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With 190 million people, Nigeria most likely to give birth to unicorns




Africa’s most populous country is the biggest startup market most likely to give birth to unicorns. But capital and infrastructure to help these startups scale remain elusive.

The year 2018 was momentous for, a two-year-old startup helping solve the problem of congestion in Nigeria’s capital city.

Its solution? Encouraging residents to leave their cars at home and book its luxury buses for their daily commute to work.

Founded by Olusegun Oludayo, the startup was recently the winner of the N5 million ($13,700) Seyi Tinubu Empowerment Project (STEP) initiative, a pitching competition held annually in Lagos to identify leading tech entrepreneurs.

This program, along with many other venture capital (VC)initiatives, has sprung up in Africa’s largest economy in the last decade to help boost the startup ecosystem in Nigeria.

According to a 2017 report by Global Startup Ecosystem Report and Ranking 2017, produced by Startup Genome in collaboration with the Global Entrepreneurship Network (GEN), the Lagos startup ecosystem is estimated to be worth $2 billion. It has one of the highest rates of founders who have an undergraduate degree (59%) and those that have a technical background (93%).

However, when it comes to global penetration of these startups, there seem to be some significant challenges with only 11% of startups planning to take their business beyond the shores of Nigeria.

“We have a proliferation of similar ideas all trying to get funding from dwindling sources and those with funding just go around that circle of pitching, pitching, pitching. They don’t scale, so you find they remain startups for many years,” says Emilia Asim-Ita, CEO, AML Practice, a content, talent and resource advisory firm.

According to the Nigerian Communications Commission (NCC), Nigeria’s internet users this year reached a whopping 98 million. This, combined with the enthusiastic entrepreneurial energy of Lagos, has led to over 700 active startups in the country. As the business models of these startups become more innovative, there has also been an increase in the number of companies receiving big checks from top Silicon Valley VC’s in recent years.

For example, the significant funding rounds of Andela ($40million), Terragon Group ($5 million), Cars45 ($5 million), Rensource ($3.5million), Flutterwave ($10 million), Paystack ($1.3 million) has demonstrated that there is definitely a lot of potential in the Nigerian ecosystem but these are just a few success stories and are atypical to the entire ecosystem.

“The startup ecosystem in Nigeria is stagnating. It is difficult to give you empirical evidence but you will find that an industry or sector that is not growing and has not disrupted any new industries in a while and you haven’t seen significance in the growth and sustainability of even some of its biggest ideas cannot be growing, that is why I would say that it is stagnant,” says Asim-Ita.

This stagnation is as a result of the challenges facing the Nigerian startup ecosystem. Firstly, there is inadequate infrastructure.

“We are seeing the tech ecosystem go through some significant changes. The first big tech companies like iROKOtv, Jobberman and Paga were able to move from startups to become really serious companies and they have showed us that Nigeria has what it takes to build sustainable and profitable companies. We just need the right infrastructure to support our startups,” says Seyi Tinubu, founder and CEO of Loatsad Promomedia, a digital advertising company in Lagos.

Tinubu is also an investor and founder of STEP, a corporate social responsibility (CSR) initiative designed to empower tech entrepreneurs in Lagos with seed funding and mentorship.

“When you go outside the main cities, you will find there is a lack of access to internet and fluctuating power supply which has a long-term impact on the growth of tech companies leading to companies outsourcing development solutions to countries like India,” says Tinubu.

This invariably results in the inefficient use of financial resources and the eroding of a robust funnel of talent that the ecosystem needs, a problem organizations like Andela and the Tony Elumelu Foundation are trying to address.

“Startups need capital to operate. In Nigeria, many tech startups are known to solve local niche problems and try to create a long-term business out it but most of these businesses are often un-validated concepts which makes them difficult to secure investment in,” says Wande Adams, a business development executive at Enov8 Solutions, a tech company with a focus on all sectors.

The company aims to provide topnotch innovative solutions to identified gaps across various sectors. It recently secured a $250,000 funding from SPHINX Capital. Among the company’s many innovative solutions is a crowd-funding platform called SeekFunds designed to fund/raise money towards business, projects, charities, medical and educational assistance.

But the main challenge for most startups is still how to secure larger capital raising rounds to gain significant market share.

“Nigeria has attracted about a third of all startup funds available on the continent and we are still far away from having our own unicorns,” says Uzoma Dozie, CEO of Diamond Bank.

A unicorn is a term for a tech company valued at $1 billion or more. For this, the firm requires massive capital injections to achieve its potential, usually in tens of millions.

“When a startup has proven a concept and is seen as a viable business, it must protect itself from copycats and scale to other markets very quickly and this is a very a pricey process,” adds Gordon Adomdza, a Professor with Ashesi University in Ghana.

Most VCs get a buzz when they can find a handful of companies with the potential to be unicorns and they invest in all of them with probably most of them failing except one whose success returns all the capital invested.

In February 2018, Zinox acquired leading Nigerian e-commerce player Konga in a move that is widely believed to have been a significant down round.

