Three actions Africa can take to swell its number of entrepreneurs

After two years of physical disconnect, the moving parts of the African ecosystem had the opportunity to come together at Global Trade Review (GTR) Africa, held in Cape Town from March 10.

It was a great opportunity to connect and network, but how can we ensure synergies to implement solutions when we all go home after the event? It has never been more necessary to have the discussion of how than now!

The World Bank predicts that the African Continental Free Trade Area (AfCFTA) will boost regional income by $450bn by 2035 and lift 30-million people out of poverty. This environment should be a game-changer for entrepreneurs in Africa, but there are some questions about whether the ecosystem for entrepreneurs is primed for this growth.

As a pan-African banking group, we enjoy some unique insights into the ecosystem on the continent and see critical challenges that need to be addressed before we can capture the projected growth. Let’s have a look at where we are now, before addressing how we can move forward.

Frictionless commerce: While the fintech ecosystem has been the recipient of significant investment and we have seen significant transactions concluded in places such as Nigeria, Kenya and SA, Africa-focused entrepreneurs have voiced a key concern in relation to alignment gaps between the physical and financial supply  chains.

Consider the textile manufacturing market and trade between Ethiopia and SA. These supply chains need to integrate at some point to bring the entire trade finance ecosystem together end to end. This would make it easier for banks to source data that would help in providing funding to players in the trade finance space.

In another example, an entrepreneur who imports goods into Mozambique, and then looks to move them through Zimbabwe ultimately to Zambia, will face a variety of administrative challenges both in physically moving goods across multiple countries but also in managing multiple currencies and repatriating funds to their home country.

Until we can cut the red tape and make transacting seamless, we are going to struggle to stimulate intra-African trade. We must modernise logistics and financial systems simultaneously.

Big data-driven decisions: Since 2013, blueberry exports from SA have seen substantial growth. In 2013, totals were under 2,000 tonnes, while in 2021, they exceeded 20,000 tonnes. The demand for “super foods” from the UK has seen the SA berry industry become an export success story, contributing significantly to the country’s current account.

Leveraging big data with a focus on emerging trends should steer the decisions being made with regard to tariffs, rebates and duties, to sustain growth over time. SA enjoys significant technology, data and financial services capabilities compared to many of our African peers. If we can’t identify what is happening on the ground in places like Kenya, Ghana and Nigeria, it will be difficult to make decisions around pricing, supply and demand, and the duties that will be payable for each region.

Developing the means of production: A key takeaway from the Covid-19 pandemic — and more recently the events in Ukraine — is that it is very easy for global supply chains to be disrupted and in turn for emerging markets like Africa to become vulnerable.

The automotive sector is a perfect example of this. Countries like SA have benefited from major foreign investment by the likes of Ford, VW and Toyota, and many jobs have been created through this investment. However, the disruption to the global supply of semiconductor microchips has stalled new production capabilities.

Africa is a net importer of many goods and does not have sufficient local manufacturing capacity or skills. What should be a growth industry is suddenly hamstrung due to a global shortage and a dependency on international supply.

Unless the manufacturing capacity on the continent is bolstered through long-term investment, AfCFTA will struggle to create an enabling environment for entrepreneurs at the tail-end of the value chain.

Manufacturing requires long-term capital commitments and banks are working closely with export credit agencies to create opportunities for growth. Development finance institutions are investing in incubation to help develop entrepreneurs across multiple sectors, but all of this unfortunately takes time.

However, the opportunity is there. While there are very material challenges the AfCFTA region faces in developing the entrepreneurship ecosystem, it is not all doom and gloom and we are excited about a number of growth sectors.

We are having a number of discussions with multinational technology businesses that want to develop a presence in Africa. US and European investors are excited by the scale of the African fintech story. Sizeable venture capital investments over the last 12 months are proof of this excitement.

On top of this, there are some obvious success stories from the likes of the Chinese automakers, which have come into Africa offering high-quality, lower-cost motor vehicle options and downstream opportunities for local businesses. Other success stories include agriculture, wine and the aforementioned berry exports.

Increased economic activity amounting to $450bn represents a very real opportunity for entrepreneurs in Africa, and if we can focus on creating an enabling environment for them, jobs and economic prosperity will follow.

• Tshabalala is head of FI, sales & risk distribution: trade product, and Pillay head of sales, Southern Africa trade & working capital product, both at Absa CIB.