This text is the fruit of conversations we had with Polish startups who had their business in Africa, but also with experts – Dr Anna Masłoń-Oracz, plenipotentiary of the rector of the Warsaw School of Economics for Africa, who has been researching sub-Saharan markets for twenty years, and the head of the foreign department of the Jagiellonian Club, Jacek Płaza. As Africa is not just one country but several dozen, strongly differentiated in terms of level of economic development, legal and economic conditions for doing business and attitudes towards Europeans, drawing general conclusions was not an easy task. At some point I even wondered whether such a text makes sense at all, whether it will be helpful for you, entrepreneurs, whether it would not be better to create a series of texts on the possibilities of expansion into particular countries of the Black Continent. However, conversations with Anna Masłoń-Oracz and Jacek Płaza have shown that such a synthesis is possible and, what’s more, it is important even at the very moment of considering the pros and cons of choosing this and not another country for expansion into Africa.
Black Continent is not a good destination for startups – I was told by entrepreneurs who tried to do business there. And it’s not that I was unlucky – my interlocutors told me about dozens of Polish companies that tried and failed. Why? First of all, because of the lack of trust, and as we all know, a startup is a business in which you have to invest and wait for the profit for a long time, sometimes several years. Nevertheless, Anna Masłoń-Oracz thinks that the huge, rapidly growing potential that the continent offers in recent years cannot be ignored and that Polish companies should try to enter the Black Land. But how to go about it in order not to end up like many companies that have failed? That’s what this article is about.
AI has turned on the disco polo
– We enter, we are talking in Polish. And suddenly the voice of a Polish performer starts coming from the speakers. It was an AI that turned on disco polo music for our pleasure’, says Dr Anna Masłoń-Oracz about her visit to one of the technology hubs in Dakar. This is an example which shatters our image of Africa as a continent of poverty and backwardness. Of course, the continent still has a lot of catching up to do, but entrepreneurs in hundreds of African metropolises are developing world-class technologies.
“The African startup ecosystem has come of age”
This is the opinion of Dr. Anna Masłoń-Oracz from the Warsaw School of Economics. On what does she base this opinion? Primarily because of the huge number of technology hubs, of which there are already more than six hundred at this point.
Source: Dr. Anna Masłoń-Oracz’s webinar, Business Revolution in Africa [photo after Forbes].
Most of them are located in the most developed African countries, i.e. Nigeria, Kenya, South Africa and Egypt, but the capital of every country on the Black Continent also has them. The largest concentrations of them are located in Lagos, Cape Town, Johannesburg and Cairo. Accra, Casablanca, Tunis, Abidjan and Abuja each have at least fifteen such hubs. Another important argument for the claim that the African startup ecosystem is doing well is the interest of foreign investors in the African startup system: the last 5-6 years have also seen an increasing interest in investing in Africa, especially the US, but also China; US VCs can be seen in South Africa, Nigeria, Kenya and Egypt in particular.
Firstly: Choose wisely
Anna Masłoń-Oracz warns against treating Africa as a single market that can be conquered in its entirety. In her opinion, the lack of road infrastructure or problems with Internet access make it very difficult to expand business on this continent, even to include neighbouring countries (although it must be admitted that the situation has clearly improved over the last few years thanks to Chinese investments). Further, flying from country to country is not an affordable amount for an African startup, it’s a big barrier.
Second: Don’t lecture
Business is no place for moralizing, especially on a continent that has suffered so much at the hands of Europeans. Therefore, remember not to express yourself with superiority, as well as to control your body language, which can unintentionally lead our interlocutor to the wrong conclusions. Exactly: As Dr Anna Masłoń-Oracz emphasized in a conversation with us, this aspect is very important in African cultures and completely neglected by Europeans: -Africans unerringly detect duplicity in communication. Our body language says a lot, and we Europeans are not aware of it, we do not pay attention to it. Lack of body language control and post-colonial blemishes are the reason why we Europeans often fail in business in Africa. To make it work we need to be 100% open and accepting of our partners, they need to feel it to trust us and they need to trust us to do business with us.
