Africa is locked into a strange paradox – it is clearly the future of growth and economic development on the planet, and while it is growing faster than nearly all other regions, it is growing slower than expected. It’s as if the wonderful promise of a better tomorrow remains, no matter how many todays have past. As a result, in terms of innovation and growth in Africa, the optimism of the some, battles with the frustration and discouragement of the many.
I was asked to give a keynote and head a roundtable in French on this subject that could be loosely translated as “AfricInnov – Innovation and shared growth in Africa” at InnoDays, organized by Adalia Business School in Casablanca, Morocco. Here are some of my thoughts and notes relative to the keynote and ensuing panel discussion.
Optimism: lions on the schmoove?
Africa has been growing quickly over the last few decades and has captured the attention of many across the globe. In 2010, McKinsey published a widely-read report called “Lions on the Move” in which they laid out their scenarios for the development of Africa for the years ahead.
An interesting graphic (I slightly doctored to reduce the footprint and accentuate the trends) appearing in the McKinsey update to the report called (originally enough) Lions on the Move II shows the different growth rates for African countries based on three typologies – “Arab Spring countries”, “Oil exporters” and the “Rest of Africa”:
Figure 1 Source McKinsey Global Institute Sept 2016
The strong growth that was generally either expected, integrated or hoped for has not quite materialized and, to a large extent, the reverse has been the norm. For many, hope has turned to disillusionment. Of course, the effect of events like the Arab Spring were difficult to predict, but, more than anything, the ongoing delay in the permanent “imminent arrival” of the African continent has weighed on the patience of many hoping for big gains in the region. Big corporate players, like Coca-Cola, Nestlé, and Barclays, have since rethought their African strategy. Some have either reduced their footprints in Africa (for the first two) or exited the continent altogether (for the latter).
Frustration: story of a growth foretold?
So two big questions include “what the heck happened?” and “what for heaven’s sake can we expect going forward?” Unfortunately, I don’t have clear answers to both questions but I can try to add some keys to help understand the situation as is and project (rather than predict) what might play out in the years to come.
Without going into too many details as this is well documented elsewhere, a vibrant entrepreneurial ecosystem has a wealth of interaction, collaboration and interdependencies across a wide range of key players including big business, private and public research, intellectual property experts and lawyers, incubators and accelerators, business schools, engineering school and universities, venture capitalists and private investors, entrepreneurial success stories in increasing scale, and highly- (or at least appropriately) trained talent.
From a range of authors from Christensen (HBR 2017) to Schermer (2016), GEM, et al, as well as my own experience (teaching, consulting and mentoring) in the region, we can make the following observations about the African innovation and entrepreneurial ecosystems (spoiler alert: it’s not pretty):
- Not enough infrastructure
- An undersized formal economy
- Too much corruption and opacity
- Not enough incubators and accelerators (including specialized accelerators)
- Not enough intellectual property and technology transfer experts
- Private and public research is underexploited (or underexploitable)
- Business schools are lacking sufficient scale
- There are not enough big and medium-sized businesses
- There is not enough talent (that stays or comes back)
- Not enough success stories and a dearth of large-scale success stories
- Not enough private investors and venture capitalists
- Not enough confidence and trust
- Too much government “push” and not enough market “pull”
- For Francophone countries: little access to English-speaking investors and resources and an over-reliance on small export markets like France and Belgium.
- A risk-averse cultural mindset
- An under-sized and under-developed middle class
Discouragement: the missing middle
While each of these points can be discussed in length, the last point is key in my understanding of the challenges Africa is facing on the entrepreneurship and innovation front – the expected growth in the middle class has not manifested. While urbanization has been swift across the continent, the middle class has hardly budged over the last decade. This is a major divergence from the Asian experience, and especially China’s incredible creation (nearly ex nihilo) of a middle class the size of the US population in 30 years. Without a sizeable middle class to consume innovation, to own smartphones, to push internet penetration, to invest in education, healthcare, entertainment and travel, and to pay the taxes that can finance the required investments in infrastructure the region requires, the innovations that have been rolled out and worked elsewhere are having a hard time gaining traction on the continent.
So a key question is “how can we go from a pyramid-shaped economy in the region, with a wide base (bottom of the pyramid) to a diamond-shaped economy with a wide middle-class and less poverty?” as illustrated in the following diagram:
The truth is, I’m not sure. This probably requires a well-thought-out mix of fiscal policy, pro start-up policy, measures to formalize the informal economy, rethinking priorities in infrastructure investment, easing access to private sources of finance including crowdfunding (equity, debt and in-kind), facilitating the creation (and destruction, i.e. bankruptcy) of businesses, and encouraging foreign investment and involvement at the local, regional and national levels.
The road ahead: push and pull ecosystem development models
Some countries, according to Schermer (2016) that seem to be getting things right on different dimensions of the entrepreneurial ecosystem are South Africa ( a healthy collaboration between key private players and government), Rwanda (with a decidedly pro start-up stance) and Ethiopia (high internet penetration and well-regulated markets). Senegal and Ivory Coast have created dynamic start-up markets but seem to be hampered by preferring French-speaking investors and markets. All of these countries are seeing government involvement and support being pulled by bottom-up entrepreneurial dynamic.
Other countries like Botswana and Angola have taken a different approach. They have (apparently) understood that basing GDP growth on extracting resources does not create sustainable growth that is shared across the population. They are, thus, “pushing” their entrepreneurial ecosystems as an economic diversification policy. Time will tell if this approach pays off or becomes another example to be cited in the update to Boulevard of Broken Dreams (very informative book about entrepreneurial ecosystems and the graveyards of public policy in this domain).
Morocco is another interesting example that seems to be a mix of push and pull – although I have a feeling they will fall into the push policy trap with government getting ahead of the reality. What is that reality? As presented by one of my co-panelists, in a recent study 70% of Moroccans see entrepreneurship as an attractive career option (note to self: find study reference!), although the reality is that very few actually take that route. In my entrepreneurship, innovation, and business plan development classes, when I ask the same question of our E-MBA participants in Morocco, the declarative percentage is even higher. Which is encouraging. But the reality is less sanguine — I know of only a handful over the last decade who have since taken the requisite leap of faith. If we can assume that Morocco is somewhat representative of much of or at least parts of Africa (which is debatable, but I did start with “if”), it may be that, more than anything else, the lions will only leap forward when there is a change in mindset. A new mindset that not just embraces, but champions, those that dare to take risks and venture forward — not out of necessity, but out of a desire to author their own destiny.
Changing mindsets: the trillion dollar question
Thus, the trillion-dollar question is “how long does it take to change a mindset?” and are we (the West) willing to wait that long? It looks like China is… And until then, it looks like optimism, frustration, and discouragement will stay on the menu.
Alon Rozen, Paris, 31 Oct 2017
Key words: Africa, entrepreneurial ecosystems, innovation, mindset, schmoove