Imagine putting your six-year-old child in a car and telling it to take her to school by a push of a button. It is the future and may be coming sooner than you think.
$87 billion. That’s how much the driverless car market is estimated to be worth by 2030, according to Lux Research, a research and advisory company that specializes in technology and innovation.
It will create the new wave of billionaires and profitable businesses. Worldwide, the race has already begun.
Among the players is General Motors, which invested $1 billion in a self-driving car start-up in 2016; Baidu, a Chinese internet company which launched a $1.5-billion fund dedicated to autonomous-car development; there was a $680-million Uber deal to buy Otto, an autonomous trucking company; and $15 billion was spent by Intel deal to buy Israel’s Mobileye, which makes self-driving sensors and software.
“I am very excited about the era of autonomous cars which will bring down accidents significantly, given that about a third of crashes on US highways, for instance, is due to driver distraction… The car of the future is electrified, autonomous, shared, connected and yearly updated,” says Toby Shapshak, Editor-in-chief at Stuff magazine.
The big question is: how soon are they coming and how will they work?
According to Wayne McCurrie, a Senior Portfolio Manager at Ashburton Investments, autonomous cars are on their way but not quite as people think. He says you will not sit or sleep in the car and be ferried to your destination.
“The driver will still ultimately be in control but not actually drive the car. You will almost be monitoring the system much like an aircraft pilot when the plane is on autopilot,” says McCurrie.
Transportation writer Paris Marx agrees. He says vehicles will have semi-autonomous features, meaning they’ll be able to drive themselves in some limited situations.
Lux Research’s report, Set Autopilot for Profits: Capitalizing on the $87 Billion Self-driving Car Opportunity, also found vehicles with features such as adaptive cruise control, lane departure warning and collision avoidance braking, will account for 92% of autonomous vehicles in 2030 and no fully autonomous car will hit the market.
“Today the autonomous vehicle value chain is already starting to take root, and it involves many players new to the industry. Sensor hardware specialists, like Velodyne LiDAR, are developing products with unprecedented resolution; software and big-data powerhouses, like IBM and Google, are striking up partnerships; and even mapping and connectivity experts, like Nokia and Cisco, are throwing their hats into the ring,” says Cosmin Laslau, Director of Research Products at Lux Research.
According to Laslau, the move to autonomous vehicles will initially be led by the United States and Europe, but China will grow rapidly to claim a 35% share of the 120 million cars sold in 2030, accounting for revenues of $24 billion, against $21 billion for the US market and $20 billion for Europe.
As exciting as the prospects might be, there are many concerns.
There have been violent uproars in some parts of Africa, like South Africa and Kenya, with the introduction of Uber. One concern is driverless cars will fuel the mounting battles with the taxi industry, especially since companies like Uber, already in competition with taxis, are developing their own driverless cars.
“I hope they won’t bring these driverless buses and taxis because I may end up jobless. I am not qualified to do any other job and obviously people will prefer driverless cars because maybe computers are [smarter],” says taxi driver Mthokozisi Nkabinde.
Statistics South Africa, in its National Household Travel Survey, found taxis are the main source of transport for most households at 41.6%. According to the South African National Taxi Council, the taxi industry employs more than 600,000 people and transports about 15 million commuters per day.
“There are no jobs in this country and when they take away the only way we make money we will mobilize and fight with the government and make sure they fix it,” says Nkabinde.
Another question is how these cars will be brought into the market.
In South Africa, people are divided. In a recent study by accounting and consulting firm, Deloitte, half of consumers prefer tech companies while the rest choose traditional car manufactures. The study also found 47% of consumers want limited self-driving technology and 39% prefer fully self-driving cars.
“Tech companies tend to want to move toward a fleet model, where people wouldn’t own their own vehicles, but would use an app to request a vehicle on demand, similar to what Uber already offers; while traditional automotive companies think that people will still want to own their own self-driving cars and fleets will just be another option,” says Marx.
Overall acceptance of autonomous technology keeps growing.
