Data is Africa’s Problem, Not Money
With the recent announcement of new Japanese early-stage venture funds entering the African landscape and the ecstatic response from the continent’s tech space, one may believe this to be a rare occasion.
But it’s not.
Rather, venture capital has consistently grown over the past few years, ramping up from US$400 million in 2015 to US$2.02 billion in 2019.
So why do so many people have the impression that the African tech sector lacks capital?
Perhaps it’s because no one knows what’s going on in the Africa tech sector — and this appears to be part of a broader problem that plagues Africa; lack of data.
either [data does] not exist in a complete sense or they are not of good quality in the sense of lacking validity and reliability
Lack of quality data, or even data for that matter, is not a new problem for Africa.
When statisticians decided to track how well African countries were doing in moving towards their 2030 UN sustainable development goals, they discovered a curious thing: no one had the faintest idea. More accurately, on average, African governments keep statistics covering only about a third of the relevant data.
For several years, economists have seen the data shortage as a major hindrance to development prospects. The consequences of this issue have become even more deadly during the current COVID pandemic.
Lack of data has also impacted the continent’s fledgeling tech sector’s ability to compete globally; for a continent with a population of 1.216 billion, we rarely see entrepreneurs execute successful exits like Paystack and Jumia.
As highlighted, it does not seem to be the case that lack of capital is the issue with startups in Africa, but rather inadequate data infrastructure upon which technology markets can mature and ventures can exit.
One colourful analogy I recently heard from a seasoned investor and entrepreneur was that
The Africa tech sector has a blocked drain problem. There’s an awful lot of seed to early-stage capital acting as a plunger, but the blockage isn’t going anywhere. [The blockage] moves around a bit, but ultimately there’s not enough pipeline to pass it through. It’s stuck.
There are two growth avenues open to early-stage ventures, exit or profit, and cultivation of either requires access to better data to understand market trends, consumer behaviour, financial markets, and various other crucial insights; otherwise, they’re just flying blind.
Entrepreneurs in Africa don’t have access to this information. They have generally had to rely on individually generated data sets and research that leaves them susceptible to bias, meaning that decisions are not optimally informed. As a result, any capital injected into younger ventures by plucky VCs is often misallocated, and the startups fail to develop beyond the seed stage.
Extrapolating somewhat, it’s no surprise at all that only a handful of startups succeed.
Beyond a lack of market data providing insight into trends, movements, and signals, we have also found a relative dearth of literature equipping entrepreneurs. To be more specific, startup literature is typically written on the assumption of a homo economicus being a middle-class, white consumer with a complete and working understanding of smartphones. This consumer does not exist in Africa.
As explored in a recent podcast with William Anwana, a critical component to fostering the technology sector is ensuring African entrepreneurs are equipped to deal with African consumers and uniquely African problems. While it can be inspiring and influential to read the latest books and game plans coming out of Silicon Valley, a lot of the information is not relevant and does not apply to African markets. Data highlighting African consumer behaviour, product development, early-stage capital allocation, and operational efficiency is vital; nevertheless, we have only recently started to see an uptick in its availability as successful founders start to share their experiences and catalogue effective strategy.
On the other side of tech, the data shortage also impacts investors as VCs are often unwilling to invest in startups that are vulnerable to unpredictable legislative actions. This risk-averse behaviour is unhelpful in cultivating an infant tech industry. Still, understandably, these companies need to make money for their LPs and other clients, so it’s no surprise that their funds are injected into relatively safe sectors to yield a return. It’s just unfortunate that these less risky areas are generally not at the bleeding-edge of technology.
Africa needs better data infrastructure if we’re going to see widespread growth in the technology sector beyond just a flurry of activity in early-stage startups. I would also maintain that Africa’s technology sector is fundamentally intertwined with its development prospects; you can’t have development without tech innovation, and vice versa.
The problem also impacts policy and legislation.
Given a data starved economy, it makes sense that government legislation, particularly when written to address new technologies, can appear inappropriate and misguided.
https://twitter.com/MunachiOgueke/status/1364626235503083523?s=20
Understanding of both cryptocurrency and its implications for Africa seems to be lost on some politicians.
New legislation in Africa can often seem stifling, but more often than not, it’s been implemented by a government with insufficient information on the latest technology.
It’s just fortunate that some innovators on the continent are aware of this and, when given the opportunity and capital, will move quickly to gain traction before being knocked back, sideways, or downwards by hastily-written laws.
For example, M-Pesa moved faster than the government introduced regulation because of the anticipation that it would stifle innovation for several years when it did. The company acted quickly to distribute its product, gain traction, and show the Kenyan government that it did indeed bring a lot of value to the economy. The fact that the mobile money service supported 12.2 billion transactions in the financial year ending 31 March 2020 is a testament to this.
Yet, it can’t be the case that African technology’s future relies on a handful of innovators out-pacing their respective governments.
Instead, an environment biased toward entrepreneurial success needs to be fostered. Development of this relies on the introduction of better data infrastructure.
To address this, one could argue that citizens and corporations should be pressuring African governments to improve data collection and processing infrastructure in their respective countries. But, why leave this task with the government?
Suppose the public sector has ostensibly caused the problem and is not doing anything to fix it. Is there an opening for the private sector to come to the table with a solution?
As we’ve seen throughout history, the market has always been, and will always be, a pretty decent allocator of value. As such, it should be the case that entrepreneurs could harness free-market forces to tackle the data problem.
One market-centric route to be explored could be with blockchain. Introducing transparent, distributed ledger technology, in theory, could support efforts to combat challenges to data publishing. It’s certainly encouraging to see more businesses investigate this opportunity within the continent and beyond to facilitate research data provenance and workflows, enhance transparency in collection and processing systems, introduce incentives for quality publishing, optimize peer-review processes, and start to build new publishing journals utilizing blockchain.
Nonetheless, there would need to be the development of a governance framework for publishing accompanying these efforts.
While many actors in the blockchain space wholely believe that a solution can be found entirely independent of government (libertarianism is rife within the blockchain community), the data problem’s solution likely lies at the intersection of government and business. Not only because of the existing power structures residing in Africa but because of the massive data generation of both sides and the potential benefit collaboration between the two would yield as opposed to siloing data.
Ultimately, it appears that lack of data is the source or at least a significantly influential factor in a variety of the continent’s problems. From containment, testing and vaccination inadequacies to reduced technology sector growth opportunities, missing data harms Africans. To address this, there are several options available. Still, Africa will likely find a solution that involves collaboration between governments and businesses, so it’s vitally important to open a dialogue in this arena.
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