Winning in Emerging Economies: This Is How Smart African Entrepreneurs Do It

A couple of years ago a friend sent me a pitch deck of a well known venture in Africa. On paper it looked great. Exactly the sort of idea that flies with Western investors. Everything was there: e-motorcycles reducing emission, a mobile solution resonating with platform enthusiasts, and a payment model promising drivers social mobility.

When I shared the deck with two seasoned African business men, this illusion quickly fell apart. The growth assumptions were unrealistic, the infrastructure far from ready, and the structure of payment unattractive for drivers.

Investors were undeterred. The venture had no problem securing round two financing.

Founders usually exaggerate but my point is that many Western investors find it difficult to shed their pre-conceived notion of what will work. I spent the last two years in Tanzania and Kenya and have been researching African entrepreneurs for much longer. One thing became obvious: these entrepreneurs are shaping the future. They do so in a way that is distinct from Western approaches. If you understand how, you will spot the winners. Here is what I learnt.

Mobile with a twist  

Geoffrey Otieno is what the future of Africa looks like. After a corporate career that took him across the continent, he set out as a consultant and entrepreneur.

His latest venture is Chango. The fintech start-up takes an established tradition and lifts it into the digital age. When people plan for a wedding or funeral, they usually organise a Harambe, a gathering where family and friends make contributions to finance the forthcoming event. Most Kenyans also participate in various investment circles run in a merry-go-round type style. Every month you make a payment and whenever it is your turn, you get the full month’s collection.  With interest rates somewhere in the region of 20 per cent and many people unbanked, this is the way capital is raised.

Chango simplifies the accounting process of this tradition, as all of it happens via mobile payment systems. The app works as Kenyans are used to mobile money. 43 per cent of the country's GDP flows through MPESA, a mobile payment system introduced in 2007.  

Chango is representative of a vibrant start-up scene fuelling Africa's growth. The very best entrepreneurs address a real need, in this case facilitating an established process. Unfortunately, even the start-up scene cannot escape what can only be described as racial bias.  

Frustrated entrepreneurs share stories of how white privilege works. For example, I learned how seasoned African business people in one start-up met with Western investors, who then reached out to the most junior team member afterwards simply because she was American.

A Nairobi-based German has set up a satirical website making it clear how many locals feel. Hire a Mzungu – a white person - specified: “Africa is not very widely recognised as an investment opportunity…until another white nose comes into the picture. The minute an ‘African’ start-up is founded, or at least co-founded by a Mzungu, money pours in. Sometimes even without proper due diligence.” 

 Side hustle nation 

When COVID-19 forced businesses to shut down Europeans looked to the state for help, but Africans started new businesses.

According to the Global Entrepreneurship Monitor, more than 60 per cent of Angolans know someone who started a new business in the past two years. Similar numbers can be observed in other African nations.  

Africans actually run multiple businesses. When you drive two hours north from Nairobi, you eventually end up in Kerugoya. In case you are planning to stay the night, chances are that you will opt for Roswam Hotel. Having a chat with the owner, I found out that he also runs a sizable farm.

He laughed when I asked: “Is it to offer your clients fresh produce?” Instead, he said it was more to finance the expansion of the hotel as it required sizable amounts of cash in one go. That’s what the farm provided whenever a harvest was sold.  

Diversification is much more than mitigating risk. It offers access to capital, provides smart ways to leverage resources, and secures employment for relatives.

Typically, even those who are in formal employment start a business on the side. For example, Esther Wambui, a friend of my wife who worked as a manager for oil giant Total, also imported cars from Japan. These side-hustles bring in extra cash, paying for such things as schooling, but also constitute an important part of future retirement income. 

Executives in the West often wonder how to encourage a more entrepreneurial spark among their employees. But being an entrepreneur is nothing exceptional in Lagos, Kigali, or Addis Ababa. Western organisations could leverage this if they are prepared to embrace a bit of 'let’s give it a shot and sort things out as they happen'.  

 Migration is the jet-fuel of growth 

A persistent Western myth is that migration is bad for Africa. These stories about the negative impact of a 'brain drain' fit well with a right-wing ideology suggesting that African migrants are not loyal citizens of their nations.

What they forget is that migration is much more complex and not a one-way street either. Two considerations are crucial here.  

First, migrants are a crucial financial back-up for many communities in Africa. When an unexpected financial need pops up, it is those abroad who are often in a position to help out. In many cases it is also remittances which provide the seed money for new businesses. It’s smart money, as those who give have a good sense of who is capable of running a business.

Remittances to Nigeria, for example, were around $18 billion in 2021 and made up almost 20 per cent of The Gambia’s GDP in the same year. While the public often talks about the importance of development aid and foreign direct investment, remittances have actually brought more capital to low and middle income countries since 2019.   

Second, many migrants return home with capital, useful skills, and important networks. Sudhir Ruparelia for example used his savings from the UK – where he worked as a cab driver in the main – to start a business empire that turned him into one of the richest men in Africa.

The importance of newly-acquired skills is highlighted by Verve KO, a Nairobi-based Enterprise Resource Planning (ERP) software player. One of the founders developed computer programming expertise while studying at MIT in the US.

And Nobel International Business School would hardly have taken off without the network that founder Kwaku Atuahene-Gima developed as a internationally-known professor specialising in innovation.  

My point here is obvious. The growth I saw in Africa would not be possible without migration. And when you next see a young African migrant in Europe or the US, don’t see them as somebody to pity but as a potential future business tycoon. 

(And earlier version of this article was published as part of Warwick Business Schools "Black History Month" initiative.)