Here’s Why Indian Startups and Investors Should Look at Africa

Here’s Why Indian Startups and Investors Should Look at Africa

Here’s Why Indian Startups and Investors Should Look at Africa

There is a growing realization that the continent is so much more than a destination for humanitarian missions, financial aids, raw materials and selling products. The African continent, with its 54 countries and vast cultural, social, political and economic diversity and differences, has myriad opportunities for startups and investors alike.

Why Africa is a unique investment and entrepreneurship destination?

Africa has a population of 1.2 billion which is expected to grow to 1.7 billion by 2030. Combined with the growing purchasing power of the population and increasing GDP rates, the consumer and business spending is forecasted to $6.7 trillion by 2030 according to the World Economic Forum. The continent is going to soon reap the benefits of the democratic dividend with an increasingly young population and young workforce. So, smart investors and entrepreneurs are looking to lay the foundation for soaring businesses and also, gain strategic first mover advantages in the market.

Rahul Jain, co-founder and CEO of Peach Payments based in Cape Town, South Africa says, “At the time (we founded Peach Payments) what prompted me to look at Africa was the fact that tech in Africa was a blank canvas. There were hardly any tech startups around. Even though there were incumbents in our market (PayU, Paygate, Mygate etc.), we saw a clear path to differentiate and launched Peach Payments.” Capitalizing on the first-mover advantage enabled the startup to maintain positive margins.

Experienced entrepreneurs, industrialists, investors and VCs in Africa believe that there are more pronounced spaces and opportunities for Indian investors, entrepreneurs and startups to explore the continent and invest here. Let us probe this further.

Why should Indian entrepreneurs and startups look at Africa?

The most important reason for this is that the African countries and India have several social, cultural and economic similarities and deep-rooted historical and cultural ties. Many of the problems faced in the two regions are similar too. For instance, poverty, agrarian underdevelopment and distress, educational imbalances and inequities, etc. So, solutions that work in India will work in Africa (and vice-versa), with a few tweaks and customizations.

The other key reason is that the startup scene in India is reaching maturity. If we look at 2018 and Q1 of 2019, there has been a preference among investors for growth-stage startups in India with nearly $1.4 billion being invested. As pointed by Rahul Jain, many of the domains in Africa are still blank canvases and opportunities exist in most industries be it – traditional trading and manufacturing or the newer technology- driven ones. Quoting him, “The opportunity is there for the taking.” So, if Indian early stage startups and entrepreneurs were to set up shop in Africa, they will immensely benefit from the untapped markets, young and tech-savvy workforce and the vast possibilities.

Also, the markets are nearly saturated and highly competitive in India for new players to gain a significant foothold especially, in most sectors be it – technology, e-commerce, SaaS, etc. New ventures in India may only have negative or zero margins and the business may not be sustainable. With Africa, however, there are fewer startups and businesses operating in most domains and industries and this will enable early movers to gain and maintain positive margins. Peach Payments is a case in point.

When queried about why he did not consider India or other developing markets for building a startup, Rahul Jain noted (as discussed earlier) that Africa was a blank canvas with hardly any tech startups. So, they used the opportunity to their advantage. Rahul Jain also noted, “We initially planned on launching in South Africa and immediately setting up shop in India as well. However, in this timeframe, PayU had launched in India and was already burning $$ to buy market share. Our realization at this point was that India is hyper- competitive despite being a huge market and offers 0 or negative margins. We decided to focus on Africa where even today (after 7 years) there is a margin on the table. I think this is the big difference between India and Africa – we have an opportunity and responsibility to build sustainable businesses that drive growth in the entire ecosystem.”

If Indian startups were to tap into the US or European market, they would face stiff competition from the regional majors. In Africa, as discussed earlier, this is not the case. It is equally important to note that many of the major US and European startups are not considering Africa as a potential market or investment region. This means the competition for Indian startups is further reduced.

In this regard, Rahul Jain notes, “I do think that SaaS services or Platforms as a Service from India have a huge opportunity here and also an opportunity to be market leaders. We are constantly working to bring US and European players in SaaS and PaaS to support African businesses and only we know what a mission it is to get them to integrate with us. Africa is not yet on their priority list. Indian startups have everything – product, tech, talent, leadership – and Africa is a ready market for them. I’m happy to help anyone who is interested and see how we can help them navigate these markets.”

Why should Indian investors look at Africa?

According to Rahul Jain, “The biggest issue that exists for tech ventures in Africa is the access to capital to help them grow and scale. Investors in Africa are not yet as mature as other markets like India, Latin America or South East Asia. With the right capital and investors with the right motivation, we can see a huge change in the landscape in Africa over the next 5 years. For investors, it is still early enough to get in early on the next set of unicorns that will come from Africa and generate great IRRs for your funds!”

A caveat to the African story

The continent does have a growing population with increasing purchasing power and ready markets for several products/ services. However, the African story also has challenges that one must understand and be prepared to over before starting out.

The continent 1 billion population is spread across 54 countries with diverse cultures, socio-economic conditions, languages and internet penetration. To add to this, each country has different laws and regulations, unique market complexities, currency volatilities and ease of doing business. So, enterprises may have to start from scratch for each country.

Another challenge as experienced by the co-founders of Peach Payments was that “as outsiders, it also took a while to break into the business networks, build credibility and slow create opportunities for Peach Payments. We thought we would do 6 countries in 2 years! 7 years later we have finally expanded beyond South Africa to Mauritius and Kenya and are only now targeting more countries.”

Despite these challenges, Africa is still a ripe destination for Indian investors and startups.

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