Third: Build a relationship – work with local startups
There has to be a relationship established. Access to technology is worldwide, there’s also leapfrogging in Africa – a Polish startup won’t come up with anything super surprising that everyone in Africa will want to have, that’s my opinion, looking at the level of universities and the level of startups on the continent. What can build an advantage are relationships, which in turn build trust, so important here.
How do you establish a relationship? The easiest way is through joint participation in projects, such as the Innovation Bridge Nairobi-Warsaw, which I co-created on behalf of SGH, or the project run by Garage 48 and the Estonian Ministry of Innovation. The latter has already gained a lot of publicity, gathering several hundred teams from Europe and Africa – continues dr Anna Masłoń-Oracz and explains why such programs may help Polish startups to better enter African markets: – What is important in this project is that not being on the spot in African countries it is difficult for us to fit our solution into the local needs. These needs are often very surprising for us Europeans, such as the winning project of the above mentioned hackathon – a solution to the problem of girls who, due to coeducational toilets at school and lack of hygiene products, do not study and stay at home.
Dr. Anna Masłoń-Oracz points out another benefit, besides networking, of participating in hackathons: – Remember that hackathons are not only for networking, but can also help to identify the challenges facing African countries – building a business idea that can succeed in Africa.
According to Dr Anna Masłoń-Oracz, the idea of Polish start-ups expansion to Africa should not be an independent activity, and certainly not an independent one at a distance: – Young African businesses, start-ups or mentors of acceleration programs do not differ from ours – the ones we cooperate with at SGH. So bet on participation in African/African-European hackathons, bet on cooperation with African startups – build joint projects. Especially since their potential is huge, bigger than that of the average European startup. Why? Because those who made it to university in Africa are individuals, the best and the most persistent (financial considerations, not the post-colonial mindset of the parents of such a student, exclusion of girls due to lack of separate toilets, etc.). They have gone all the way, gotten funding for their education, etc. They already have all the trials behind them – they are much stronger than Polish startups, you can confidently invest in them. The real reason behind the lack of foreign expansion of African startups is the lack of road infrastructure or the prohibitive price of airline tickets for the inhabitants of this continent. However, I am convinced that if an African startup secured funding and already reached out to potential business partners in another country, it would do very well in establishing partnerships and building a joint business.
Fourth: Act like KABISA
Anna Masłoń-Oracz continues the advice, strongly emphasizing the importance of adapting to local needs: – Polish beverage producer KABISA is an example of a company that did everything right – you can learn from them. They immediately set the business up for local conditions. Packaging colors, taste. Everything was tailored to local tastes, they perfectly sensed and understood the needs of customers. I’ve heard it over and over again: the Polish companies that have been successful in Africa are those that felt and understood the needs of local consumers. However, in order to understand a client, you don’t necessarily have to have lived here for several years, like the founders of KABISY. Success does not depend on how long you have known Africa, but on whether you understand it (and want to understand).
The makers of KABISA drinks succeeded because they focused very strongly on the needs of the local customer. This is a very important tip for every entrepreneur who wants to sell their products in the Black Continent – what works for the Polish customer will not necessarily work for the African one.
source: KABISA press materials
KABISA has a product that can be bought here and now – this point of the business strategy is probably also the source of the success of this Polish business, following the opinion of my next interviewee, Wojciech Sierocki, who ran a medtech startup in Kenya for several years: – I think that this basic fabric of social trust in developing countries is very low. And this is the trust that is manifested by entrepreneurs towards you, but also the lack of trust in tomorrow. This is manifested, for example, in the financial situation in Kenya, where credit is practically unavailable to the middle class, let alone entrepreneurs. Therefore, companies act with a great deal of caution, not placing their hopes in the future. What matters is what can be done here and now.
Which country to choose?
Let’s face it – Africa is not a continent for those who are taking their first steps in business. It is a difficult and demanding market, and the fact that countries are not highly developed does not mean that consumers will ‘flock’ to our products. Dr. Anna Masłoń-Oracz, despite being a strong advocate of Polish students/startup projects with African entrepreneurs, also talks about many companies that have failed in Africa. She cites a Polish manufacturer of agricultural machinery and tractors as an anti-example of how to expand to Africa. It failed, even with public support.