Unicorns, down rounds and utter company failures are an inherent part of the world of venture capital. Nigeria, with its 190 million population, remains the biggest market and the one most likely to give birth to unicorns. For this to happen, it requires huge capital investment to help these startups scale, something that seems unlikely to happen in this current climate.

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Why The High Number Of Employees Quitting Reveals A Strong Job Market





While recession fears may be looming in the minds of some, new data from the Bureau of Labor Statistics shows that the economy and job market may actually be strengthening.

The quits rate—or the percentage of all employees who quit during a given month—rose to 2.4% in July, according to the BLS’s Jobs Openings and Labor Turnover report, released Tuesday. That translates to 3.6 million people who voluntarily left their jobs in July.

This is the highest the quits rate has been since April 2001, just five months after the Labor Department began tracking it. According to Nick Bunker, an economist at the Indeed Hiring Lab, the quits rate tends to be a reflection of the state of the economy.

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“The level of the quits rate really is a sign of how strong the labor market is,” he says. “If you look at the quits rate over time, it really drops quite a bit when the labor market gets weak. During the recession it was quite low, and now it’s picked up.”

The monthly jobs report, released last week, revealed that the economy gained 130,000 jobs in August, which is 20,000 less than expected, and just a few weeks earlier, the BLS issued a correction stating that it had overestimated by 501,000 how many jobs had been added to the market in 2018 and the first quarter of 2019. Yet despite all that, employees still seem to have confidence in the job market.Today In: Leadership

The quits level, according to the BLS, increased in the private sector by 127,000 for July but was little changed in government. Healthcare and social assistance saw an uptick in departures to the tune of 54,000 workers, while the federal government saw a rise of 3,000.

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The July quits rate in construction was 2.4%, while the number in trade, professional and business services, and leisure and hospitality were 2.6%, 3.1% and 4.8%, respectively. Bunker of Indeed says that the industries that tend to see the highest rate of departuresare those where pay is relatively low, such as leisure and hospitality. An unknown is whether employees are quitting these jobs to go to a new industry or whether they’re leaving for another job in the same industry. Either could be the case, says Bunker.

In a recently published article on the industries seeing the most worker departures, Bunker attributes the uptick to two factors—the strong labor market and faster wage growth in the industries concerned: “A stronger labor market means employers must fill more openings from the ranks of the already employed, who have to quit their jobs, instead of hiring jobless workers. Similarly, faster wage growth in an industry signals workers that opportunities abound and they might get higher pay by taking a new job.”

Even so, recession fears still dominate headlines. According to Bunker, the data shows that when a recession hits, employers pull back on hiring and workers don’t have the opportunity to find new jobs. Thus, workers feel less confident and are less likely to quit.

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“As the labor market gets stronger, there’s more opportunities for workers who already have jobs. So they quit to go to new jobs or they quit in the hopes of getting new jobs again,” Bunker says. He also notes that recession fears may have little to do with the job market, instead stemming from what is happening in the financial markets, international relations or Washington, D.C.

So what does the BLS report say about the job market? “Taking this report as a whole, it’s indicating that the labor market is still quite strong, but then we lost momentum,” Bunker says. While workers are quitting their jobs, he says that employers are pulling back on the pace at which they’re adding jobs. “While things are quite good right now and workers are taking advantage of that,” he notes, “those opportunities moving forward might be fewer and fewer if the trend keeps up.”

-Samantha Todd; Forbes

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Current Affairs

Roadmap For African Startups



Francois Bonnici, Head of the Schwab Foundation for Social Entrepreneurship, explains how African impact entrepreneurs will continue to rise.

Does impact investment favor expats over African entrepreneurs? If so, how can it be fixed?

There is a growing recognition all over the world that investment is not a fully objective process, and is biased by the homogeneity of investors, networks and distant locations.

A Village Capital Report cited that 90% of investment in digital financial services and financial inclusion in East Africa in 2015-2016 went to a small group of expatriate-founded businesses, with 80% of disclosed funds emanating from foreign investors.

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In a similar trend recognized in the US over the last decade, reports that only 3% of startup capital went to minority and women entrepreneurs has triggered the rise of new funds focused on gender and minority-lensed investing.

There has been an explosion of African startups all over the continent, and investors are missing out by looking for the same business models that work in Silicon Valley being run by people who can speak and act like them.

In South Africa, empowerment funds and alternative debt fund structures are dedicated to investing in African businesses, but local capital in other African countries may not also be labelled or considered impact investing, but they do still invest in job creation and provision of vital services.

There is still, however, a several billion-dollar financing gap of risk capital in particular, which local capital needs to play a significant part in filling. And of course, African impact entrepreneurs will continue to rise and engage investors convincingly of the growing and unique opportunities on the continent.

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What are the most exciting areas for impact investing and social entrepreneurship today?

After several decades of emergence, the most exciting areas are the explosion of new products, vehicles and structures along with the mainstreaming of impact investment into traditional entities like banks, asset managers and pension funds who are using the impact lens and, more importantly, starting to measure the impact.

