How Do You Say Unicorn In Your Language?

This article first appeared on LinkedIn, follow me there.  

Earlier this week I attended a talk on the 4th Industrial Revolution and as expected, some of the usual buzzwords were thrown around, including “this could be the first African unicorn”. To date, American and Chinese startups have dominated the unicorn rankings with India a distant third, however, there is yet to be a unicorn from Central and South America or Africa. Chances are the world will not see an African unicorn anytime soon and here is why.

A time before unicorns

Before getting to the impossibility of the existence of an African unicorn, nevermind a decacorn or hectacorn, a little history. In 1999 VeriSign bought South African internet certification firm Thawte Consulting for $575 million, at the time some believed VeriSign had grossly overpaid for a company that few outside the tech sector had ever heard of. Turns out Thawte was VeriSign’s biggest and only competitor as a digital internet certificate provider and acquisition made more sense for both companies rather than competition, VeriSign also took into account Thawte’s future revenues in it’s valuation. At the time Thawte founder and then 26 year old Mark Shuttleworthe was quoted as saying the sale was the best way for his company to unlock it’s value. This begs the question, if Shuttleworth had held on for a few more years could Thawte Consulting have been Africa’s first unicorn?

..could Thawte Consulting have been Africa’s first unicorn?

South African founded Dimension Data, or DiData, as it later came to be known, was Africa’s first breakout tech star. Listing on the Johannesburg Stock Exchange in July 1987 for a modest 150 cents a share and raising R7,5 million, DiData went on to list on the London Stock Exchange in 2000 raising over $1,5 billion. The dotcom crash of the early 2000s was not kind to DiData seeing its share fall from R70 in late 2000 to less than R2 in 2003. Though they did ride out the storm and manage to rebuild, DiData were eventually sold to Japan’s NTT Dokomo in 2010 bringing an end to an era in African tech companies. Whilst being founded in Africa, DiData does not qualify as a unicorn, they’re 1987 IPO barely raised $1 million.

Follow the money

Since then, a number of tech startups have emerged across the continent garnering significant interest, notables include Nigeria’s Andela, online retailer Jumia which now spans from West to East Africa and a slew of fintech startups. It is amongst fintech startups that much of the hype around Africa’s first Unicorn is focused. Flutterwave, billed as the next big thing in payment platforms raised $10 million this July in Series A funding led by Silicon Valley venture capital funds Greycroft and Green Visor Capital, to put this in context, between January 2015 and August 2017 African fintech startups raised just over $100 million in funding. Also in July, Andela raised $40 million in Series C funding led by African venture capital firm CRE Venture Capital to bring it’s total funding to date to $80 million. Now, whilst these are not numbers to be sniffed at, they’re not exactly shooting the lights out when compared to what is required to even have a chance of achieving unicorn status.

between January 2015 and August 2017 African fintech startups raised just over $100 million in funding

Much of this startup funding originates outside of Africa which presents entrepreneurs with a number of problems not least of which is competing for the attention of a small investor base. Whilst, as will be explained in the next paragraph, Africa has significant private and public cash reserves, the appetite for tech investment is simply not there. On a continent where spending on telecoms is still seen as a nice to have, spending on basic infrastructure and poverty alleviation takes the bulk of public investment funds and tech is barely a consideration, if at all. This disconnect sees businesses across sectors looking offshore for funding even from inception. Ironically, technological advancement is partly to blame for this as the growth in mobile money in Africa races ahead of traditional banking.

Unlike in the United States, Africa has incredibly limited financial resources to direct towards new industries and with a financial sector dominated by global players who have other priorities besides the continent, talent and foresight are the least of our worries. In a 2017 study funded by South Africa’s Department of Trade and Industry, the University of Johannesburg found that country’s top fifty listed companies were sitting on R1,4 trillion in cash reserves as at 2016 up from R242 billion in 2005. Added to this, in 2012 South Africa allocated R827 billion to the National Infrastructure Planmeant to fund healthcare facilities, schools, water, sanitation, housing, electrification, construction of ports, roads, railway systems and electricity plants. My point, even the continent’s most developed and financially complex economy has basic priorities it has to put ahead of creating unicorns coupled with an incredibly conservative private sector when it comes to investments in general but particularly in Africa. That said, one cannot go without mentioning South African firm Optimal Energy’s attempt to build a commercially viable electric car, a valiant effort that ended in 2012 taking over R300 million of public investment funds with it.