Summarizing the conclusions from the interviews with Dr. Anna Masłoń-Oracz, Jacek Płaza and the entrepreneurs, we were tempted to list factors that should be crucial for a startup when choosing a particular region in Africa for locating its business:
- Level of nepotism and corruption. For us, the definition of corruption is clear, whereas in many African countries, it is gratification and not seen as a bad thing, hence its so widespread. It is only when the state introduces a fight against the subject, such as has been done for years in Rwanda, that the problem can be overcome. The truth is, however, that few African countries are actively countering the phenomenon.
- The quality of the legal and tax system in the country. Is it stable? Are changes made with little frequency? Jacek Placa advises: – What I can recommend to startups that want to enter Africa is definitely to look less at the governments’ plans and more at the details, and most of all at the current legal regulations. The problem with plans and national strategies is that they are often just wishful thinking which has little to do with the real possibilities of their implementation. For example, in Kenya, one of the ministers forecasts an increase in the value of the startup sector from three to ten billion dollars in a year. Another example – very many countries are working on laws to facilitate startups (“Startup Acts”), yet these are countries that have a very weak legal environment for business in general – so it is hard to believe that this will be any kind of breakthrough for the functioning of innovative companies. Moreover, the Startup Acts they are working on may turn out to be just a slogan having more marketing than practical meaning. Wojciech Sierocki, who ran a startup in Kenya, shows how extreme situations can be expected in some African countries: – One day half of my house was demolished. A bulldozer came in and did its job. The governor of Nairobi unearthed some old regulations that forbade building a house closer than twenty metres to a river, mine was next to a small stream.It was a political ploy against another local politician, which could not have been predicted and such things happen there from day to day. That’s why I don’t run a startup in Kenya anymore, despite the great potential of the market.
- When choosing a country to expand into Africa, look at how business-friendly the country is. Rwanda and Botswana, for example, have already made such a name for themselves over the years that there is no need to check the ranking every year, as it is a well-known fact that officials have a positive attitude towards entrepreneurs. In Nigeria, on the other hand, politicians’ approach to new technologies is condescending. Therefore, the main criterion for companies should be the pro-business attitude of countries, their politicians and officials (such attitude, according to Jacek Płaza, is present in practically all of East Africa).
- The quality of the startup ecosystem. Are there organizations on the ground that can bring me to the market?
- Foreign spheres of influence. Check if we, Poles, have good relations in a given country. For example, in Mali we are currently persona non grata because we support France, with which Mali is in dispute. There are many countries in Africa and the political situation, alliances and balance of power change from minute to minute – you have to keep track of the situation. Dr. Anna Masłoń-Oracz gives an example: – Last week I learned from my lawyer that Tanzania, despite its initial interest, will not cooperate with Senegal in the project we organize to support female students from various African countries – their relations have changed and the whole country will probably drop out of the project.
Which industries to invest in? Which should be avoided?
Dr. Anna Masłoń-Oracz lists three industries in particular that startups entering African markets should pay attention to: – Some countries base 70% of their GDP on tourism, so this industry, especially sustainable tourism, may be of interest to startup products. The second industry that startups in Africa should pay attention to is logistics, people need to move around. The third is renewable energy, because in Africa it’s hard to provide any other kind of energy to scattered, heavily remote human settlements, and still numerous, despite the fact that almost half of Africans already live in cities.
At the same time, however, once again my interlocutor shows that the most important criterion for a startup should be to respond to real consumer needs: – I would place the capabilities of Polish startups where Africa’s main challenges lie, and my second piece of advice would be not to invest in capital-intensive projects such as road or railroad construction (although, for example, software to operate railroads would be fine). As far as the challenges are concerned, these are mainly those resulting from deficiencies in the functioning of health care or education, all startups that operate in this area are welcome here. And these do not have to be very advanced solutions, they can be solutions simplifying procedures, they do not have to be very technologically advanced projects.