government policies do not create enough room for their relevance to be seen and they are not fully supported. That is not likely to change in the coming decade, as far as I can see,” he says.
A GROWING INCUBATOR NETWORK
Ghana’s tech sector may be limited, but it is sustainable. Makafui believes that dedicated technology hubs and incubators are supporting technology startups in Ghana, by offering ‘technical support in terms of infrastructure, physical space and also networks with tech hubs outside Ghana to help offer ideas and guidance’.
He is not alone in the belief that technology hubs are driving the digital economy in many parts of Africa. In Nigeria, Lawrence identifies 55 established private technology hubs, and more are planned. In addition, the government has acknowledged the importance of the tech sector to Nigeria’s economy by creating its own network of state-owned startup incubators. Together, these conducive, specialised spaces are nurturing Nigeria’s digital economy.
“These innovation centres continue to provide young startups with high speed internet access and free training,” says Lawrence. “They have made it much easier for self-starters to access best practice, legal and regulatory information, marketing and investment networks. They also provide mentoring opportunities.”
Similarly, Ugandan technology companies are benefiting from a growing network of tech hubs and innovation centres, currently around 20 in number. Like Lawrence, Sameer says they provide a range of benefits, from cost-effective office space and networking opportunities, to access to angel investors, venture capitalists and potential mentors. “These are places where like-minded startups, technologists and investors are able to informally socialise and support each other with ideas, relationships and advice,” he adds.
On the island of Mauritius, Dominique Samouilhan, partner at UHY member firm UHY & Co, says that, while there may be no official tech hubs, technology companies are finding ways of coming together – particularly in information and communications technology (ICT).
Some businesspeople have set up co-working centres to attract young entrepreneurs wanting to incorporate their own startups in the ICT sector.
“These co-working centres stimulate interaction between startups, with the aim of building future relationships and sparking new ideas. Some bigger enterprises have also created angel funds to assist ICT startups financially.”
A GATEWAY TO AFRICA
not stopped the Mauritian government from announcing ambitious plans to support and grow the technology sector. “ICT has become more and more important to the Mauritian economy and it is one of the objectives of the government to make ICT a major pillar of the economy in years to come,” says Dominique.
That support includes a ‘Digital Mauritius 2030’ strategy and a specific focus on digital government and artificial intelligence (AI). Today, the ICT sector contributes around 5.6% of Mauritian GDP. The government wants to increase that contribution to around 10% by 2030, and sustain 50,000 jobs (out of a total population of 1.2 million).
Mauritius has advantages in this regard. Most importantly, it is seen as a safe place for foreign investment, ranking highly on measures of economic competitiveness, good governance and economic freedom. That has had knock-on benefits for the country’s technology sector.
A number of major international players – Accenture, Ceridian, AXA Assistance, Huawei and Orange Business Services, among others – are already using Mauritius as an ICT centre.
“It is anticipated that more international players will choose the country as a platform for their penetration into Africa,” says Dominique.
The presence of international players provides knowledge, infrastructure and potential partnerships, and inspires local entrepreneurs. To some extent, that is happening across Africa. In April Google announced the opening of its first AI centre in Africa, in the Ghanaian capital, Accra. From this base, Google aims to partner with universities and policy-makers and help drive the development of AI across the continent.
The tech sector clearly has a significant role to play in the economies of many African countries, and that role is certain to grow. But as the sector matures, scaling presents new challenges. In Ghana, Makafui says sector growth is likely to be stunted by inconsistent broadband coverage coupled with an erratic power supply.
Ghana is far from alone. Infrastructure problems limit potential in many African nations. “In Nigeria, too, the cost of doing business is higher because of a lack of basic infrastructure such as power, good roads and dedicated broadband service providers,” says Lawrence.
Sameer identifies an issue with outdated, unsupported technology. Ugandan technology firms are often reliant on equipment that is approaching obsolescence. “With last July’s end of support for Windows Server 2003, for example, organisations that had not migrated away from the platform by the deadline were exposed to security threats and regulatory mandates that were no longer addressed with patches and updates,” he says.
The other threat to sector growth in many countries is a dearth of qualified talent. As Dominique says: “The main issue is probably the mismatch between degree holders and the labour market. There is a real need for software engineers, web developers and so on. The educational training content and patterns must be reassessed.”
In Nigeria, Lawrence says the cost of training and obtaining relevant qualifications can prove a barrier to startups looking to scale. Meanwhile, Sameer sums up the situation in Uganda:
“To say IT talent is in demand would be the understatement of the decade. Even if you land a gem, competing salaries from other companies in desperate need is a constant worry.”
While UHY member firms may not be able to do much about the IT skills gap or erratic broadband, as Dominique explains, they are often asked to do far more for inexperienced tech startups than accounts and tax compliance alone.
“We accompany them along their way towards growth,” he says. “We assist them in raising finance with banks and investors. We use our network to introduce these entrepreneurs to potential venture capitalists, business incubators and investors. Moreover, we help them with the preparation of their business plan and feasibility reports, which then enable them to get facilities with banks.”
These fragile young businesses need all the help they can get. The technology startup sector is increasingly important to the economies of many African nations, buoyed by a growing network of hubs and incubators and record levels of investment. But it will take updated infrastructure, improved technical training and excellent professional services to ensure the sector’s obvious promise is fulfilled.
Notes for Editors
UHY press contact: Dominique Maeremans on +44 20 7767 2621