At the same time, we’re seeing an emergence of partnership models, policies and an ecosystem of support for the work of social entrepreneurs, who’ve been operating with insufficient capital and blockages in regulation for decades.

Francois Bonnici, Head of the Schwab Foundation for Social Entrepreneurship. Picture: Supplied

The 2019 OECD report on Social Impact Investment  mapped the presence of 590 social impact investment policies in 45 countries over the last decade, but also raises the concern of the risk of ‘impact washing’ without clear definitions, data and impact measurement practices. 

In Africa, we are also seeing National Advisory Boards for Impact Investing emerge in South Africa and social economy policies white papers being developed; all good news for social entrepreneurs.

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What role does technology play in enabling impact investing and social entrepreneurship?

The role of technologies from the mobile phone to cloud services, blockchain, and artificial intelligence is vast in their application to enhancing social impact, improving the efficiency, transparency and trust as we leapfrog old infrastructures and create digital systems that people in underserved communities can now access and control.

From Sproxil (addressing pirated medicines and goods), to Zipline (drones delivering life-saving donor blood to remote areas of Rwanda) to Silulo Ulutho Technologies (digitally empowering women and youth), exciting new ways of addressing inclusion, education and health are possible, and applications are being used in many other areas such as land rights, financial literacy etc.

While we have seen a great mobile penetration, much of Africa still suffers from high data costs, and insufficient investment in education and capacity to lead in areas of the fourth industrial revolution, with the risk that these technologies could negatively impact communities and further drive inequality.

READ MORE | Why Now Is The Time To Invest In African E-commerce

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Towards One Africa




In the alphabet soup of regional African trade blocs, will the AfCFTA ease the cost of doing business on the continent?

Ghana has been named the host of the African Continental Free Trade Area (AfCFTA) following four years of talks to form a 55-nation trade bloc. It will be the base for the AfCTA secretariat.

The opportunities for Africa with this new trade bloc are immense. The Economist Intelligence Unit estimates that the AfCFTA will create the world’s largest continental free-trade area, provided all 55 African Union (AU) members join, and has the potential to create an African single market of 1.2 billion consumers whilst eliminating about 90% of tariffs on goods over the next five years.

So far, 44 African countries have signed up for the historic agreement, the world’s largest free trade area since the formation of the World Trade Organization.

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The AfCFTA is expected to boost the economies of African countries through employment creation and the promotion of made-in-Africa goods. But Kayode Akindele, a partner at TIA Capital, a pan-African investment partnership focussed on credit-based investing across sub-Saharan Africa, is not opening up the bubbly just yet.

“We already have ECOWAS [Economic Community of West African States] which doesn’t seem to be working and so why don’t we sort that out first before we enter a continental trade agreement for Africa?”

And he is not alone in his concerns.

“There are other factors we need to also consider. Firstly, with the implementation of the AfCFTA, goods made in other continents could be disguised as made-in-Africa to qualify for duty free treatment. There could also be a reduction in government revenue and also this trade bloc also threatens the profitability and survival of infant industries,” says Vincent Acheampong, an economist based in the United Kingdom.

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Of the regional blocs in Africa, including EAC (East African Community) and SADC (Southern African Development Community), the ECOWAS has some way to go in terms of performance, according to Muda Yusuf, the Director General of the Lagos Chamber of Commerce and Industry, in an interview with CNBC Africa. But he believes there is still reason to be optimistic.

“A continental trading bloc is going to build on the success of the regional blocs like ECOWAS and other blocs across Africa. So, this integration is going to build on those blocs. In terms of performance, of course ECOWAS is the least performing because East Africa is doing very well and South Africa is doing far better also. But there is no perfect time for things like this, what is important is for us to get a conviction that economic integration will work for us and also if we can get our institutions to make it work,” says Yusuf.

Amongst the many challenges of the ECOWAS is its failure to implement its vision of a single currency, the ECO, which is part of its plans to make Africa a more integrated continent. That vision has been postponed several times by the 15-member group with the newest target date set for 2020 although most experts believe the date to be unrealistic.

The success of the AfCFTA requires not only a trade policy but also a manufacturing agenda, competition, industrial policies and property rights to work well according to Vera Songwe, the Executive Secretary of the UN Economic Commission for Africa, in a statement at the launch event that took place in Niamey, Niger.

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The ninth edition of the flagship Assessing Regional Integration in Africa report (ARIA IX) stipulates that AfCFTA’s success will be due to its ability to actually change lives, reduce poverty and contribute to economic development in Africa.

In support of the new trade bloc, Ghanaian President Nana Akufo-Addo pledged to donate $10 million to the AU to support the operationalization of the secretariat of the AfCFTA.

Although the AfCFTA will be economically transformative for Africa in the long-term, the immediate benefits will be restricted due to the macro-economic uncertainties of regional trade.

“Most African countries are currently not producing the goods and services that their neighbors import, as a result we do not trade a lot with each other. It is easier for an African country to trade with a country in Europe than a country that lies right next to it and these low levels of intra-African trade need to be addressed before we can reap the full benefits of the AfCFTA,” says Acheampong.

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