“Those who settle for a reactive mindset, rather than preparing for the long term, will be at greater risk as consumer acceptance for autonomous technology further accelerates,” says Craig Giffi, Vice Chairman at Deloitte, in a press statement.
Many start-ups are working towards this future. One of them is Nuro, a company that has found a niche in self-driving vehicles designed to transform local commerce.
Former engineers from Google’s self-driving car project, Dave Ferguson and Jiajun Zhu, swapped the opportunity to make self-driving passenger cars for goods delivery services. In January, they raised $92 million to launch Nuro.
“We started Nuro to make products that will have a massive impact on the things we do every day. Our world-class software, hardware, and product teams have spent the past 18 months applying their expertise to deliver on this mission. The result is a self-driving vehicle designed to run your errands for you. It is poised to change the way that businesses interact with their local customers,” says Ferguson, in a statement made available to FORBES AFRICA.
Nuro’s new vehicle is designed specifically to move goods between and among businesses, neighbourhoods and homes. The fully autonomous vehicle is unmanned and about half the width of a passenger car.
“We aspire to lead a new wave of robotics applications that make life easier for everyone and give us more time to do things we love. We are living in extraordinary times where advancements in robotics, artificial intelligence and computer vision are making it possible to imagine products and services that could not have existed just 10 years ago,” says Zhu.
Similar to the Nuro vehicle, the future driverless cars will be furnished with cameras, radar and light detection, and ranging sensors to help them visualize and map their surroundings. All of this data will then be processed by an on-board computer using artificial intelligence to instruct the vehicle where and how to drive and whether it needs to react to any of its surroundings, such as a vehicle that hasn’t obeyed a stop light or a child running into the street.
There are challenges to the inception of driverless cars though.
Elon Musk’s Tesla, for example, is one of the few companies testing autonomous vehicles and its vehicle was involved in a fatal accident. An investigation by the National Transportation Safety Board in the US found that the feature installed in the car should have required the driver to have his hands on the steering wheel at all times and should have only worked in restricted areas. Tesla did not have these limitations in its software, so the driver used it for extended periods of time while not paying attention to the road. The vehicle eventually hit a truck and killed the man behind the Tesla’s wheel.
“Another challenge is that bad weather can obstruct or interfere with some of the sensors, which would then result in the vehicle’s computer having an incomplete picture of its surroundings, which could impair its ability to make the right driving decisions,” says Marx.
Urban areas might also be a problem. In the United States, according to Marx, there are only a few self-driving vehicle services open to the public, and they are exclusive to suburban areas with wide roads and not much traffic in southern states like Arizona and Florida, where the weather is nearly always clear and sunny. Those are the kinds of areas where self-driving cars will stay for a while.
Safety concerns also need to be resolved.
“[Driverless cars] have been observed running red lights, going the wrong way down one-way streets, and recent reports show that they have trouble detecting bicycles and putting cyclists at risk. Most companies working on self-driving cars are being cautious about testing the vehicles and putting them in situations where they could get in accidents, but there are some, like Tesla and Uber, that seem to be taking more risks. A lot of stories have been published about the accidents that Uber’s vehicles have gotten into, the times they’ve run red lights, and how they ignored bike lanes in San Francisco,” says Marx.
Marx adds that it’s unlikely that autonomous cars will become common in American or European cities in the next five years because many cities are placing restrictions on vehicle use to give priority to bicycles and to turn streets into public spaces.
“If they become common in any part of the African continent, it would likely be in wealthier suburbs or gated communities,” he says.
Driverless vehicles are presented as the solution to traffic congestion that cities all over the world are facing but, according to Marx, they’re unlikely to make a big difference.
“Simply moving people from regular cars to self-driving cars doesn’t reduce the amount of space being taken up by those vehicles, and it’s likely that if the cost of using those vehicles is low enough, more people will want to use them, increasing the number of kilometers that vehicles will travel in our cities, thus making congestion even worse,” he says.
The answer, according to Marx, is to invest in subway, streetcar and light rail system and to give buses their own lanes so they are not slowed down by traffic.
In Africa, McCurrie says certain areas could be quickly adapted to accommodate driverless cars but it will take 20 years for full autonomous cars to exist in developed countries, and longer in developing countries.
