Africa: Seasons Greeting to Innovation in Africa Readers and a Review of Everything Innovation From Start-Up Investment and Energy Innovation to 3D Printing and ICT4D in 2018

Dear readers, viewers, contributors and advertisers

Africa's start-up sector continued to grow in 2018 but it has yet to find a defining breakthrough moment, whether this be a large-scale exit or more widespread large user numbers. Sub-Saharan Africa just has some problems that can't be innovated out of existence.

Innovation and start-ups is not as easy as it looks

Sub-Saharan Africa has a growing line of international start-ups showing that it's possible to operate at scale across several markets. The revenues may not yet be right but for several of them they have created a user base of some scale. These include: Airbnb, Jumia, Uber, Zomato, Taxify, Mondeo, and also international digital content start-ups like Deezer, Spotify and Netflix.

Jumia is the mother of all African start-ups operating in 10 Sub-Saharan countries with 50,000 businesses doing transactions every day. In 2017, it had 2.2 million active customers (including its operations across all of North Africa) who made 8.3 million orders.

Another thread of this Innovation in Africa e-letter is innovation by corporates themselves. In October 2018 in the wake of Kamal Bhattacharya, Head of Innovation responsible for Safaricom Alpha, Safaricom's Innovation Center in Nairobi leaving I looked at the company's innovation track record. By the judgement of its own CEO Bob Collymore it has fallen short. Its own e-commerce platform Masoko (a potential competitor to Jumia) stalled. Masoko's Sharon D'Souza Holi in an interview with techweez (also in October) admitted that it "did not take off as expected". Doing your own start-ups is not as easy at it looks as though it should be when you have all those mPesa subscribers.

This is something African media behemoth Naspers has also become familiar with, having several times tried to expand new digital businesses into Sub-Saharan Africa without success: the latest of these was OLX. In November it pledged to lend R1.4 billion to new start-ups in South Africa. Naspers will create a new initiative, known as Naspers Foundry to help talented and ambitious South African technology entrepreneurs to develop and grow their businesses. The Naspers Foundry will launch during 2019. Over the next three years, Naspers will invest around R4.6bn in the South African technology sector, with R3.2bn allocated to the development of its existing technology businesses, including OLX, Takealot, and Mr D Food, and R1.4bn committed to Naspers Foundry.

In Nigeria in September 2018, two corporates - Honeywell Group and The Workforce Group - have set up start-up programmes. The first is a traditional Nigerian company where the children of the founder are looking to take an "old school" company out into the new digital world.

Start-ups start making "asks" from Government to provide an enabling environment

In several countries - among them Egypt, Tunisia and Senegal - start-ups and the ecosystems that support them have started to ask Government to provide practical assistance to help innovation and start-ups. Tunisia paved the way by passing what has become known as the "start-up" Act. As part of its provisions, the law supports startups in funding, grants them exemptions from corporate taxes, allows both private and public sector employees up to a year off from their current jobs to run their companies, provides a government-sanctioned salary to founders and helps firms file for international patents.

In August 2018, ecosystem stakeholders in Senegal came together to draft legislation similar to that of Tunisia. According to Disrupt Africa, the Senegal Startup Act contains a number of recommendations that aim to promote innovation and entrepreneurship, covering areas such as tax policies, startup financing, startup labeling, and the promotion of data collection and sharing so that entrepreneurs can develop better business plans. It was forwarded to Government and I'll be interested to see whether the politicians pick up the challenge.

A similar event in Egypt launched a document called The Startup Manifesto online after 12 months work by different stakeholders. It opening statement reads: "As part of its mission, RiseUp initiated the Startup Manifesto project as a catalyst for change. The Manifesto, outlines current challenges and proposing concrete solutions, aims at improving the current entrepreneurship ecosystem in Egypt. Its target is to increase ecosystem readiness for fostering entrepreneurship, thereby gearing the ecosystem towards its full potential." And really that should be a no brainer for Governments.

Start-ups and Investments - The numbers are getting bigger but what does it all mean?

