There seems to be a quiet, cautious consensus amongst the investment communities that Africa is on the verge of something big.
Les Bienheureux Boulevard in Kigali, Rwanda
Tech hubs have been appearing all over the continent using the American tech entrepreneurship model that made Silicon Valley such a successful project. But as many venture capital firms fix their focus firmly on emerging markets, many are wondering if African entrepreneurship can sustain enough stability to grow the next billion-dollar Internet companies. Does Africa have what it takes to successfully emulate Silicon Valley? While it remains to be seen how Africa will channel its efforts, resources and Chinese favour towards a successful technological renaissance, there is no doubt that big things lie ahead for African tech in general.
China’s Economic Miracle In Africa
As early as 30 years ago, China’s economy began to grow consistently between 8 and 16 % annually save for the Crash of 2008 where it dipped slightly below 7%. Chinese manufacturers presented an attractive workforce for cheap good needed in the West.
At the same time, [China’s middle class](my China article) grew at a historically unprecedented rate. While the growth was sustained, it had to end at some point, but where this end would come was anyone’s guess.
In 2013, signs began to point towards the slowing down of the Chinese model with the advent of ‘ghost cities’. Property developers fell deep into debt from loans mostly issued by municipalities in their anticipation of housing the next wave of urbanised Chinese middle-class citizens that never came. At the time when this debt made it’s way up to the People’s Bank of China, the economies of the United States and Europe were seeing a form of recovery. This credit crunch threatened the very way of life for many Chinese people, who value harmony and stability as central values. So the newly minted middle class was directed towards investing in public equities on the Shanghai Composite.
In just a year ending 2015, the Chinese stock market made many people rich, with its value more than doubling. For all intents and purposes, the Communist Party seemed to have solved the credit crunch and liquidity crisis, until the market crashed in June 2015, amidst apparent warning signs where companies such as Shanghai Duolun Industry rebranded to “technology” companies with domain names worth hundreds of millions of dollars.
It seemed the Chinese stock market, which has sustained more the 20% in losses over the last year, has led Chinese investors to again look for promising asset classes to invest in.. Enter Africa: While China was reaping the benefits of massive growth balanced with the challenges a free market poses, investments outside of the country were scaling up, leading to a consolidation of sorts.
Why is China Investing So Much In Africa?
Aside from condescending ignorance, we in Africa don’t have a sharp image to portray to the rest of the world through the narrow lens that is Western media. Some unstable republics in sub-Saharan Africa experience war, hunger, malaria outbreaks, Ebola and famine- and developed nations have pumped significant amounts of money by any standard to help end these challenges. China decided to take a less authoritative approach, instead of dictating terms of governance for aid, they traded and did business with some of the most questionable and ruthless leaders of the 21st century. It would seem their only two criteria for investment were stability and profitability, only. From 2003 to 2008, Chinese investment in Africa increased from $75 million to $5.5 billion driven by their own meteoric economic growth. The same proved true for import/exports between the two, growing over five times eventually exceeding $50 billion during the same period.
It’s important that Chinese investment in Africa accounts for less than 5% of the total foreign direct investments on the continent, but it has had a profound and visible effect on the way people lead their lives from Sudan, the DRC, Nigeria, South Africa, and even Zimbabwe deciding to recognise the Renminbi as an official currency. Conventional wisdom suggests that China is seeking African resources to finance their continued industrialisation dominance, however, data shows that China is rapidly exporting its industrial and services to African countries. This would suggest, as we are seeing today, Chinese goods have begun to become more expensive, eroding their appeal as the manufacturing sector of the world due to costs. President Trump has repeatedly accused China devaluing their currency to facilitate exports. If this is true, at some point, the prices will catch up with the producers. For their companies to remain competitive, they will need to find cheaper factories.
Should Chinese FDI in Africa continue at the present rate for even half a decade, Africa would become the world's factory. The African middle class could just as easily find itself pulled out from an agrarian economy to a far more diversified one in the coming two decades. Africa seems to have kept its appeal to the Chinese markets by remaining profitable and stable with consistent returns.
Ariel view of the Kigali Convention Complex
Africa From Now
There is no question that innovation has become superfluous in Silicon Valley. Many tech companies, who were flooded with too much venture capital now find themselves in the grips of having to make progress for the investors instead of using the opportunity presented by the availability of profound research and development. This has driven many venture capital firms like Tiger Global Management, Sequoia and Matrix to rush their money over into Chinese Internet startups by the trillions of dollars albeit with fierce competition from Chinese venture firms with an obvious home ground advantage. The rise of China’s middle class led to an attractive, mature and stable business environment that has encouraged the likes of Alibaba’s Founder Jack Ma to enter the world of business to business operations. According to the World Bank :
“Africa is ‘poised to become the next great investment destination.’”
It is increasingly likely that over the next 20 years, Africa will follow the Chinese model. More manufacturing companies look to relatively stable African economies to which they may offshore their operations, the African middle class is bound to significantly grow, making business environments increasingly wealthy and stable. Entrepreneurs will spring in Africa’s incipient tech startup scene, all the while paying detailed attention to the 55 different realities that are presented by the largely heterogeneous continent. The improving literacy rates and increased school registrations mean that many African countries will be able to identify the opportunities presented by welcoming the tech scene as a means to eradicate poverty. Studies have shown that many Africans aren't necessarily opposed to aid, but would prefer entrepreneurship instead. In Rwanda, the government has taken a decisive role in encouraging entrepreneurship in the technology industry by announcing a $100 million venture fund. The small east African nation of Djibouti is rapidly modernising in the mould of 1950s Singapore, and mobile penetration rates in the continent are comparable with developed nations, African nations are abandoning the social enterprise of entrepreneurship and creating a platform where they can compete with industrialised nations for the same market with the same products, albeit with improved methods from the observation of the failures of the West.
Local contexts would allow entrepreneurs to create new services that probably won’t make sense to Western consumers initially. These support structures for entrepreneurs growing around emerging markets will grant them access to the same resources that helped propel Silicon Valley to the front of the tech race for almost forty years now. These are exciting times for African tech startups who are experiencing just the beginning of the amalgamating results of the internet and democratisation of genius and opportunity.
Do you think this will be ab=nother false boom for Africa or is the foundation strong enough to sustain a rennaissance? Share your comments in the section below. Thank you for visiting Base64!