Francophone Africa Should Follow France’s Lead in Creating Start-up Nations
How to catalyze growth in one of Africa’s most neglected markets
Earlier this month, newly-elected French President Emmanuel Macron announced his vision to mould his country into Europe’s largest tech hub. Speaking at the Viva Technology conference in Paris, Marcon stated, “I want France to attract new entrepreneurs, new researchers, and be the nation for innovation and startups.” With the young new president at the helm, disruption is the new word heard around the Élysée.
With rigid labor laws and high wealth taxes, France hasn’t always been known as an easy place to do business. The same applies to the 21 countries of Francophone Africa where 300 million people — a quarter of Africa’s population — live and work. Tied by a common heritage and language, major economies include Cameroon, Côte d’Ivoire, the Democratic Republic of the Congo (DRC), and Senegal. Historically, trade and investment in these countries has been dominated by French companies. Although the tide has shifted recently, progress still remains slow outside of Côte d’Ivoire and Senegal.
According to the African Private Equity and Venture Capital Association, over 167 private equity deals with a transaction volume of $1.4 billion took place in East Africa between 2010–2016. During the same period, Francophone West Africa only witnessed 55 deals, with a transaction volume of $480 million — with nearly a third of investments taking place in Côte d’Ivoire. Although African tech startups raised a record-breaking total of $366.8 million in investment in 2016, the usual suspects of Nigeria, Kenya, and South Africa dominated the deals. Recent applications for XL Africa, the newly-launched incubator supported by the World Bank, were similarly dominated by the three countries.
However, with major players in Anglophone Africa facing a commodities slump (e.g. Nigeria, Zambia) and political woes (e.g. South Africa and Kenya), it may be Francophone Africa’s time to shine. Anglophone Africa has long been the darling of global investors in the region, but Francophone African countries are beginning to outperform their peers.
How can these countries capitalize on their promising growth to attract more investment dollars?
1. Leverage fiscal and regulatory synergies
Francophone states make up the majority of West and Central African states. With the exception of the largest players, Cameroon, Côte d’Ivoire, the Democratic Republic of the Congo (DRC), and Senegal, most are small, poor markets. To improve likelihood of attracting investor dollars, they need to improve business conditions so that their entrepreneurs can chart a vision for local, regional, and (at their most ambitious) global growth. One point in the favor of some of these countries: currency.
Because the CFA franc, the currency shared by the eight states that make up the West African Economic and Monetary Union, is pegged to the euro, the majority of the region enjoys relative currency stability. The Brooking Institute’s Abdoulaye Toure and Thomas Flahive argue that CFA’s stability is a welcome respite for investors confronting the dramatic fluctuations in the value of the naira and rand in recent years. Moreover, as Africa’s only single currency system, the CFA generates more opportunities for scaleable investments, especially with new plans to unveil a digital version called the eCFA.
Beyond currency, Francophone nations can also attract more scaleable investments because of the Organisation for the Harmonization of Business Law in Africa (OHADA), a system to harmonize business laws and implementing institutions among West and Central African states. Adopted in 1993, the aim of OHADA is to facilitate and encourage domestic and foreign investment among its member states. Because OHADA rules are based on civil law and concepts from French law, OHADA uniform acts and legal logic are easily comprehensible to most European investors. However, the standardization of business law will have limited effect on the investment climate unless countries take steps to develop domestic institutions capable of enforcing them.
2. Position Abidjan as a regional finance hub
Abidjan is not only the economic capital of Côte d’Ivoire — it is the economic engine of the Francophone world. OHADA states can maximize existing fiscal and regulatory overlap to leverage Abidjan’s development by transforming it into the finance hub of the West African world.
At present, the Bourse Régionale des Valeurs Mobilières (BRVM), the regional stock exchange headquartered in Abidjan, serves Benin, Burkina Faso, Guinea-Bissau, Côte d’Ivoire, Mali, Niger, Senegal, and Togo. To attract more investment, BRVM member countries might consider introducing a smaller exchange with more flexible rules to allow SMEs to obtain access to finance while improving their corporate governance. This strategy mirrors the existing model of the Alternative Investment Market (AIM) and the London Stock Exchange (LSE). As a smaller exchange, the AIM allows smaller, less-viable companies to float shares with a more flexible regulatory system than the main market. By following a similar model through the BRVM, small, but promising African companies will become more conversant in good governance, and more attractive to investors.
