Four Reasons Africa is the next Big Startup Location

In the digital age, it’s worth remembering that your customers are now global not just local, and Africa is one of the world’s fastest growing consumer markets.

In terms of both economy and population Africa is booming, and its startup founders are growing in confidence, spurred on by the success of high-profile entrepreneurs such as Mzi Khumalo, Saki Macozoma and Phuthuma Nhleko.   

In April, Bloomberg reported that this year Africa’s economy is predicted to expand at its fastest pace since 2012, making it the fasting-growing region in the world, behind Asia. This is despite the continent’s two largest economies – South Africa and Nigeria – beginning to slow down.

Here are four reasons why Africa is the next big start-up location.

1. Rising quality and quantity of economic growth

There’s no doubt that Africa’s continent is not at the same level of maturity as the Asian economy, but it’s improving year-on-year. Although the global economy is slowing down in parts, Africa’s growth predictions remain strong for 2019.

Africa is a diverse continent of over 50 countries, and with that comes economic disparity. Some parts, such as sub-Saharan Africa, are growing a lot slower than others. Nigeria, South Africa and Angola are experiencing a slow-down in growth this year, but there are plenty of bright spots.

Burkina Faso, Cote d’Ivoire, Ethiopia, Ghana, Niger, Rwanda, Senegal, Tanzania, and Uganda are all experiencing growth of more than 6 percent – a number on par or higher than China’s expected growth. Ethiopia is on track to have nearly the highest GDP growth rate in the world.

Many of these growing economies are also successfully attracting more global capital through progressive policies aimed at diversifying their economies and growing the middle class.

More important yet is the fact that much of this growth is coming from new, tech-driven industries. The continent has been largely dependant on old industries, such as mining, minerals and oil, for decades, but there is growing evidence that that is now changing. According to Quartz, last year venture capital investment in Africa topped $560 million – that might not sound like much, but that is a tremendous 54 percent increase on the year both.

Africa’s tech industry is accelerating. In 2017, investment in tech start-ups across the continent topped $195 million, according to the International Finance Corporation, and they predict this figure will only soar.

Dario Giuliani, co-author of the GSMA report, said: “Tech hubs represent a true catalyst for innovation and investment in Africa.”

2. A richer, larger and younger population

More than a billion people live in Africa: that’s a billion potential consumers ready and waiting to be untapped by new businesses, services and products.

Not only is Africa’s population growing, but it’s also getting richer too. As the population grows, so does its purchasing power and disposable income. Consumer expenditure in Africa is expected to rise to $2.1 trillion by 2025 and $2.5 trillion by 2030. This is more than double the figure in 2015, according to a recent study from the Brookings Institution, are some of the largest the world.

Africa’s middle class is also expanding. In the five largest consumer markets, Nigeria, Egypt, South Africa, Morocco and Algeria, the African Development Bank estimates there will be 56 million middle-class households with disposable incomes of nearly $680 billion combined.

Africa also has the fastest growing youth population in the world. People below the age of 24 years old will increase by nearly 50 percent by 2050, making it the continent with the largest number of young people.

Noah Smith, Bloomberg Columnist, wrote last year: “As the continent [Africa] becomes more populous, those companies with an established presence in Africa will be better positioned to sell into burgeoning African markets. They will have the local market knowledge, connections and distribution channels to beat out rivals who failed to invest early.”

For many startups, recruitment can be an issue. But Africa has a large youth population, waiting to use its skills, capabilities and enthusiasm; this human capital alone could increase startups exponentially.  

3. Use of the English language

Setting up a startup is challenging, and tapping into a developing region even more difficult, especially when there’s a language barrier. Thankfully, English is either the official or de facto first language in more than 20 African nations, and in the vast majority African countries, English is the go-to language in commerce and business.

In fact, Africa has a larger ratio of English-speaking nations than anywhere else in the world, giving the region a natural advantage over Asia and South America.

Potential hotspots for startups, such as Kenya, Ghana and Uganda, all of which are experiencing high economic growth this year, speak English as their official language. This makes it easier to communicate with new suppliers, colleagues, partners, and of course, potential customers.

4. Ease and expense of doing business

It’s widely believed that doing business in Africa, particularly in the shape of a startup, is tricky. Of course, setting up any business is difficult regardless of where you are, but the business environment in Africa is vastly improving. Many African countries are climbing up the Doing Business Index – a ranking system created by the World Bank Group.

The Index ranks countries on a range of factors including the ease obtaining a building permit to the payment of taxes.

Rwanda is 29th on the “ease of doing business” ranking, compared to the 41st position in last year’s report. Kenya ranks 61st globally compared to the 2018 report when it was ranked 80th. Morocco ranks in 60th position, making it the top-ranking country in the report in North Africa.

These increases are being driven by structural reforms which many of the national governments are putting in place.

Not only is it becoming easier to startup a business for external investors in Africa, but it’s also cheaper than starting up a new business than in Europe and Asia. Land and real estate prices are cheaper on average, Labour is cheaper and many of the associate costs of starting up a business are a lot less than in other parts of the world.

There’s no doubt that Africa is on the up in more ways than one. The continent presents a unique opportunity for external investors looking to start up a business from scratch or tap into a new region for customers, and that’s why it will overtake Asia as the world’s top startup location in the next five years.