There will be consequences for the manufacturing industry. McCurrie says it could easily bring massive capital investment in infrastructure.
“The market will most likely accept some sort of premium for driver assist cars initially but eventually economics will have to rule,” says McCurrie.
In the short term, Marx suggests the biggest impact will be to goods transportation, where Nuro has seen an opportunity.
“This is already happening at mines in Australia and in the tar sands in Canada. There will likely also be more automation of transport trucks, at least for the segments of their routes on highways, in the next few years,” he says.
For many, the best outcome would be for driverless vehicles to connect suburban residents with a public transport hub and reduce the costs of public transportation.
“On services with fixed tracks, such as subways and trains, it shouldn’t be too difficult to automate drivers and reduce operating costs, which could potentially allow the transport agency to increase the level of service, meaning there would be a shorter wait time between trains. The same could be done with buses, especially if they’re given dedicated lanes where detecting other vehicles wouldn’t be an issue,” says Marx.
It seems we are a long way from sleeping while a car takes us to our destination.
Lifting The Heavy Veil On Wedding Costs
With pockets as deep as gold mines, how far are couples willing to go to have the picture-perfect luxe wedding?
The lagoons overlook the snow-white beaches with its swaying coconut trees, embraced by the turquoise waters of the sea in the island nation of Mauritius. It’s a scene straight out of a movie, with a couple cavorting in the distance.
Over 100 guests from South Africa have also gathered on these sands for the weekend wedding of businessman Lebo Gunguluza and his long-term girlfriend Lebo Mokoena.
The total cost of this union: almost $300,000.
“I didn’t mind exceeding the budget, because you only do this once,” says new bride Mokoena.
The couple flew over 30 guests and provided them with five-star accommodation at the LUX* Grand Gaube. Part of the guest contingency included the behind-the-scenes crew for the wedding, as well as the speakers who had to spend four to seven days in Mauritius to prep up.
“We did not want to have a local wedding because we wanted our guests and family to have a different experience. We also wanted our family members who did not have passports and have never flown out of the country to experience a different country,” Gunguluza says.
The weekend celebrations started on a Friday last September with a cocktail meet-and-greet party. Belly dancers who were dressed in floral red and yellow danced the evening away with guests, with a local band taking them to the all-white party on Saturday.
This was just a build-up to the romantic wedding reception with shades of blush, ivory, and gold which was to take place on Sunday at 4PM.
“Every time I think about that day, I want to do it again,” the new bride says.
The couple chose not to have bridesmaids and groomsmen and the guests were encouraged to dress in black and white.
“I didn’t have bridesmaids because it makes you choose between your friends. I felt that if you got an invite to our wedding, you were worthy enough. So, we wanted everyone to be bridesmaids and groomsmen. I think we made it intimate and everybody felt like they were VIPs,” says Mokoena.
Everything fit perfectly as the bride’s two white wedding dresses were designed by Antherline Couture.
For the ceremony, she wore a white ball gown with a diamanté top heavily embellished with beads; while the groom looked dapper in a white tuxedo jacket designed by Master Suit SA.
The color white was indeed conspicuous.
“I have always felt that white is pure and because I was signing my life away, I felt I needed to be pure, hence I said my husband needed to wear white as well,” she adds.
The lavish white wedding was organized by renowned wedding planner Precious Tumisho Thamaga who ditched her seven-year career in Public Relations & Marketing to become an event planner.
Thamaga organizes events and weddings for affluent clients such as the Gunguluzas.
“They are busy people and they don’t have time to do the administration and the back and forth of vetting in suppliers,” Thamaga says, as she takes over the pain of wedding planning.
While working in the corporate world, she had attended many weddings that she felt were put together in a way that created a disconnect between the guests and the wedding couple.
“So I saw an opportunity in the fact that there were not a lot of wedding planners that were black,” Thamaga says.
She decided to focus on corporate clients in order to turn her passion into a profitable business.
“A lot of people did not expect a black person to be professional and take the business seriously.