3. Manage perception of risk
Due to linguistic and cultural differences, Francophone Africa has long been a relative mystery to Anglophone investors. The fact that these countries are concentrated among the most conflict-ridden zones of Africa doesn’t help much. The Mo Ibrahim Index, an annual assessment of the quality of governance in African states, ranks Francophone African countries at an average of 39th of 51 countries. To attract more investment, governments will need to make a concerted effort to soothe investor anxieties around political stability and the ease of doing business.
Nigeria, for example, continues to attract a large chunk of private equity and venture capital funding despite ongoing attacks from terrorist group Boko Haram in the northeastern part of the country. Investors, it seems, recognize that the booming market in Lagos, a city of over 20 million, is far removed from Maiduguri, the Northeastern city at the center of the Boko Haram insurgency.
Similarly, why should investors be afraid to enter the Democratic Republic of Congo, a state the size of France? Its capital Kinshasa, Africa’s third largest city, is nearly 2700 miles from the violence in Goma, a distance similar to that between New York City and Houston, Texas.
In a recent interview, Stanford Graduate School of Business lecturer Federico Antoni described how publicizing the stories of local successes can build investor confidence in the potential of an ecosystem. He gives the example of a Turkish food delivery company called Yemeksepeti, that sold for $500 million. Because of the company’s success, the Turkish ecosystem had a proof point of its potential. In Antoni’s words, “you can build a whole generation of entrepreneurs from one success.” Francophone African companies should similarly combat risk perception by showcasing successful homegrown initiatives like Senegal’s Wari Group, one of the premier platforms for digital financial services in Africa.
4. Ensure access to Internet
Accenture estimates that the digital economy represents 22.5% of the global economy. Yet during recent instances of political turmoil, more African governments are choosing to quell protest through Internet blackouts.
According to the Brookings Institution, between July 1, 2015, and June 30, 2016, internet shutdowns cost at least $2.4 billion in GDP. In the last two years, the governments of Gabon, Burundi, Chad, Mali, the Republic of Congo, and Cameroon have opted for information blackouts after encountering opposition. The most recent shut-down in the Republic of Congo led to $72 million in economic losses.
It goes without saying that such blackouts are bad for business for both large multinationals and the small SMEs. By preventing mobile transactions and hindering communication, such shutdowns lower investor confidence in the local business environment.
5. Develop a skilled workforce
Here, Francophone Africa can follow France’s lead by investing in first-class engineers and scientific talent. Granted, those lofty goals aren’t easy given the region’s existing human capacity challenges, but the shift can begin through the development of an educational culture that places an emphasis on innovation.
At the university level, countries can follow the lead of progressive East African educational institutions. In Uganda, internships are mandatory across the nation’s public universities. Meanwhile, at the University of Nairobi’s Science and Technology Park, the Fabrication Laboratory (“Fab Lab”) promotes a culture of innovation by teaching students to be student-inventors. Each year, the university also hosts an Innovation Week.
Rather than adopt the East African model from scratch, Francophone countries can expand the mandates of existing institutions. For example, the Council for the Development of Social Science Research (CODESRIA), headquartered in Dakar, is one of West Africa’s premier research institutions. CODESRIA’s reputation for excellence can be leveraged to attract resources to establish a center for innovation and entrepreneurship. Similarly, the African Institute of Mathematical Sciences, which has two centers in Senegal and Cameroon, can become a center of innovation and a driver of human capital development.
Governments can also play their part by promoting capacity-building investment vehicles similar to the Lagos State Employment Trust Fund, which is directly investing over 25 billion naira (nearly USD $80 million) to help Lagos residents grow and scale their micro-SMEs or acquire skills to get better jobs. Francophone African states can take these investments one step further by promoting their entrepreneurs abroad at big regional and international industry events such as the Consumer Electronics Show in Las Vegas or AfricaCom, the annual African telecoms, media, and tech conference.
Meltwater Entrepreneurial School of Technology (MEST)’s recent expansion to Abidjan, however, signals that the tech community is galvanizing to bridge the gap between the French- and English-speaking startup communities. Who knows if Andela, which develops top engineering talent for Africa, may soon follow suit by expanding operations to Francophone Africa? While homegrown initiatives like Senegal’s JJiguene Tech Hub are gaining steam, but they will require outside investment and government support to generate transformative impact at scale.
These and other measures can improve Francophone Africa’s attractiveness as a business destination, and create wealth and jobs for the millions of unemployed youth in the sub-region.
