Growing the seeds of innovation
Mbongeni Mguni | Thursday May 4, 2023 10:00
As the world gathered in Gaborone for the Forbes Under 30 Summit this week, much of the formal and informal conversations were around how to boost the country’s entrepreneurial prowess, one of the elusive ingredients needed for broad, citizen-based economic upliftment.
As the city was agog with young entrepreneurs from all over the world, mingling with their local peers and exchanging ideas and contacts, one of the recurring themes was how to best support innovation, one of the elusive ingredients for the entrepreneurial prowess.
Chris Maurice, a 26-year old New Orleans, USA native, describes himself on his LinkedIn profile as an entrepreneur, writer and angel investor, the latter term meaning individuals who use their private wealth to finance businesses or start-ups.
Maurice is the co-founder and CEO of Yellow Card, Africa’s largest crypto-currency exchange, active in 16 countries. Yellow Card also holds the record for the highest funding round for an African crypto entity.
As an exchange, Yellow Card allows clients to directly buy, sell, and store bitcoin and other virtual assets. The group received its first regulatory licence ever on the continent last October when the Non-Bank Financial Institutions Regulatory Authority (NBFIRA) gave the authorisation, the first under the new Virtual Assets Act.
With his experience across the continent, his travails setting up the cryptocurrency, including nearly dying of malaria last year, Maurice is well placed to share insights on entrepreneurial prowess and innovation.
“We operate in 16 African countries and the biggest challenge that we have had is just navigating the differences between countries,” he explains. “Regulation will always lag behind innovation because regulators are not the ones doing the innovation. “The regulators are not the ones inventing the Internet, so they will always lag behind. “We’ve had a lot of success here in Botswana, working with NBFIRA, getting the licence and putting together that regime, but as we work with regulators and go across the continent it’s not the same.”
According to Maurice, regulation and its inconsistency across the continent, has been one of the key challenges the exchange has faced in spreading out. The entrepreneur’s experience is that while regulators’ roles include protecting consumers, preventing money laundering and terrorism and also promoting innovation, the latter role is usually forgotten.
“It’s part of a regulator’s job to make sure there’s innovation in a country, to make sure that the economy can continue to grow. “If there’s no innovation in an economy, the economy stagnates and dies. “Promoting and encouraging that innovation is extremely important and it needs to be considered equally. “It should not be about protecting people from themselves at the expense of any innovation. “Imagine if people had banned the internet; there’s a lot of bad things on the Internet, but there’s a lot of good that it has done for the world and every country. “Regulators should remember those three roles and keep all those three equal.” NBFIRA’s licensing of Yellow Card last October was a rare moment of boldness from a regulatory body in the country. Traditionally, the country’s regulators, particularly in the financial services sector, have kept a conservative approach to innovation, with the introduction of any new enterprise foreshadowed by benchmarking, consultancies and different types of extensive analyses.
The licensing also met with mixed reactions from Batswana, with some hailing the move as being necessary to protect crypto-enthusiasts, while critics felt the licence was a token as the NBFIRA lacks the capacity to pursue all the unsavoury crypto players located outside the country but offering their products to Batswana. Crypto cynics have even said the licence gives the high risk sector a veneer of legitimacy, which scammers can use to redouble their “efforts”.
For Maurice, however, the journey to licensing has been about working with regulators to produce a workable environment.
“No regulation is ever going to be perfect but it’s about always moving towards getting better,” he says. “The most important thing is that NBFIRA and the Bank of Botswana have been receptive to that feedback and when we say, ‘look this is overbearing and really not something that we are able to do,’ they are a lot more willing to listen and adapt to that feedback than other countries and regulators. “We’ve had to change some of our systems specifically for Botswana. “For instance, there’s a 20-year retention law for anti-money laundering in Botswana where we have to hold information for 20 years when we do the Know Your Customer. “The global average is five years and so we had to change that to make sure that for any customer, that data is not being deleted after five years.