Partech Ventures' annual investment report identified venture capital funding in Africa in 2017 reaching $560 million, recording 53% year on year growth. South Africa, Kenya and Nigeria dominate with 60% of total funding. Francophone Africa accelerating with 14% of deal transaction. Financial inclusion (off-grid tech, fintech and insuretech) represents 45% of deals.

Disrupt Africa's rather more cautious report on the same topic put the figure at US$195 million for the same year. One reason for the discrepancy may be how you draw the line between international (for example, US-based) start-ups and African start-ups. The other issue is that the whole start-up space seems to exist on a steady diet of hype as start-ups sell to investors who in-turn sell to others to raise funds.

And everyone in the ecosystem is selling success to media outlets like ourselves who provide plentiful coverage. Caveat emptor! I am not the first one but it bears repetition: getting investment or winning a competition are not the same as running a successful business.

Crunchbase identified 51 Africa-focused VC funds globally, 22 of which were headquartered in Africa. In other words, the investment community is a village and you can meet large numbers of them at annual events like Africa Tech Summit in London and Afrobytes in Paris.

Investors are increasingly finding that the main start-up countries in Africa - the familiar places like Kenya, Nigeria and South Africa - are so "over-traded" that prices are increasingly going higher for companies that have less potential for return. The positive aspect of this pressure is that it's forcing investors to look at other countries, particularly in Francophone Africa.

It also raises questions about why there are not more African start-ups that are "investible". There are continuing public spats about why "mzungu" founders get more of the funding but not enough discussion about what needs to be done to get home-grown start-ups over the line. Meanwhile pioneers like Eric Osiakwan, Chanzo Capital keep plugging away at creating local angels (most recently with an event in Maputo) who can take start-ups through the first part of this journey.

Another special mention should go to Alitheia Capital's Tokunboh Ishmael (who was one of the first investors in Nigeria's largest Fintech Paga) who is launching a Gender investment fund. "We're looking at fashion, creative businesses, beauty and textiles. There are some players who will emerge as the Mac (the Estee Lauder-owned cosmetics company) of Africa. We are looking at aggregation platform opportunities that will bring order and structure into the value chain. Many of the participants (in these sectors) are women. It's the same with smallholder farmers. It's about being able to bring a gender conscious approach from the boardroom to the factory floor".

"It's a frustrated culture. We need to bring greater access to the market and sell beyond Nigeria and South Africa. This would have a huge impact on these SMEs and would give more presence to the sector". The fund that will have between US$75-100 million to invest.

Some of the most interesting start-up plays are now in the B2B field. In July 2018, I spoke to Cyril Collon, and Tidjane Deme, Partech Ventures. Its first investment was in Nigerian start-up Trade Depot in which it has invested US$3 million. Collon lays out the why:"There are three levels of problem for FMCG distribution in Africa. There are big brands and importers, formal entities operating across Africa. For example, an international beverage company has 150 distributors. 2,000 informal wholesalers and 600,000 informal retailers. It's not able to see completely the distribution network below the first layer".

One of my constant complaints about African start-ups has been that they don't get out of the country they operate in. In a pleasing exception, in November 2018 taxi-hailing start-up Little launched in Lusaka, five months after launching in Kampala. The founders of Zambia's BongoHive are looking to launch a fund that will help start-ups treat Malawi, Zambia and Zimbabwe (the old colonial Central African Federation) as a single trading area.

Off-Grid Energy Start-Ups start to scale but not without problems

Africa's power sector is so broken in most countries that there are plenty of opportunities for disruption, particularly in un-served rural areas. However, providing credit for low-income customers to buy a range of products has had its hiccups this year. With low-income customers who've never had credit before it takes some time to sort the serious from the less serious and this has cost a number of start-ups in this area over the year.

Nevertheless, there are now a handful of companies operating at some scale across several countries with more appearing on what seems like a monthly basis. For example, Greenlight Planet announced that it had distributed 10,000 Pay-As-You-Go Sun King Solar Home Systems in Zimbabwe.