South Africa’s top fifty listed companies were sitting on R1,4 trillion in cash reserves as at 2016 up from R242 billion in 2005. Added to this, in 2012 South Africa allocated R827 billion to the National Infrastructure Plan

Where the founders are

Last but not least, founders are exiting before they realize the full potential of their businesses because, sooner or later they figure out that nobody with the money to do it, is really willing to risk funding a potential African unicorn when they can invest that money in a Silicon Valley firm with much greater chances of success. The thing is, this becomes a self-fulfilling prophecy, if nobody is willing to put hundreds of millions into an African business then nobody will put hundreds of millions into an African business and there will be no billion dollar African startup. This has been true of Thawte Consulting, MXit, Jumia, Optimal Energy and Andela to name a few. A common thread amongst founders is that they are serial entrepreneurs who after exiting their startups have gone on to new businesses, never mind that the startups that we know them for are likely not their first businesses but just their best known. No matter where in the world you are, serial entrepreneurs are necessary for progress because economies can only grow through doing, the more we do, the more jobs we create and the more we create, the faster and more inclusive this growth will be.

A common thread amongst founders is that they are serial entrepreneurs

There is always something new out of Africa

Whilst Africa has been a leapfrogging champion, creating unicorns will not be one of those instances, much still needs to be done to deepen African economies before we can even dream of creating a conducive ecosystem. This may very well just be an exclusively American phenomenon but the news is not all bad though, the desire to create Silicon Valley clones across Africa may very well be the impetus to create something completely new that the world didn’t even know we needed.

“ex Africa semper aliquid novi”

Pliny the Elder

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Based in Johannesburg South Africa, Ricky Marima is a recovering economist and twenty year veteran of building businesses across a variety of industries. He currently works at knowledge startup RemNes where he guides clients across the continent to ask the right questions about the 4th Industrial Revolution. You can reach him on ricky@remnes.com

Cooperation Over Competition Is Africa’s Economic Future.

This article originally appeared on my LinkedIn page.

Good economic news has been in short supply for South Africa in recent months. From shocking allegations of state capture to the second cabinet reshuffle in less than two years and stagnant growth. A ratings downgrade proved inevitable in 2017 but there was a glimmer of hope with cautious reports of in September of green shoots emerging.

In continental news Egypt was named Africa’s top investment destination by RMB, knocking South Africa off the top spot for the first time in the seven years of the rating. South Africa and Nigeria continue to tussle for the title of Africa’s biggest economy but with a larger population and better overall growth prospects, the odds are in Nigeria’s favor. The news is not great either when you look at South Africa’s ranking in the 2017-18 WEF Global Competiveness Index (WEFGCI) or the World Bank’s Ease Of Doing Business Index.

This is by no means strictly a South African story, look at any African country and you will find they are struggling with at least one index or another. But what if we looked at things differently? What if instead of focusing on who is the best African country, region or city we looked at how through cooperation, African countries, regions or cities can overcome their individual weaknesses? It makes no sense for the African Union to trumpet African economic integration but in practice intra-regional cooperation has been woefully slow, for example, SADC’s intra-regional visa is still a dream after more than a decade of negotiations despite obvious economic benefits. It also makes no sense that a continent endowed with incredible resources competes for global investment and countries find themselves in a spiral to the bottom trying to attract foreign direct investment by giving up non-renewable resources that could fuel long term growth through beneficiation for immediate gain, the trade in unexploited oil blocks all along the east coast comes to mind.

Intra-Africa trade has only increased to 15% of total African trade in the period 2010-15 after languishing around 8-11% for the prior eight years due to numerous logistical and political bottlenecks. There is, however, hope that the fourth industrial revolution (4IR) will usher in ways to circumvent many of these bottlenecks as red tape lags behind technological advancements such as blockchain and industries now possible thanks to increasingly ubiquitous high speed internet. Faster internet speeds, rapidly mushrooming local content across all online platforms, increasing inward as every country has at least one international airport and growing intra-Africa travel is showing we Africans, are all the gateway to Africa. With blockchain cumbersome foreign exchange regulations that have long hindered intra-Africa trade could be a thing of the past. Couple this with high speed internet, one is now able to have cross-continental teams across all sorts of industries working simultaneously on the same project and not having to wait an eternity for payments or juggle exchange rates.

