Creating an Advanced Ecosystem of Corporate-backed Innovation

Over the past two decades, a number of African economies have shown remarkable growth – with several African corporates establishing a formidable presence in the global arena. Alongside this growth, the continent has become a veritable hotbed of innovation, fueled by an entrepreneurial spirit that has seen start-ups (many in the mobile and telecoms space) flourish. Arguably, however, Africa’s potential for growth – and its ability to produce sustainable, global businesses – remains inhibited by fragmentation.

Across the continent, and indeed in many other developing regions, disconnected economies are building products and services in silos. There is little to no overlap between emerging and established players; entrepreneurs lack access to valuable IP and market knowledge; funding is difficult and hard to come by and new businesses have to shoulder staggering operating costs and regulatory burdens. No wonder then, that too many promising start-ups and innovative concepts fail to scale and achieve any clout in their markets!

In a recent interview with the Financial Times, Wari money transfer chief executive Kabirou Mbodje noted that without better integration, African markets cannot have any major impact or influence in the global sphere.

“Africa is 54 countries. We’re talking about a billion people, a huge continent, 30 currencies. Why it is not prosperous is because we’re not integrated,” he stated. “We are small countries with no effect on a global scale [..] If we don’t aggregate those markets together, we will not have leverage.”

Indeed, this lack of integration is hampering otherwise promising areas of growth and innovation. Within the fast-growing digital payments sector, for example, a high level of fragmentation raises operating costs and creates inefficiencies in the system.

Ameya Upadhyay, a principal on Omidyar Networks’ investment team, describes the way this plays out:

“Compared to the widespread card acceptance in developed markets, less than 1 percent of the $380 billion in non-cash payments in Africa are made through cards. In fact, Africa is a maze of more than 276 mobile wallets, more than 500 banks, and 12 card networks in 54 countries…. This forces merchants to integrate with multiple payment service providers (PSPs) and banks to accept payments across the board, which is too expensive for all but the largest businesses. Even then, transactions can take days to clear, and merchants incur fees accepting payments or when withdrawing or transferring money. This encourages them to default to cash.”

Why ‘Benchmarkable’ Partnerships Are Key

Looking ahead, the most efficient way to tackle the challenge of fragmentation is through partnerships – and more specifically, through leveraging the corporate and network expertise that comes alongside investment.

On the one hand, we have entrepreneurs and start-ups that are buoyed by venture capital funding and angel investors. This is an eco-system that is designed to manage and indeed, flourish, in the face of risk. In parallel, we are increasingly seeing corporate intrapreneurship – whereby corporates create teams or appoint ‘intrapreneurs’ to develop new businesses that operate outside of the mothership.

Arguably, there is a massive opportunity that lies in the space between the free-flying entrepreneurs (and their VC funders) and the more grounded corporate players. By establishing partnerships or some kind of operational relationship between the two, entrepreneurs can overcome the fragmentation issue by gaining access to established systems, processes and revenue streams – while corporates can leverage the innovation, agility and niche market expertise associated with VC-backed entrepreneurship. Such partnerships will enable promising new businesses to gain the operational reach that is so badly needed, at manageable cost, while simultaneously boosting corporate growth and investment.

As we have seen in Silicon Valley, such an ecosystem requires the development of a common language, a set of established rules or norms, and ways to benchmark the deal-making process. Just as Silicon Valley players have developed their own lexicon around debt and equity, for example, entrepreneurs, VCs and corporates need to establish their own glossary for deal making and partnerships going forward.

Critically, such partnerships should establish benchmarks for success from the very beginning – so that future deals have a strong point of reference and can be understood in the broader context.

Vahid Monadjem is the founder and CEO of Nomanini, a South African-based payments platform provider that enables transactions in the cash-based informal retail sector.

Say something!

This site uses Akismet to reduce spam. Learn how your comment data is processed.