Next Wave: How to flip Africa's depressing trajectory

For brave entrepreneurs. [Read the newsletter in your browser.](=.EAGfGTPiRTiA4R2YQeb09p4OJF2d_GRtB5L183QA3o8) [Cet article est aussi disponible en français](=.50Subv4Ra4-BkEI99jAALapPu0C3JzkNIM9gD2IEcSw) [Next Wave Logo] 18 June 2023 How to flip Africa’s depressing trajectory [Le Dome du Sea Plaza in Dakar, Senegal. Photo by Bachir Seck] Le Dome du Sea Plaza in Dakar, Senegal. Photo by [Seck via Unsplash](=.QXwUKqKAUURKtJfSWLYlAwNgSaQhC8W7sQuWa3v5vRc) --------------------------------------------------------------- The short answer is to fix the political leadership. The long answer (for African/Africa-facing entrepreneurs) is what we're more concerned about. It is a conversation we should all be having, that is, if you are not already. As the population and youth unemployment grow side by side and disposable incomes fall, Africa’s need for stable, visionary and effective political leadership at all levels has never been more acute. But Next Wave is not a very political economy newsletter. We’ll leave that for others. Instead, let’s focus on what the broad technical features of what building a business despite the dreariness might look like. Why is this important? If you’re reading this you are very likely interested in Africa’s technology and venture capital ecosystem. You have likely also read a few of the rosy projections of a soon-coming $180 billion or so digital economy. By the same token, if you’ve had your finger on the pulse of African streets, you will likely also have felt the dreary chill in household consumer expenditure as household incomes come under pressure across middle-class and low-income market segments in Africa. Not too long ago, if you mentioned emerging markets as an investment destination, some African countries would feature prominently. Today, not so much. A few African countries still make emerging market lists, but only politely. Most countries in Africa have reversed growth trends and fallen (or are on the road to) frontier market status or less. Today, Southeast Asian countries like Indonesia, and Bangladesh, and emerging markets in Eastern Europe and Latin America command more attention. Occasionally even more than even South Africa when it is not sacrificing trade agreements on the altar of foreign policy. There is a lot the governments can do. Unfortunately, the political theatre we see across the continent does not inspire much hope. Africa’s political elite do not seem capable of consistently linking their policies (in practice and posture) to economic improvement. If you run any form of enterprise you can choose to do one of three things. - Resign yourself to the flow like dead fish. - Align yourself with the political wind. Arm yourself with the knowledge that seats are limited and your competition does not make any claims of innocence. - Fight to maintain your “clean hands” but embrace cold pragmatism. If you choose options 1 and 2, you can close this email and move on with your life. If you however pick option 3, you will have to add a few tools to your armoury. This is probably familiar to you. But a lot of it bears repeating. The latest McKinsey report [“Reimagining economic growth in Africa: Turning diversity into opportunity”](=.0BnYBC0lxZB-0P9nv4Mg4AEwfVm77sFF9rsEgxYolIM) compare it with this in [2010](=.4-RO18P9SQDxGPgxOy5neOcFN1xjHoBV5uTXXyR49-0) and this in [2017](=.wrfFgU3L73iIyU4p7o_WtNboqk2z81NWh-oXWSSII-I), made one point abundantly clear. That Africa has to acknowledge its underperformance if it will make any meaningful step forward and away from it. Partner Content: [Infinix brings all-round fast charge technology to the NOTE 30 Pro](=.dSpmXXnFDxHkK1tKTsrLLOFMfl6_8W6Qb9ZSsMIETnw) The face in the mirror is not the fairest of all. Or even rated in the Fairests of All One of the most unfortunate truisms today is that: Africa is still very poor. Africans (collectively) are doing little to get out of the status quo. Individually, a lot of the people are brilliant. Collectively, the African destiny seems resigned to the ebbs and flows of global events. Like rising or falling commodity prices, a war in Ukraine and overhyped neo-colonial enemies that are useful for domestic politicking. Or if you want to placate supporters in Tunis and collect gazillions from Lagarde—racial sentiments. Incidentally, it appears that African prosperity may happen along regional and intercontinental corridors. And investment inflow is toeing the line. If you’ve been paying attention, you will notice that a Gulf-to-North-African-to-Indian-Ocean corridor has been developing, led increasingly by investment from Gulf countries like the UAE and Dubai-headquartered business concerns. The UAE, for example, is the fourth-largest investor globally into Africa—after China, Europe and the United States. Some of that investment is increasingly finding its way into stable but smaller economies like Rwanda that are not on the coast but are hitting some of the notes GCC investors want to hear. China is often the focus in conversations about non-Western investment (and business relationships) in Africa, but the eastern flank of Africa has always had its unique connections with Asia. These age-old relationships are being refined as Asian firms and investors from Singapore, for example, test Africa’s commercial waters. Even the Japanese are shaking off some of the decades-old reticence to look beyond Tokyo. Granted, a lot of it is directed at finding and pocketing their slice of the African pie. But we already know that the