Blockages that have existed for decades are set to be overtaken by a new breed of entrepreneurs who do not see borders and lethargic legislation as they lead Africa’s resurgence. Cooperation, not traditional ideas of competition, is how Africa’s much talked about youth dividend will be realized. Rather than aspiring to be Africa’s top -insert favorite index here-, in the next thirty years national borders will give way to regional economic blocks anchored by mega-cities modeled by unique population growth, migration and urbanization patterns. Governments will focus on facilitating this cross-border entrepreneurial spirit through relevant educational systems, infrastructure development projects and meeting their developmental mandates.

Of Carts And Donkeys: Why it is wrong to think exports will restore and sustain Zimbabwe’s economy.

Unlike the chicken and egg riddle, in economics, there is no question that a strong domestic economy is always the basis from which strong exports are built. This is why it remains a wonder to me that every other day there is talk of how Zimbabwe’s exporters need to ramp up production and take advantage of international markets. At the same time the Minister of Trade and Industry, Mike Bimha, is telling any foreigner who will listen that Zimbabwe is open for business with a vibrant domestic market. A few weeks ago Minister Bimha reportedly went as far as to invite a South African business delegation to take advantage of the current jobs bloodbath and set up shop in Zimbabwe because local industry is practically stalled. So local producers must export whilst the domestic market is serviced by foreign firms who come in and produce? How does this work? This is the same thinking with the Look East policy that has seen Chinese firms benefiting from generous investment initiatives going back at least a decade with no reciprocation. It is now clear there was never any incentive for the Chinese to do so to begin with because Zimbabwe did not negotiate a trade deal, they simply gave the family jewels away.

What Zimbabwe needs to do is focus on deepening the local economy, a Marshall Plan, if you will. The first step is to restore trust in the government, nobody puts in a country where those who run it cannot be trusted to honour their commitments unless they themselves are not trustworthy. Next would be to restore local industrial capacity to supply the domestic market by investing in base infrastructure such as roads, rail, electricity, education, telecommunications, health and housing. This can only be done once Zimbabwe becomes a viable investment destination, a factor largely determined by the level of government’s trustworthiness. For too long Zimbabwe has tried to sell itself as primarily a source of raw materials and a conduit to the continent with the domestic economy treated as ancillary to that. The central location of Zimbabwe previously made it ideal for channeling southern and central Africa’s produce to the ports of South Africa and Mozambique and imports up north. Any benefit falling to the local economy was more of mere consequence rather than actual intent. This is Zimbabwe’s colonial legacy, it is still strong and highly evident in the trade language of today’s government. But there is hope.

It is notable that barely days after President Mugabe gave his surprisingly brief State Of The Nation Address parliament is seized with passing a raft of laws aimed at creating a more investment friendly environment. Needless to say, last week’s visit by Nigerian businessman Aliko Dangote and the announcement of his intent to invest in Zimbabwe could not be coincidental. This has been borne out in various news stories of the behind the scenes negotiations culminating in last Monday’s whirlwind visit. The local broadcaster had hardly scrambled together their usual analysts and Dangote had already left Harare. Since then cabinet has approved all of Dangote’s projects, though I am not sure what that means as no plans have yet been presented to them, let alone drawn up. Meanwhile the Zimbabwe Investment Authority’s Nigel Chanakira has said they will not be found wanting when the time for issuing all necessary investment permits comes.

Whist I have many questions about what this deal means for how Zimbabwe conducts business I am cautiously optimistic. I am hoping government may just have finally painted themselves into a corner such that they have no room to mess this up as they have done countless times before. Another reason to like this deal is that it is totally about local capacity building to cater for Zimbabweans. The coal will be mined locally for domestic power generation to feed a cement plant that will primarily supply the local market. It is now to wait and see how local businesses are going to compliment these developments and thus deepen the economic multiplier effect.

This is what it means to put the domestic economy first. It is not prone to the whims of export markets and fancies of international commodity brokers. The more integrated the domestic economy, the better it will carry a country through any international crises. It is the donkey that will pull the proverbial cart and it must be fed. If such efforts can be replicated across other industrial sectors over the next ten years there is hope yet to see a Zimbabwe restored to it’s rightful economic status in our lifetime.

Zimbabwe Sees Boost In Regional Exports

Today the world woke up to the news that Zimbabwe has become a regional powerhouse in an unexpected field, load shedding. Whilst it is widely known that Zimbabwe has struggled with power generation for a number of years, it has only recently come to light that Africa’s most literate country has turned this national lemon into the proverbial lemonade.

