Business Analyst - June 9

Thursday, June 9, 2022
ENTErprENEUrShIp
How to overcome startups
obstacles in Ghana
BY DA ABOAGYE
In recent years, Africa is making great
strides to become the launch pad for
high-growth innovative companies.
this is evidenced by the increasing
number of tech startups to have
received financial backing, which grew by
46% annually. this is six times faster than the
global average, according to Partech Partners
(a venture capital firm in the Us).
Unfortunately, Africa has not done well in
sustaining and scaling up startups. even
though startup development has been
progressive, there is only three “unicorns” on
the continent, including nigeria’s fintech
Flutterwave. Unicorns are privately owned
tech companies valued at more than $1
billion. Whereas such unicorns are common
in advance economies; 200 in United states,
100 in China and 50 in europe.
Also, there are less than 20 African
‘zebras” including Ghana’s only JUMo. Zebras
are privately companies with valuation of
more than $200 million.
According to the Boston Consulting
Group (BCG), African startups rarely survive
beyond the series B funding stage and return
on venture capital investment remains weak
at a continental average of 3% compared to
16% and 11% in europe and Asia-Pacific
respectively.
the situation is worse in Ghana, which is
one of the growing economies in Africa.
According to Briter Bridges
(briterbridges.com), there were less than 20
disclosed deals in Ghana valued at $19 million
at close of Q3 2020 whereas the likes of south
Africa and nigeria closed over 70 deals valuing
more than $200 million.
the Ghanaian startup faces various
structural challenges including low consumer
purchasing power, inconsistent and complex
regulations, inadequate infrastructure, and
scarce capital. However startups manages to
surmount these challenges, there is fierce
competition from incumbent companies,
especially from large companies in -toconsumer
sectors, such as retail, financial
services and energy.
Instead of established companies using
their privileged position to advance the
national interest, they often use their market
power to push new entrants with disruptive
business models out of business. such
hostility against startups do not only
threatens competitiveness and kills
innovative technologies, products and
business models, it also deprives job creation
and economic development.
notwithstanding, Ghana remains a very
fertile ground for entrepreneurs. It is
politically stable, fast increasing internet
penetration, fast growing economy in the
Africa, and also part of Africa’s young
population. this presents tremendous
opportunities for innovators to develop
product and services to improve social and
economic development. However, startups
will need to develop new strategies, and
Ghana’s national champions, investors and
governments will need to work together to
tackle the challenges of startups.
scaling up through Corporate
Partnerships
Large companies have demonstrated the
ability to overcome structural challenges
affecting business. they have access to capital,
the human expertise to steer complex
regulatory environment, and the ability to
expand into other markets. therefore, rather
than Ghanaian startups competing with
incumbents for consumers, it is advisable to
collaborate with such large entities by
providing innovative business-to-business
solutions to survive and be successful.
on the other hand, large enterprises must
be willing to open up and engage startups as
partners. such partnership model is already
well-established in financial and
geographical technology. For instance tech
companies such as JUMo and Vokacom have
partnered with large corporations and
government respectively to provide data and
addressing services.
With such collaborations, incumbents
can nurture startups by providing direct
investment or partnerships with external
incubators and accelerators. An example of
such collaboration is that of Indonesia
companies Lippo Group, a conglomerate, and
oVo, a leading digital payment service. Lippo
Group provided financial support to oVo in
its early stage. oVo benefited from Lippo’s
ecosystem, which include hypermarkets,
telcos, e-commerce marketplaces, content
streaming, and banks serving small and
medium enterprises. Lippo also got valuable
help from oVo to bring merchants onto its
platforms and provided incentives for
consumers.
Incumbents can also form strategic
alliances with startups to develop new
technologies or
innovative business
models. such
partnership can be
revenue-sharing,
joint-venture, or
technological
alliances between
two or more
companies. JUMo,
the Ghanaian
mobile financial
services is a perfect
example of how
such partnership
can be a win-win
and could enable a
startup grow into a
zebra. JUMo, which
holds creditscoring
algorithm,
collects behavioral
data from willing
customers and
share with telecom
operators.
It then collect
mobile-wallet data
from telcos to
provide credit scores to partner financial
institutions such as ecobank and Letshego to
enable them review loan applications. this
alliance is helping telcos to earn revenue from
data sharing, banks to reached out to
untapped markets and JUMo is gaining
access to wider customers within the
informal sector.
In addition to the above strategies,
established companies can also set up
startups on their own. this enables
companies to overcome internal processes
and cultures that inhibit innovation.
established companies can set up in-house
incubators or accelerators to attract and
develop new businesses or products. For
instance, In Ghana, companies like Kosmos,
stanbic Bank and ecobank has in-house hubs
setup to invest in local talent and capacity.
such initiatives have benefited the likes of
ecobank to come up with various Fintech
Products to enhance services delivery and
revenue generation.
support from Governments and Investors
Governments and investors are important
players to improve startup development and
growth in Ghana. For instance large
companies can help new businesses to scale
up through strategic alliances. Financial
incentive from government, such as tax
reliefs, cash grants, is a good initiative to
entice investors and large companies to
support the growth of new ventures.
Ghana, through government initiatives,
has established innovation hubs such as the
Accra Digital Centre to drive digital
innovation in Ghana. However, to further
improve the development of the startup
ecosystem, there is the need for government
to collaborate with development institutions
such as the African Development Bank to
develop bigger innovation hubs to enable
partnership between larger companies and
new venture and attracts and investments.
For instance, the African Development Bank
and rwanda have invested $400 million to
develop the Kigali Innovation City on a 70-
hectare land size.
Government also needs to support or
direct state agencies such as the national
entrepreneurship and Innovation
Programme and the Ghana enterprise Agency
to educate and build the capacity of
entrepreneurs on initiative and programmes
happening within the West African region
and Africa. such as the AfCFtA and the
implementation of a comprehensive legal and
regulatory framework for private equity and
venture capital fund being developed by the
West African economic and Monetary Union
and the World Bank.
the government has undertaken
initiatives to advance the development of
startups in Ghana. However, more needs to be
done by the public and private sector to
release the wave of innovation to create jobs
and improve economic opportunities in
Ghana.
**Credit to Boston Consulting group**
WrIter
The writer is a Chartered accountant
(ICag) and an MBa holder from the University
of Warwick Business School in the United
kingdom. a Staff of ghana Export Import
Bank and a freelance entrepreneurship trainer.
I have been assisting businesses to develop
proposals to raise funding and improve their
financial management. My research interest
include entrepreneurship and small business
development. I can further be reached on the
mobile number 050 8887688 or email at
daaboagye@gmail.com.