Editor’s Note: This piece was contributed by Eve Pearce

There has rarely been a better time to start a new business within Africa. With a few exceptions, the economies of Africa’s major nations are on the up. Despite a recent slowdown in the continent’s general economic rise, the future looks rosy. Little wonder that brand new business people are seizing the chance to let their entrepreneurial spirit take the reigns. However, it’s not all smooth sailing. There are still lots of challenges to overcome if your fledgling business is going to make it in the African economy.

Financing

You have to have money in order to make money, as the saying goes. Unfortunately, it’s true. While you can build yourself up from scratch, it helps if at some point during that process you’re able to save up enough money to get yourself to the next level. Hand-to-mouth operations simply don’t progress. Finding the funds to set up or advance a business is a major headache for plenty of African entrepreneurs. Having been in the economic doldrums for some time, many African nations simply don’t have the resources (yet) to offer the kind of monetary grants and fiscal incentives which other nations can throw at new businesses. A lack of funds for new ventures is, therefore, something of a challenge. However, it’s not an insurmountable one. There are funds out there for those who have the time, guts, and tenacity to hunt them down. And, as our economic climb continues, it’s likely that more grants etc will be made available. In the meantime, however, a lack of basic funds throws up all kinds of challenges for new African businesses – particularly when combined with other problems which first-time ventures may encounter. Anything is surmountable with enough money. Unfortunately, enough money is precisely what a lot of new African entrepreneurs do not have.

Risk

Somewhat related to a lack of funds is the presence of great risk for new African ventures. Without a financial cushion or other such provisions to bolster your business, the prospect of financial ruin in the face of trials looms large. Businesses which have the resources to stand firm during the inevitable hard times are at a considerable advantage. Unfortunately, many African start-ups do not have the resources to put funds aside, and may lack the know-how required for effective crisis-management.

Added to this is the fact that insurance is either expensive or unavailable for many new African businesses – and that many African entrepreneurs do not trust either banks or insurance companies. While there may be good reason for this, it does leave them high and dry when disaster strikes. Sure, taking the risk and striking out without a strategy or resources set aside for hard times can pay great dividends. But it can also destroy your business. When the stakes are this high, it’s well worth putting a risk-management strategy in place. Apart from anything else, doing so will reassure potential customers  and investors that you and your business are a safe pair of hands with which to trade.

Infrastructure

Companies starting up in the extensively developed Europe and Americas are generally able to plug themselves with ease into a network of well-established infrastructures. The work of providing communications links, transport connections, energy, and other such vital resources is largely already done for them. Not so in many parts of Africa. The untrammelled, unbeaten, undeveloped nature of the African continent is one of its greatest strengths – but it does present challenges for the fledgling business.

Unless you’re setting up in a major city (or running the kind of business which doesn’t need a lot of infrastructure to operate) then it’s likely you’ll need to splash the cash on a private generator for power, and go to great lengths to transport products, staff, and resources – all of which puts running costs up considerably. Not to mention the immediate issues with sporadic internet access and negligible communications facilities in an age which is seeing businesses rely heavily upon the internet. Again, the infrastructures of many African nations are developing fast, allowing more and more startups access to the communications and resources that they need. However, in the meantime, those without the funds to provide their own infrastructure frequently find themselves struggling.

Accenture released its latest report on fintech, noting that “More than $50 billion has been invested in almost 2,500 companies since 2010”

Venture capitalists, private equity firms, corporates and a number of other players have poured an unprecedented amount of money into global financial technology (fintech) start-ups. More than $50 billion has been invested in almost 2,500 companies since 2010 as these innovators redefine the way in which we store, save, borrow, invest, move, spend and protect money.

This report analyses the latest global fintech trends, discusses the challenges and opportunities that fintech companies pose for banks, and looks at how the Google, Apple, Facebook, Amazon and Alibaba (GAFAA) are redefining the landscape and the pervasiveness of technology platforms.

Nigeria is one of the powerhouses of Africa, with a strong international profile. Ask any Westerner to name an African nation, and you can be sure that Nigeria will be one of (if not the) first to be mentioned. As a consequence, Nigeria has attracted a lot of welcome foreign investment over the last few years, which has caused something of an economic boom. Nigerian business has benefited greatly from this – despite political problems. However, recent developments may indicate that advance has come rather too fast, and the speed at which the economy has grown has left little time in which to shore up and protect the nation’s economic status. The plummeting prices of oil and a burgeoning instability with local currency the Naira is leading many Nigerian commentators to wonder if our economic boom was a metaphorical house of sand, about to crumble on its unsteady foundations.

The Oil Effect

The oil industry has always been one of boom and bust – but the downturn currently afflicting the industry is the worst for almost thirty years. A combination of factors has led to a slide in prices which is proving catastrophic for many related interests all over the world. With its enormous profits and many controlling interests, the oil industry is one of few which can alter the economic state of the entire world, and Nigeria in particular is currently feeling its effects. Nigerian and Saudi oil, once sold almost exclusively to the United States, is now branching out into other markets – and the action of market forces has thus caused competitors to drop prices in order to seem more appealing. This benefits motorists and those who routinely buy oil, but hits oil producing countries which may rely upon oil to underpin their economies hard. Many believe that oil prices will naturally recover as production slows – but others fear that this recovery will come too late for many Nigerians.

Slide Of The Naira

Understanding the serious impact the declining oil prices could have upon the Nigerian economy, the Central Bank Of Nigeria have issued a series of regulations designed to protect the Naira and reduce the potentially destabilising impact of foreign currency upon Nigeria’s own finances. They have also devalued the Naira to bring it in line with the international and internal economic situation, and to prevent such harmful economic phenomena as hyperinflation. Unfortunately, this has not translated well onto the streets – where the practical value of the Naira is higher than the banked value of it, leading a lot of people to make rather a lot of money in a very short space of time. What the CBN is trying to do may be admirable – to bolster and insure the currency against the vagaries of the market – but in reality a more advanced economic infrastructure is required if the currency is to withstand the storms of international finance. Just like a business without insurance, the currency is very vulnerable to financial shocks and buffets. The Nigerian currency needs to be able to stand on its own two feet – which will take a good deal more controlled and progressive economic development.

Economic Diversification

If the Naira is ever going to become a world-beating currency, able to compete against the dollar, the pound, and the yen, it will need to be able to test itself in the international market. Without foreign interchange of currency, the Naira will be unable to strengthen itself and flex its muscles in the currents of international finance. While CBN intervention has occurred for the best reasons, the economic reality is that the Naira is already vulnerable to the vagaries of the international market (as the disparity between its banked and street value demonstrates). Surely it is better to give the Naira its head and let it fight its own battles rather than to coddle it within the ‘safe’ environs of Nigeria? The CBN is scared that Nigerians will turn to other currencies if the Naira is allowed to fall against the dollar and its compatriots – but this is precisely what will happen should the Naira become a ‘toy’ currency used only by Nigerian dignitaries and nobody else. Oil prices will recover, and when they do so Nigeria must take pains to set up a strong, solid economic infrastructure which will allow the Naira to float freely upon the international economic markets.

This was contributed by Eve Noble for Tekedia.