“It was not just a hobby or someone helping out a family. It was an actual business and I made sure that I got taken seriously from the onset,” Thamaga says.
In order for Precious Celebrations (the name of her company) to prosper, she had to have a business strategy in place.
“I made sure that I put a lot of time and effort and strategized properly what it was that I wanted to actually focus on, and find a niche [in]. I believed that would separate me from somebody that was already in the industry,” Thamaga says.
However, her job is not always alluring.
“When I started in the industry there weren’t so many wedding planners and now it is a different story and everyone thinks it is easy-peasy and it is glamorous,” she says.
Planning a luxurious wedding takes eight to 12 months and can cost anywhere between R300,000 ($20,813) to R4.5 million ($312,203).
The most expensive wedding Thamaga planned was for a public figure she cannot disclose the name of.
“It was a destination wedding and the experience from when the guests arrived to the wedding day was memorable. When they arrived, we had a cocktail party and we had activities like canoeing and on Sunday we had an all-white party. [This is] so that people don’t depart on Sunday and may leave on Monday.”
Only the affluent sign up.
“The smallest wedding that I have had to plan had 80 people and it cost R2 million ($138,000),” Thamaga says.
She has turned away some clients in the past because their budget was insufficient for the type of wedding they envisioned.
Thamaga organizes 26 weddings, on average, annually, from countries such as Mauritius, Zimbabwe, Swaziland, Botswana and now she plans on taking her bespoke company global.
One of the unique aspects of her business is that she has maintained a good relationship with the suppliers she has in each country, and has kept her expenses to a minimum.
“The wedding planning-event planning industry is quite lucrative if you do it right. I am not the type that would have too much inventory because I want to feel like the inventory belongs to me; that would limit my creativity,” she says.
“I make sure that I don’t have a lot of expenses, I have coordinators that I have worked with for years and they have full-time jobs.”
Thamaga’s greatest challenge so far was whether or not to outsource other wedding planners when her business was increasing.
“It can be a bit daunting to realize that your business is growing,” she says.
But she opted to remain boutique.
“I had to decide that it is not about the money. I am building an empire where I want a legacy and an ongoing relationship with my clients.”
She involves her clients every step of the way to bring their vision to an unforgettable reality, and believes that weddings are expensive because of the growing aspirations of the young.
“It is not just in South Africa, it is worldwide,” she says.
Despite the tangible costs of conducting these dream events, the wedding industry in South Africa is largely unregistered as it is a fluid market where services and costs are difficult to track and document accurately.
Africans, no doubt, spend millions per year on costs associated with marital ceremonies. This is the reality of the unregistered wedding industry. Despite the recession and slow economic growth, the wedding industry continues to attract many entrepreneurs to its lucrative opportunities.
As, people never stop getting married.
The Marriages and Divorces report released by Statistics South Africa last May shows an upward trend in civil marriages. Civil marriages increased by 0.6%, from 138,627 marriages registered in 2015 to 139,512 in 2016.
A wedding dress is an important part of a celebration and the bridal couture market continues to show growth.
Wise Guy Reports Database Global Wedding Dress Market Insights, forecast to 2025, states: “The wedding market demand grows continually, and the wedding garments market has notable increase every year. In this case, the competition is also very intense among companies. The involved companies should seize the opportunities to expand the gold mine.”
A previous client of Thamaga’s has spent R200,000 ($13,876) on two wedding dresses and this is nothing for Fred Elu Eboka, a Nigerian designer who dresses delegates as well as the rich and famous.
He moved to South Africa in 1992 at a time when African designs were not being celebrated globally.
Twenty years ago, Eboka sold wedding dresses for R15,000 ($1,041) a piece, and now sells for R250,000 ($17,344) a piece, depending on the design.
“A designer of my caliber in South Africa is undersold because there are people in the United States selling wedding gowns for $250 and I am here selling them for maybe $80, it just doesn’t make sense. It shows that our economy is really bad because a designer of my caliber should be operating on the same level as them, or very close,” Eboka says.
He is a luxury designer.
