Innovation in Africa: Sustainable Financing of African Start-ups
Governments, agencies and the financial sector should work to create an enabling financial environment.
Innovation in Africa will continue to play a key role in its sustainable development. The provision of innovative and quality products as well as modern services will enable better healthcare, increased access to education, improved social life, poverty reduction and better quality of life. It will also contribute to the economic growth of African countries, and should be promoted by government, businesses, academia and other relevant agencies. There has been an increasing number of start-ups driving innovation, and contributing to an innovative business environment that seeks to offer consumers better experiences in areas such as commerce, health, finance, and agriculture.
Start-ups and business finance
Finance is one of the key enablers of innovative activities and outcomes. Access to finance is critical for any business, and start-ups are no exception, if they are to deliver the much needed innovation to bring out the changes and transformation Africa needs. Research has revealed that finance contributes about 25% to the success of small businesses. Businesses need sustainable sources of capital and finance to drive innovation, and should therefore work to identify available sources of investment finance in order to overcome any challenges and financial constraints. To ensure a sustainable access to financial investment and help start-ups to access capital, there should also be continued support from governments and various agencies and organizations.
Access to investments
African start-ups have been benefiting from investment, including foreign investment. According to Disrupt Africa, African start-ups, notably fintech, ecommerce and other tech start-ups experienced a good level of investment in 2017, especially in countries like South Africa, Nigeria and Kenya. A total of 159 start-ups raised $195m, which was an increase on the previous year’s investment levels. This trend is expected to continue as many more innovative ideas and businesses are created to bring about change in Africa, and also suggests that there is investor confidence in African tech start-ups.
The role of the financial sector
In addition to obtaining finance through investments, there are other ways for start-ups to secure funds, including getting business loans. Despite the increase in investor confidence, there is evidence to suggest that small businesses in Africa face challenges with accessing finance. Research by Hansen et al (2012) revealed that about 18%, 8% and 39% of small businesses in Kenya, South Africa and Ghana respectively noted access to finance as a significant barrier to growth.
A well-developed financial sector needs to be in place to support and enable start-ups to obtain loans for innovative activities. AAACreditGuide also suggests that borrowers should be able to compare loans and financial products and evaluate the best financing options in order to ensure they get the best deal – access to a wide variety of credit finance will enable an increasing number of successful start-ups
A successful innovation culture in Africa will require adequately resourced and successful start-ups that push through and take Africa’s innovation agenda forward. Having successful start-ups will bring many benefits, including job creation, and contribute in many ways to the quality of life of the African people. Governments, agencies and the financial sector should work to create an enabling financial environment.