Entrepreneurship is a fundamental part of African culture. Across the world, we have the highest number of women entrepreneurs and everyday new businesses are born across the vast expanse that is the motherland.
Of course, Africa is also being tagged “the next frontier” which could be interpreted to mean that the more developed nations of the world are looking to partake in Africa’s accelerating economic revolution by putting their money where their mouth is.
As an African entrepreneur or foreign investor looking to make a play, what African cities do you think are the best to launch a startup? What kind of decision matrix do you employ? What are the important factors to consider/look out for?
We attempted to answer some of the questions with a cursory look at Africa’s startup hotbeds and the elements that make them so appealing and valuable to get a company off the ground. To do this as best as possible, we considered things like market [access], regulatory environment, investment opportunities, infrastructure among other things.
No other place in the world has a higher share of adults that are starting or running new businesses than Africa and 80% of Africans see entrepreneurship as a valid career opportunity, according to this report by the African Development Bank (AfDB), the Organisation for Economic Co-Operation and Development (OECD) and the United Nations Development Program (UNDP).
Also, companies with less than 20 employees and less than five years experience are the biggest employers in Africa’s formal sector while 22% of the continents working-age population are starting new businesses (the highest in the world). There is no denying that there is abundant entrepreneurial and investment potential in Africa.
Mauritius (Port Louis)
Ranking 25th in the world in the World Bank’s Ease of Doing Business Index, Mauritius offers superb conditions for setting up a business – especially one that doesn’t necessarily have to be resident in the country. The government has set up the country’s business registration processes to encourage foreign investment with regulation that allows free repatriation of earning, no capital gains tax, no withholding tax on dividends and no accounting or reporting requirements. Fibre is also available across the island with speeds of up to 100Mbps available for businesses. The island only has a population of 1.26 million (2018 est.) so there isn’t a huge market on tap. That said, there is no better better nation on the continent to incorporate your business.
Playing home to East Africa’s most active tech ecosystem, Nairobi is a great entry point for entrepreneurs looking to set up shop in East Africa. With incredible mobile penetration and financial inclusion rates, Kenya offers great access to its 48.5 million inhabitants. Infrastructure is also relatively great – Kenya has one of the highest average Internet speeds in the world – and the government seems to be taking tech seriously, highlighting a relatively favorable regulatory environment. Of course, an entirely digital business registration process doesn’t hurt too.
Some people will argue that Rwanda has the fastest business set up time (around a week total) in East Africa and they may be right. A Nigerian entrepreneur that just set up his business in Kigali told us it took him roughly 4.5 days. Business registration time aside, Rwanda has great infrastructure: there is constant power (which a lot of African countries do not have), recently completed nationwide 4G coverage, among other things. The Rwandan government is also keen on foreign investment and the Land of a Thousand Hills is one of the more politically stable countries in East Africa. There is some level of market access (Rwanda’s population and land area are small compared to other East African countries) and the regulatory environment is quite favorable for small businesses.
With a population of 198 or 200 million, depending on who you’re asking, Nigeria’s most obvious advantage is market size (as Africa’s largest economy). While it is not doing great as far as infrastructure is concerned, Nigeria’s huge lower middle class population offers a huge potential for startups looking to scale or expand their operations. The commercial center, Lagos, has a population of 21 million, the nation’s largest and most active tech cluster in Yaba, and loads of investment opportunities. Lagos’ economy is also larger than Kenya and Ghana’s and the government has developed better regulations for business registration. Poor regulation, multiple taxation and unrest in parts of the country are also factors that hinder business ease in Nigeria.
South Africa (Johannesburg)
As Africa’s most developed economy, South Africa is a no brainer – provided you can get a visa (South Africa is notorious for rejecting visa applications – caveat: I’ve been denied before). Infrastructurally, the rainbow nation is way ahead of everybody with fast internet speeds and steady power supply. With a population of 55 million, there is a market for intending startups and regulation is relatively favorable. Political stability was shaky up until the new president Cyril Ramaphosa was elected but the landscape is still edgy. South Africa also gets high marks for protecting minority investors and relatively easy to set up a business in (it ranked 82 worldwide), according to World Bank data.
Sparsely populated Botswana is one of the most stable countries in the world with one of the longest continuing democracies in the modern world. The country is also itching to diversify from its dependence on diamond (it’s the world’s largest producer of diamonds) and it ranks 81 on the World Bank’s Ease of Doing Business rankings. It also has a fairly quick registration process although there isn’t much of a market thanks to the country’s tiny 2.2 million population.
In Africa, there are problems that cut across. Lack of market access, poor infrastructure, political instability and poor government regulation are some of the obstacles facing Africa’s entrepreneurs in the quest to build the next big African company. The good thing is some places are better than others – as we have shown above – and those places are where entrepreneurs and investors will look to when building their businesses or scaling existing ones.