The more interesting question is what do you do with your new-found power. In November I talked to Trend Solar's founder Irfan Mirza. It offers a smartphone (with pre-loaded data) as an integral part of its off-grid power product. In addition customers can have lighting products and a TV. The question is then whether over time these off-grid markets will see an increase in their household incomes to keep sustaining new purchases?

3D Printing and Makers - Less visibility than the noisy world of start-ups

Every fortnight I run a section on 3D Printing and Makers that is supposed to be about what's happening in Africa. In most issues I fill it with 3D Printing stories from elsewhere that have relevance to African entrepreneurs.

There are 3D printing spaces and modest ecosystems in many countries in Africa but they don't yet seem to generate "stuff": there are some signs in places like Kenya that people are using them to make things like spare parts. But even in South Africa, the things that happen seem quite modest alongside the potential.

Perhaps I'm being unfair as most Makers don't set themselves up as start-ups and stride around blowing their own trumpets. But it's still worth asking why more is not happening?

ICT4D - You can't just innovate your way out of some problems

ICT4D is the love child of start-ups and the development sector. The latter loves the glamorous space dust that innovation brings to the seemingly boring world of things like health and education. The start-up tribe love it because the development sector keeps paying money and there's no start-up pitch that trumps changing lives.

A number of ICT4D apps that have been around as pilots for nearly a decade seem to be on the brink of wide-scale adoption. It's not always been about technology but changes in behavior and the costs associated with technology. As start-up world is largely without history - it's nearly always about the near future - it's often hard to remember how long things take.

Let's take agriculture as an example. In August I spoke to agtech start-up veteran Daniel Annerose who was launching Africa Cocoa Village, using IoT, mobile money and machine learning to add a premium to cocoa growers' income. His first launched product was 15 years ago. Overall, the Manobi platform now has 50,000 farmers using 150,000 hectares of land:"For coco, we have 4,000 farmers on 10,000 hectares of land. We have 64 villages with 20,000 growers, of which 4,000 are on the system. We want to reach 1 million hectares in the next 3 months. We're working with large partners who can bring a large number of farmers into the project. We're responding to needs in the supply chain".

Smallholder farmers make up large parts of the population in all Sub-Saharan African countries but no-one is really sure how many of them there are. When I asked in Kenya I was given figures that varied between 4-9 million. However, the reality is that a much smaller number of farmers - probably around 0.5 million people - produce nearly all of Kenya's food. Food in Kenya is expensive to produce and get to market and makes up a disproportionately high percentage of people's household budgets.

Many of these smallholder farmers aging (65+) and have limited literacy, particularly in English. There is a constant public discussion in the local media about whether the young will take their place. So the question of how farmers might increase both their productivity and profitability is of fundamental importance.

Various efforts have been made by both the Government and the development sector to address this question over several decades but the results are at best mixed. For a couple of decades at least, mobile and online advice and market information services have been seen as one way of addressing the productivity issue. Over that period, the use mobile phone based market-price and advice services has increased but the impact of that information has yet to be decisive in terms of productivity and profitability.

At a recent conference on agtech, I asked a donor panelist why if there was so much innovation in agtech that there was no innovation in things like plot sizes and that smallholdings seem to be a fixed point. "We don't want factory farming." Needless to say there is some distance between factory farming and even modest improvements in food productivity in Africa.

In terms of our own news, Balancing Act said goodbye to Sylvain Beletre and hallo to Matthew Dawes as our new Head of Research.

In Q1, 2019, we will publish a report of direct interest to Innovation in Africa's readers: Sub-Saharan Africa's Digital Landscape and its Top Ten Markets - data prices, smartphones, digital content and services and e-commerce. We will also be updating and rewriting VoD and Africa - A review of existing VoD services, drivers, challenges and opportunities. If you would like details on either of these reports, simply drop me an email on:

Yours sincerely

Russell Southwood and all the team

Innovation in Africa

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