Sustainable Investment in African Businesses
Mobile money and mini-grids are only two examples of the fascinating technological developments that have taken place in Africa. Thanks to innovations like electric vehicles, satellite internet, and AI, investors in African businesses have even more options than before. However, some of the big companies that were once very successful have been struggling lately. This is not good for the people who use their services, the people who work for them, or the overall business environment. To make sure that the next generation of successful African companies can last, investors need to focus on making steady profits instead of just growing really fast, even though there have been some successful companies in Africa, like ChipperCash, Swvl, and Jumia.
The traditional venture capital model of scale equating to value may only apply in some places in the African context. Expanding across borders in Africa requires navigating various challenges, such as new partnerships, customized APIs, logistics, taxes, licenses, and currency risks. Furthermore, African customers often prefer a combination of technology and human interaction, making scaling technology more difficult for operational efficiency. Startups in Africa must also develop the ecosystem as they grow, which can add further complexity. As a result, expanding tech in Africa, which has received funding from venture capitalists, is a challenging task and may lead to a less appealing and burdened business.
Sometimes, people think that being fast is the most important thing when it comes to investing money in a business. But in Africa, things are a bit different. There are often unexpected events that can disrupt businesses and their plans. For example, in Kenya, there was a year when businesses stopped investing because there was a big election that people were unsure about. Some droughts and locusts made it hard for people to have enough food, so they didn’t want to spend money on other things. Additionally, the government made sudden changes to taxes and fuel prices, which made it even more difficult for businesses to make plans.
Not only do businesses in Africa have to deal with these local problems, but they also have to deal with things happening in other parts of the world. For example, changes in the United States and conflicts in Ukraine caused problems for businesses in Africa. People took their money out of the country, which made the local currency worth less. This made things like fuel and food more expensive, and it also caused inflation, which meant prices went up. With all of these unexpected things happening, it’s hard for businesses to make long-term plans, and they have to always be ready to change. Because of all these problems, the usual way of investing money in businesses doesn’t work very well in Africa.
Venture capital is a way of investing money in new businesses. In Africa, it’s not a good idea to invest in many companies and hope that one of them becomes very successful. It’s better to invest in fewer businesses that have a higher chance of success. Development finance institutions (DFIs) have committed a lot of money to help Africa grow and create jobs. To really help Africa, DFIs should invest sustainably, like some other investors have learned to do, which entails investing long-term and giving money to businesses at different stages of growth.
Businesses started by African investors have a better chance of succeeding and growing if the investors themselves alter their investment strategy, which helps create more successful businesses in Africa.
