Africa’s booming start-up scene

You don’t have to be long in any African city to feel the entrepreneurial energy on the streets. For those of us who grew up on the continent, it’s very much a fact of life. But for those visiting, perhaps for the first time, it can seem overwhelming.

There is no single reason, of course, for this bustle and energy. But a big part of it comes from the fact that Africa has the youngest population of any continent. On every street corner and in shops and offices in every neighbourhood, there are young entrepreneurs determined to make a living and build a business.

This demographic dividend could – and should – be a huge advantage for Africa. Six out of ten of our population are already under 24 and the proportion of young people is growing all the time.

By 2050, our continent will be home to nearly half a billion people who have either just entered or are about to enter the labour force. Their talent and enthusiasm can be the motor to accelerate Africa’s development.

Look at the way young Africans are adopting and adapting technology for their own use and to create new business opportunities. Lagos – a city I know very well – is an extraordinary hub of tech start-ups and similar centres are sprouting up across the continent.

We are seeing the same creativity in many other sectors including mass market consumer goods, financial services and health. In a continent which has not seen the large increases in GDP in recent years translated into new jobs, this should be a powerful driver of both development and employment.

But it has too often not had the impact it should with lack of finance among the major barriers which need to be overcome. Good ideas are being wasted because the money is not there to back them while successful start-ups are being starved of the resources they need to grow.

Small and medium-sized businesses, of course, complain in every continent – often with reason – about their difficulty in accessing finance. But African entrepreneurs have more reason than most to protest.

Why is this the case? In many parts of our continent, banking is not as well developed or mature. Lending risks can be more difficult to assess. Competition for available funding is greater, with governments, who are safer bets, also keen to borrow and effectively crowding out the private sector. When financing is available, interest rates are high.

It explains why there is plenty of anecdotal evidence from Africa’s entrepreneurs that only financial support from family and friends enabled them to succeed – no matter how good their idea or how well their young business was doing. The result is that, despite all this energy, African countries remain well down international league tables of entrepreneurial activity.

The difficulty of accessing capital is not the only reason for this poor showing. Entrepreneurs also suffer from a lack of wider support and training. The professional skills needed to help take a business to the next stage can be hard to find.

But other fast-developing regions such as India, where TPG does a great deal of work, have been more successful in creating the right environment for entrepreneurs to thrive. The Indian government has launched actions plans to support entrepreneurs and provide subsidies, Startup India and Digital India are just two examples.

The good news is that there is a widespread recognition in Africa of just how important it is to do more to harness the entrepreneurial spirit in our continent. African governments along with international institutions such as the African Development Bank and World Bank and NGOs all have initiatives in place.

There is also a big role for private equity to help fill the gap in funding. But if it is to have the impact needed the approach must be flexible, ready to back businesses of all sizes and across their entire life cycles. It has to think small as well as big and be focused on the long-term.

This is the approach, tailored to the needs of different African markets, at the heart of the partnerships being forged through TPG Growth’s investment activities in Africa. These investment vehicles allow us to spend capital effectively at whatever level needed and build long-term relationships so we can provide not only funding but also wider support.

It is an approach which helped TPG play a big part in supporting the entrepreneurial- led tech revolution on the US West Coast. We build our reputation in backing small companies which have gone on to become big names.

It is a long way from California to Cape Town, Lagos and Nairobi. But what they share is the strength of the entrepreneurial spirit. The challenge is to help Africa’s army of young entrepreneurs turn their ideas into successful businesses not just in their city, country or continent but, in time, across the world.

Lalude is TPG Growth Africa Managing Partner