Following a state visit to South Africa in April this year by President Mugabe, South Africa and Zimbabwe signed a variety of trade pacts. It is believed amongst these was a commitment by South Africa to increase it’s imports of load shedding from Zimbabwe by 500% phased in over 3 years to allow Zimbabwe to ramp up production. South Africa is believed to have wanted an exclusive deal but Zimbabwe resisted this siting her positions as chair of both SADC and the AU. Zimbabwe trade negotiators felt this resource must be shared with all of Africa. Unofficial sources have stated that load shedding exports to South Africa could be the economic panacea that Zimbabwe has been looking for after a similar deal with Nigeria fell through.

Zimbabwe is also a major global exporter of skilled and unskilled labour with South Africa being a major market. It is possibly the runaway success of this trade that swayed the Zuma presidency to conclude the mammoth load shedding deal.

Zimbabwe will also be ramping up exports of specialist financial services to South Africa and the greater SADC community, chief among them, currency devaluation and inflation fuelling. Early gains have already been recorded in South Africa with the ZAR now at near record levels to the currencies of western imperialist states. Inflation however, has proved to be rather stubborn and a specialist team has been seconded to Finance Minister NhlaNhla Nene from Zimbabwe’s Ministry of Finance as a matter of urgency.
Other areas where Zimbabwe has provided services to South Africa include:
Service non-delivery
Ghost worker deployment
Legislative bungling
National debt maximisation
Government Accountability reduction measures

As part of a cultural aspect Zimbabwe will also be deploying experts in historical revisionism to ensure the struggle against apartheid is forever remembered as it should be.

Could Uber Be A Catalyst For Intra-Africa Trade?

On Thursday morning I woke to the news that Uber, an innovative app for calling a taxi used in over 200 cities, had raised $1,2 billion in funding whilst the holding company is now valued at a remarkable $40 billion. In the ensuing conversations about the mammoth valuation with a number of people I came across an interesting article about Uber’s future plans.

“CEO Travis Kalanick isn’t content for his company to remain a car-hailing app. He plans to move into urban logistics and shipping, doing everything from delivering food to transporting supplies.”

These two lines got me thinking, what could this mean for Africa? In recent years much has been said about how Africa is rising, a colloquial term for the latest wave of, depending on your point of view, international investment, colonialism, exploitation or development. What is not in dispute though is African countries lack of participation in the Africa Rising narrative whilst its benefits to ordinary people are hotly contested. One way to deepen the benefits to ordinary Africans put forward has been intra-Africa trade. A 2013 UNCTAD report on this states:

“Over the period from 2007 to 2011, the average share of intra-African exports in total merchandise exports in Africa was 11 per cent compared with 50 per cent in developing Asia, 21 per cent in Latin America and the Caribbean and 70 per cent in Europe. Furthermore, available evidence indicates that the continent’s actual level of trade is also below potential, given its level of development and factor endowments.”

Whilst as Africans we have many factors going against us, not unlike other developing regions, I believe the most significant are of our own creation so can also be solved by ourselves. Trade amongst ourselves is the answer, a key component to making this a reality is access to markets and this is where the Uber link comes in. In a Top 20 Exporters of Containerized Cargo, 2009 and 2010 report Africa did not feature, let alone any individual country, however, in a Top 20 Importers of Containerized Cargo, 2009 and 2010 Western Africa ranked eleventh.

Considering that shipping is the best way to move bulk goods around the world and Africa has an extensive coastline under serviced by ports and continental shipping, it seems a no-brainer that cheap access to ships to ply these routes would drastically change intra-continental trade. In the fallout from the 2008 global recession the international shipping liner industry saw a number of players liquidated due to the fall in business. Among these were Greek and Portuguese liners that were either sold or are yet to recover. Africa on the other hand, has no merchant navy of any significance, do you see it now? No? Let me explain.

Uber is a platform whereby people can use their cars as taxis by registering with Uber and paying a commission on every fare directed to them. Now apply this to the African shipping industry and suddenly you have access to hundreds of ships ready to carry goods from Cape Town to Sharm El Sheikh. The same could apply for cranes, oil-rigs and just about anything you can move from port to port. Beyond the ports the same could apply for inland movement of goods along roads and rivers, rapidly accelerating access to markets and resources.

If a the ships are there then industry would have no reason not to produce, trade will entirely be up to the market. I am not a shipping expert so if there are any out there reading this, what are your thoughts?

Continue reading “Could Uber Be A Catalyst For Intra-Africa Trade?”