world does not run on altruism, unfortunately. Irrespective of this, the direction of interest of some of this investment also contains ingredients and signals investors and entrepreneurs who want to build a thriving business should pay attention to. To see and properly capture these opportunities, both governments and private sector players in Africa will need to… Stop fantasising about GDP growth Looking back 10 years, per capita consumption in Africa's largest 3 economies is mostly stagnant. Chart by Tomisin Bamidele, TC Insights. Source: Trading Economics Depending on your market, you may need to pay attention to an entirely different set of economic indicators. While GDP indicators are useful macro snapshots, you will quickly realise that income and per-capita consumption spending habits are better indicators. This is not to excuse lackluster economic growth of course. It is to emphasise that more than following GDP growth forecasts, knowing where the GDP is growing from and where the spending is happening is important, regardless of whether you are serving consumers or businesses. It is the difference between simply knowing that (hypothetically) Zambia’s GDP is growing by 10% versus knowing that Zambia’s GDP is on the high now because copper prices are absolutely crushing it on the London Metals Exchange. Investing time to understand the nuances associated with all of these indicators and the practical realities they represent will confer information advantages. Add this to invaluable local context and relationships and you may find the right commercial mix to bring home the bacon. Few businesses invest in discovering and putting information advantages to use. You might end up playing in largely uncontested waters. Knowing more doesn’t mean you will succeed. But it does give you a better chance at execution. Partner Message [Moonshot-2023 ad] We are bringing Africa’s tech ecosystem together to network, collaborate, share insights and celebrate innovation on the continent. Be the first to know who will be there and when early bird tickets are available. [Join our exclusive waitlist](=.SzyPnax7SDiYXzVNZQXdbiZ_uT4rKxpKOTlITAEAxC8) This is where technology comes in Confronting the stark reality of Africa’s position does not mean drowning in the despair that “only 3 million Nigerians spend $10 a day”. Or that in Cairo, young men who speak polished English will compete to open car doors in the hopes of a $1 tip. One of the biggest benefits of technology is the power it has to organise chaos at scale. Another term for this type of organisation is formalisation. It is not a silver bullet (especially in isolation), but it is a good way to execute the answers to questions like: How do you organise healthcare insurance and access? How do you formalise discovery between disjointed skilled workers and work opportunities with consumer and worker protection? How do you formalise food production and aggregate market access? And how do you do this in a way that balances out potential disruption to existing inefficiency? We know 3 million people can afford to spend $10 a day, but we (at least I) don’t know how many can afford to spend $5, $6 or $8 a day. An even bigger question is what type of consumption can enable the millions more who are now spending $5 per day grow in disposable income in the next 3 years? For brave entrepreneurs—and I mean really brave entrepreneurs—deploying digital technology as an agent of organisation represents the biggest tension point to resolve on the journey to making things work (as far as government permits, of course). There will be tension here, admittedly, but again, tension is often a part of the process of finding true balance. Embracing cold pragmatism also permits you to not build a business under severe, unreasonable and unyielding government constraints. It may also mean pursuing growth along the regional and intercontinental corridors that are emerging. It is how Miami, for example, hosts hundreds of the leading businesses in Latin America, and it is why Dubai is becoming the hub of choice for a lot of African businesses. Smart African governments can tap into this. And the ones that lack good sense will lose. Hopefully, there will be two or more African governments that have good sense—and the will to pursue this. Partner Message [SEID ad] In 5 minutes, you can get your health insurance, motor insurance, and life insurance on the P2Vest app. Available on Google Play & App Store. [Get InsuranceParasol](=.GvOHhYN9w4zJYvcf3fTJKpGUvM73ivvsn4oEvXOnoNA) --------------------------------------------------------------- We'd love to hear from you Psst! Down here! Thanks for reading The Next Wave. Subscribe [here](=.rXUwmwnyazR9hwCA-_71GLIpe7lkK2iNqbJClu9To7E) for free to get fresh perspectives on the progress of digital innovation in Africa every Sunday. Please share today’s edition with your network on WhatsApp, Telegram and other platforms, and feel free to send a reply to let us know if you enjoyed this essay [Subscribe to our TC Daily newsletter](=.Z6dkRGuN4ElXECDp99XjSMIkZ9YzNQ-rn6p7MnA2LUA) to receive all the technology and business stories you need each weekday at 7 AM (WAT). Follow TechCabal on Twitter, Instagram, Facebook, and LinkedIn to stay engaged in our real-time conversations on tech and innovation in Africa. Abraham Augustine, Senior Reporter, Business and Insights TechCabal. If you liked this edition of Next Wave, please share with your friends. And feel free to reply with thoughts and feedback. 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