“When you think of luxury, it is not just the product, it is not just the textile – it is the whole experience from when you drive in, to when you sit down and have the designer talk to you and learn about your life. The whole artistic process contributes to the cost value of the gown.”
He says that the reason wedding gowns are expensive is because they are meant to be timeless pieces.
“Traditionally, wedding gowns are classical couture. It is not like the normal evening dress that you wear to look beautiful on one night. A wedding dress is like training for the Olympics. You train for them for the rest of your life,” he says.
Eboka also says when designing a wedding gown, you need to take time to know the client, family and their fancies in order to meet the clients’ need.
The material of the wedding gown is usually expensive because he sources the textiles from across the world, and he takes two to three months to create a gown, depending on the embellishments.
“My designs have a lot of artistry,” he says.
Eboka is a wealthy man but he still believes that the industry is not as lucrative as it could be.
“But we do well, without being arrogant about it… You have to be fully aware of the industry and have the intellectual capacity to understand the potential of the market,” he says.
Pictures are an important element of a wedding because they capture the moment for life.
International award-winning photographer Daniel West meets his clients in a restaurant so he can get to know them better and learn the history of their relationship.
“We, as photographers, need to click with each couple, it is actually vital because we are going to be in their space from the beginning to end.
“So, when we do not gel, we are going to find ourselves in an awkward situation on the day because we, as photographers, are also problem-solvers. We don’t just take pictures on the day,” West says.
His packages start from R18,000 ($1,248) to R60,000 ($4,163) and he says it is because the couple is paying for the quality of the work. His packages include waterproof genuine leather-bound photo albums that he says last a lifetime, as well as 500 images that are both edited and unedited. He also arranges the location for the photoshoots.
“It is more than about taking pictures on the day, anybody can take pictures but the work that I do has more of a boutique feel,” he says.
“You pay to have something like this on the table that will last you a lifetime,” West says.
He does not only take pictures on the day but the photoshoots can take up to three months.
“Each couple that I take pictures of has a different story and that is where I draw my inspiration.”
West says that it takes a while for the business to get to a point that is profitable because photographic equipment is expensive.
“In the beginning, it is unfortunately not lucrative because you have to look into getting the equipment that is up to standard, however, it took me about seven years where I could get to a point that I could make a business out of it,” West says.
His annual turnover before expenses is R800,000 ($55,502) and he has about 25 clients a year.
He believes that the industry is regarded as valuable in South Africa and it is growing because people are becoming more enlightened about the photography industry. And social media has become an important motivator driving this industry.
“It is vital to have a good photographer for your wedding, because you as a bride are not quite educated of what is out there and what is not [in terms of photography].”
A good photographer needs to have foresight.
“The quality and charisma of your photographer is really one of the most important things you pay for because if something were to go wrong on your wedding, like rain, what does your photographer do? Do they stand back or make a plan?” he says.
Other luxe services associated with weddings include limos and chauffeur services, and florists, live music bands and gourmet caterers flown from around the world. The more money you are willing to throw, the more sparkling the champagne, crystal and caviar on the beach
Why Science Matters So Much In The Era Of Fake News And Fallacies
Democracy and social progress die without science and fact-based knowledge. Science and facts are the foundational basis for rational and logical disputation and the possibility of reaching some truths.
Fake news, on the other hand, is a calculated assault on democratic freedoms.
The power of the notion of fake news and of its practitioners is demonstrated by how we have all quickly come to accept that there is a category of news called fake news. By doing so, we are running the real risk of being complicit in its legitimisation. My point is: if it’s fake then it’s not news. There is news, and then there is fake stuff, dodgy facts, distortions and lies.
So what’s the connection between science, knowledge and facts?
What makes good science
Science is one important means of producing knowledge and getting to what approximates the truth. Good science results from rigorous processes. Part of the rigour in science and knowledge creation is the peer review process, which is a means of ensuring not only the correctness of facts, but also transparency.
Science must generally also meet the test of replicability. These days data used in scientific experiments often also has to be preserved so it can be assessed or analysed if results are disputed. Ethical norms also govern scientific experiments to prevent harm.
