SARAH DUSEK: Africa has a 30-year gap; women could close it in 10

The African economy has a 30-year global market gap. Female entrepreneurs could be the solution to the problem, but they need an injection of $100bn to accelerate socio-economic growth. Many African start-ups lack access to funding and this problem is even worse for African female founders, who — in addition to facing racial and gender-based bias and wealth disparities — must overcome huge barriers to funding via relatively limited knowledge and networks.

An analysis conducted by investment fund Enygma Ventures found that more than 1,000 businesses across the continent would need to produce $100m each in annual revenue, requiring an investment of about $100bn.

In 2021, TechCrunch reported that African start-ups achieved investments totalling $4bn. While this remains far off the needed mark, it does represent year-on-year growth for the continental ecosystem. But to place that in the global context, $134bn in venture capital was deployed in the US last year alone.

Africa’s start-up landscape may be 30 years behind that of international markets, but if the continent can stimulate the right investment in the right entrepreneurs it could close the gap in 10 years or less.

Africa is often regarded by bodies such as the World Economic Forum and the IMF as one of the world’s fastest-growing economies. The question remains: why isn’t more investment flowing into the continent to unlock its potential? There are many factors, but most African entrepreneurs are still at the beginning of their journey in being trusted with capital, and that, along with volatile markets and challenges relating to red tape and regulations, makes cautious investors look elsewhere. Changing this perception means proving that African entrepreneurs are a safe investment and can offer substantial returns.

Driving that change is a group of early adopters, such as Enygma Ventures and others, who are willing to take risks and invest in bold African ideas and entrepreneurs. The more a market can make great returns, the more people will want to invest in it. It is simple logic, and in Africa we’re starting to see that momentum building. Yet accelerating it depends on one key ingredient: women.

Not only do we need to see more investment into African markets, we also need to see that investment channelled into women-led businesses, which account for roughly 40% of all small businesses across the continent. This is supported by a wealth of research supporting why female founders are sound investments.

The Boston Consulting Group found that women-owned businesses offer higher returns — more than double per dollar invested — and tend to be more financially successful than those owned by men, despite limited support structures and resources. What’s more, they provide greater socio-economic benefits too. The UN has found that when women work they invest 90% of their income back into their families and communities, compared with 35% for men.

In addition, women are more likely to spend their earnings on educating their children and improving their living conditions, thereby helping bridge the poverty gap and creating a favourable climate for future female founders. Still, women receive significantly less funding than their male counterparts. In the US, only 2% of all venture capital goes to women-led businesses, while in Africa it’s less than 1%. This despite a report by McKinsey that found $12-trillion could be added to the global GDP simply by advancing women’s equality.

The crux is that if we do not increase our investment in women-led businesses in Africa and afford all genders and races a seat at the table, the continent will not be able to close the development gap. If entrepreneurs are the builders of new worlds it makes no sense that half the world’s population isn’t fairly represented or empowered to help move the world forward.

For this reason, the cornerstone of Enygma’s work is to empower women by levelling the playing field, to simultaneously help drive progressive change and deliver outstanding results. In doing so the investment firm spends much time equipping women entrepreneurs and teaching them how to build and scale their businesses.

We need to back highly capable and skilled women. They already exist, they already have businesses, and many of them now have the training and are investment ready. Their success — and that of the continent — now depends on the public and private bodies with the means to support them.

• Dusek is founder of investment fund Enygma Ventures.