Besides regulation, successfully and sustainably tapping into the country’s entrepreneurial potential will require a laundry list of other factors. Janade du Plessis, the fund manager for Launch Africa, a venture capital firm, has experience investing in, and handholding tech start-ups in 22 African countries.
Launch Africa recently closed a $36.3 million fund that invested in 133 companies. A venture capital raising round is being finalised with a target of launching a $75 million fund by July. Du Plessis is targeting 80 to 100 companies across the continent, but particularly in frontier markets, or the “off-the-beaten” track outside the Big Five which are Nigeria, Egypt, Kenya, South Africa, and Ghana.
Data is a major hurdle, the fund manager says, although costs and availability have improved over the years.
“In developed markets there are data sources wherever you look, but often we have to make decisions without access to data and when data is available, it’s often very pricey,” he says. “As an example, Pitchbook, which is a sort of the global reference guide for start-ups where we can see who’s building what, the valuations and the trends, costs $50,000 per annum subscription. “As an African who can afford that even if you are an established fund like us? “Then there’s the cost of actual data. “The data has come down but what we’re finding is that it’s still very high. “Just about five or six years ago, a gig of data would be 20 to 25 dollars and now it’s down to five dollars. “The US founders probably pay 10 cents and the difference between five dollars and ten cents is massive difference which allows those US founders, just on that, to have much better access. “Our founders are having to build while still paying so much higher prices for data than their global peers and that makes it hard if you want to build any sort of tech platform.”
Du Plessis also believes that rather than constantly celebrating the fact that Africa has the youngest population on Earth, more attention should be paid to what this actually means for innovation and entrepreneurial development. With youth unemployment rates hovering above 50% for many parts of the continent, du Plessis says many youngsters sit on the sidelines until they simply become unemployable by start-ups.
“The war on talent is not only for start-ups, but also for corporates and we are seeing that a start-up will find a good talent, train them and then the corporate hires them. “So the start-ups are in the cycle of constantly having to train unskilled people, but not for the long term and that is quite a challenge for early stage companies.”
The opportunity for local and African entrepreneurs, however, lies in the fact that the continent’s general level of development still provides fertile soil for the entry of many innovative solutions. In fact, Launch Africa has found that African tech founders are solving their real world problems, while their peers in the developed world are generally “just adding features to existing innovations”.
This means that innovators in Africa are able to scale their ideas quickly, an ability helped by the integration of markets, legal systems and even the use of global lingua franca across the continent’s regions.
“Our star portfolio is Go Zem in Togo and Benin and they are a superapp like an Uber and Uber Eats equivalent. “Just two small countries but that company has now returned 30-plus returns in money and the reason is obviously it’s the first in the market solving real world problems. “At the same time, it has access to 14 other Francophone countries, same currency, same central bank, same laws, currency pegged to the euro and access to 440 million people that are in Francophone Africa. “You can’t necessarily do the same in Europe because you have so many countries and every one of them, although under the EU, still has their local laws and language differences.”
Local innovators and entrepreneurs however do continue to face numerous hurdles getting their ideas up and running sustainably. Du Plessis acknowledges that the further south one travels in Africa, well-established monopolies in key sectors such as financial services, telcos and others, as well as the relative maturity of these markets, presents major challenges to innovators and entrepreneurs. In addition, Southern African governments tend to crowd out private enterprise either directly through parastatals or by so tightly regulating certain sectors and imposing tariffs, that kill innovation.
However, local innovators and entrepreneurs have the support of an ecosystem that includes parastatals focussed on providing research data, funding and relaxed licensing for entrepreneurs. Du Plessis says government can also tweak its approach to start-ups.
“I think what the government here needs to do is almost create a sandbox which is very popular, where you create the right environment for companies to come and use data and test concepts and products with a set number of consumers. “They can test the ideas for various sectors. “But again, you need government support on that.”