Science is not the absolute truth. Scientific findings are the beginning, not the end, of the quest for truth. Empirical data used in science that can be verified forms a sound basis for robust discussion, debate and decision-making. Science brings a degree of rationality that creates a higher probability that the best interest of society or the public interest will be taken into account in, for example, decision-making.
Science, then, is the habit of exercising the mind to help think through especially difficult and complex phenomena.
This makes science important in the exercise of democracy. This isn’t possible without facts and information that enable – or aid – voters to make an informed choice in elections, for example, or help the making of sound policies that best promote the public interest. Science also enables discerning members of the public to make sense of their worlds and the world.
So-called fake news
Fake news, on other hand, is a set of at worst, manufactured or concocted facts that are a perversion of reality. It is the direct antithesis of science.
But fake news isn’t new. It’s as old as news itself and has a variety of aims, including propaganda and spin doctoring. It can be argued that the growth of spin doctoring in the 1990s is the precursor to the exponential growth of fakery. It has also been enabled by the decline of content that enriches public discourse in the context of commercialisation and concentration of media since the 1980s.
These developments led to a decline in the influence of public interest media or media that strikes the balance between commercial enterprise and the public good. And this has led to the reduction in the kind of news and media content that focuses on science.
Science journalism and investigative journalism, in particular, have seriously declined. This has meant that the ability to shine a light on the dark areas of lack of knowledge, superstition, and myths has seriously been diminished.
Specialist reporting is now confined to the content-rich ghettos of those who are highly educated or interested.
Another reason for the growth of fake news and its increasing influence is the loss of confidence in public institutions, including media institutions and the profession of journalism. Fakery has risen to fill the vacuum, driven by individuals and political organisations who position themselves as messiahs with instant solutions to multiple social crises. In their discourse knowledge institutions, science, facts, evidence, experts and reason or rationality are thrown out of the window as the sophistry of the elite.
The role of social media
Digital technologies and social media have made it much easier to produce and disseminate fake news. It is a paradox: unprecedented scientific advances and technologies are enabling us to transcend traditional constraints of distribution and literally place information at people’s fingertips. Yet these same technologies seem to facilitate more fake news and information that doesn’t necessarily advance the public good.
In addition, social media largely exists outside the professional norms of fact checking and the use of evidence to support assertions, arguments and positions taken in relation to social phenomena.
Fact checking and peer review are more important than ever because of the reality that false information now flows freely. This can be extremely harmful, particularly in public health campaigns.
The attraction of fake news is its apparent simplicity. It has a ring of truth around its claims, even when these are outlandish, and its ability to seem to resonate with what people think are their life-worlds or everyday life. Its ability to reinforce stereotypes, including prejudices, makes a bad situation even worse.
Science, facts and knowledge will save humanity
Science journalism and investigative journalism which seek to pursue the truth rather than just the reporting of events, are critically important in this age of fake news and fallacies.
It is not an exaggeration to say that the sustainability of the idea of humanity and the environment in the broadest sense of the word depends on science – or the respect for facts, evidence and experts.
Science that allows the public to have a nuanced understanding of life is important to building inclusive, open societies that enable public participation in decision making and progressive social agendas. Science disseminated in ways that are understood by the public and resonate with their life-worlds is important for building trust in reformed institutions and creating new forms of social cohesion in diverse societies.
–Tawana Kupe; Vice-Chancellor and Principal of the University, University of Pretoria
Entrepreneurship Funds In Africa: Distinguishing The Good From The Bad
Entrepreneurs have a pivotal role to play in Africa’s unemployment crisis. Today over a third of the continent’s young workforce (those aged 15-35) are unemployed. Another third are in vulnerable employment. By 2035, Africa will contribute more people to the workforce each year than the rest of the world combined. By 2050 it will be home to 1.25 billion people working aged.
To absorb these new entrants, Africa needs to create over 18 million new jobs each year. Governments need to put in place policies that drive economic growth and competitiveness. These in turn, will enable the growth of small and medium-sized enterprises (SMEs). This is important because they currently play a significant role in low-income countries, representing nearly 80% of jobs. They are also responsible for 90% of new ones created each year.
