Opportunity is on the rise in Africa. New research, funded by the Tony Elumelu Foundation and conducted by my team at the African Institution of Technology, shows that within Africa, innovation is accelerating and the continent is finding better ways of solving local problems, even as it attracts top technology global brands. Young Africans are unleashing entrepreneurial energies as governments continue to enact reforms that improve business environments. An increasing number of start-ups are providing solutions to different business problems in the region. These are deepening the continent’s competitive capabilities to diversify the economies beyond just minerals and hydrocarbon.
Despite this progress, Africa is still deeply underperforming in core areas that will redesign its economy and make it more sustainable. Its reliance on commodities remains its weakest link, causing cyclical trade shocks and welfare losses as the current fall in crude oil price has proven. Despite rosy economic statistics, strikes, riots, and protests are rampant, indicating that growth has not improved the lives of many, especially the young. According to McKinsey, youth unemployment in Africa’s largest economy, Nigeria, is around 50%. With the oil sector contributing more than 90% of the nation’s foreign exchange earnings and three-fourths of its budgetary revenues, the currency has since lost value to the U.S. dollars. Another oil exporter, Angola, introduced austerity measures and revamped its budget as oil price continues to collapse.
Innovation in Africa remains challenged by factors that indirectly stymie access to capital, including property rights, poor technical manpower, and inadequate infrastructure. Yes, in our work, from engineering to herbal medicine to craft, we have seen inventions — such as a local company that remakes automobile engines into electric power generators. But in most of the cases we’ve seen, how to invest to scale such inventions has not been evident. Despite the inventiveness of these entrepreneurs, some operate in the informal economy, without government registration, IP rights, or access to banking. Investors subsequently have a difficult time calculating their valuations. Getting over these hurdles will help Africa move from this invention economy — lots of ideas, but a relative lack of scalable products — into an innovation economy, with competitive local products and services.
Transitioning to an innovative, knowledge-based economy is necessary for sustainable progress. There are pockets of activities with both local and foreign firms working to create innovations within Africa and are facilitating the formation of sector-clusters. From our studies, insights from workshops in more than 82 African universities and companies, and ongoing data collection, we can identify the following clusters:
- Information and Communications Technologies (ICT): ICT is driving efficiency in business operations across Africa from mobile payment to integrated banking systems. Major clusters are forming in Lagos, Nairobi, and Kigali. Both foreign-funded options, like the e-commerce site Kaymu, and local ones, like Iroko TV, are demonstrating that opportunities exist in the sector.
- Local Craft: Africa is a land of craft with local artisans involved in leather works for shoes, bags, and fashion. Aba, Accra, and Ouagadougou are some major craft cities. But participants are poorly trained and produce low quality products. The sector needs modernization, and must deploy computer-aided-design tools to enhance quality and automate production for scale to win markets. There are talents that can build African version of Zara, just as Queens of Africa and Naija Princess dolls have knocked Barbie out of first place in Nigeria.
- Healthcare/Medicine: Cape Town and Ibadan are promising clusters for this sector, but most African countries are yet to seriously invest in the sector. They import most of their medical systems, vaccines, and drugs including ones like typhoid fever Vi which is royalty-free from NIH.
- Engineering/Science: In a continent with arable land and severe hunger, there is need to find effective local solutions to process and preserve food. The same applies to affordable housing, energy, and water. The era of Internet of Things will unlock opportunities in this sector for African entrepreneurs. Cairo, Johannesburg, and Lagos are important clusters emerging. The presence of IBM in Kenya will seed future start-ups in this sector.
Africa needs to nurture and strengthen its natural clusters. Industrial developments will require supporting infrastructure. Providing power, roads, post offices, airports, and seaports will cut the cost of doing business. In addition, Africa needs to develop its manpower. As of 2010, only 3% of Africa’s population attended post-secondary education (PDF). Without manpower development, Africa’s entrepreneurial quality will remain poor.
Africa needs to lessen its dependence on former colonial powers for processing its raw materials, and improve internal trade to give local manufacturing companies more opportunities to grow. (Its interregional trade is currently between 10% and 12%, compared with 40% in North America and 60% in the European Union.) The continent also needs to adjust its legal system; enforcing property rights laws, respecting land rights, and prosecuting violators of software IPs help to seed and attract companies of the future. Finally, Africa needs to improve its investment climate, due to the perception of corrupt public institutions, security, and weakening local currencies. Two reforms that would help meet these needs would be be a pan-African anticorruption institution with the power to prosecute corrupt leaders, and a mandate that countries invest 25% of their foreign exchange earnings on the pillars of knowledge economy — education, technology, and innovation.
Developing innovation ecosystems at regional levels will take a continent-wide effort, since some of the countries are still too weak to go it alone. Such improvements must be seen as a driver in positioning the continent for the post-mineral era. The asymmetry between expanding economic growth and high youth unemployment can only be solved when business ecosystems can grow local champions that can create jobs. By focusing on the factors that allow entrepreneurs to come up with bold ideas and allow investors to transform those inventions into products and services, we can redesign our society”.