The challenge for countries is how to support the growth of SMEs. Various African governments have experimented with ways to help address the US$140 billion funding gap for startups and SMEs. For example, one approach has been to set up entrepreneurship funds.
Based on my experience of watching their performance over the past 18 years, I would issue some words of caution. Some entrepreneurship support models work better than others. And how they are set up – particularly the governance structures put in place to manage them – is key to their success, or failure.
Access to financing is consistently listed as the biggest obstacle to business for SME’s in African countries. They often face double digit interest rates from local banks. And venture capital penetration is still extremely low. Top end 2018 estimates put it at about $725 million for the whole continent.
To tackle the problem, African countries continue to start new entrepreneurship funds. In July 2017 Ghana launched the National Entrepreneurship and Innovation Plan. The aim is to provide integrated national support for start-ups and small businesses.
Almost a year later, Rwanda secured a $30 million loan from the African Development Bank for the establishment of the Rwandan Innovation Fund. This will focus on investments in tech-enabled SMEs.
As new funds are started, African countries must look to the successes and failures of both global and regional funds to replicate best practices and avoid common pitfalls. African governments should explore replicating models similar to Small Enterprise Assistance Funds and the USAID backed enterprise funds. Both include robust investment selection criteria for funds.
In doing so, African government-backed entrepreneurship funds would operate as fund-of-funds – where a fund invests in another private equity or venture fund rather than directly in businesses themselves – as do many development finance institutions globally such as the UK’s CDC or FMO of the Netherlands.
The what and the how
The fund of funds structure creates an arm’s length relationship between the government agency that houses the entrepreneurship fund and the businesses that eventually receive investment. In between, sits a professional fund manager that earns the majority of its income from making good investments, growing companies and exiting them after a period of five to seven years. In this way, there are natural disincentives for corruption and market-based selection criteria for the entrepreneurs who receive investment.
How the fund managers are selected also matters. To ensure true investment independence from the government, fund managers and board members must be chosen in a transparent and competitive process. And once selected, representatives of the government entrepreneurship fund agency can sit on the investment committee for oversight purposes but should respect the fund managers’ independent decision-making.
There are examples of funds being set up without the necessary independent, accountable fund managers. One is the YouWin program in Nigeria. Created in 2016, it was set up to help youth entrepreneurs grow businesses. But senior civil servants handed out awards to friends and relatives.
Government supported fund managers through the FoF model can also catalyse additional investment. By operating in markets and sectors often ignored by traditional private equity funds, Small Enterprise Assistance Funds and enterprise funds have mobilized additional capital for investment-starved companies. African government-backed entrepreneurship funds could do the same by participating in blended finance deals with development finance institutions, social-impact investment funds, local banks and other market players to back growing firms.
While not actively managing the funds’ portfolio investments, governments have a key role to play in guiding the funds priorities. Priorities may vary by country and given Africa’s growing rates of unemployment, funds should prioritise job creation by evaluating investment on key performance indicators. These would include the number of jobs created per dollar invested, indirect jobs created per dollar invested, and average salary of job. In addition to job creation, governments can direct funds to focus on specific sectors either in need of increased capital or high-growth areas in local economies.
Beyond establishing investment criteria, government-backed funds should prioritise rigorous measurement of investment results and long-term data tracking to inform future investment decisions. The UK British Bank regional growth fund found the cost per job created varied considerably by project from £4,000 to over £200,000. It concluded that a better allocation of funds could have led to thousands more jobs created for the same resources.
Data driven investments can not only lead to a better results, but further curtail issues around potential mismanagement of funds.
Tackling Africa’s job creation challenge requires innovative thinking and initiatives that support private sector-led growth. Looking to the model of Small Enterprise Assistance Funds and enterprise funds, African governments can spur local ecosystems and drive new private capital to regions today seen as unfriendly or too risky to outside investors.
Properly structured investments today could yield much larger dividends tomorrow.
-Aubrey Hruby; Senior Fellow, Africa Center, Georgetown University
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