Africa’s industry needs innovation to thrive

Innovation is the route to business, company, industry and national success story.
To realize this success, however, governments must create policies that encourage and support innovation at scale.
For Africa, the jury is still out on the role of governments in driving innovation.

From the developed to emerging to the underdeveloped economies, one thing that policymakers agree is that innovation drives industrial and therefore national progress. It creates opportunity for individuals and investors, grows businesses, and powers a nation’s development agenda. For these reasons, policymakers are advised to place emphasis on innovation.

Matt Banholzer, an economics researcher and author of How innovation can accelerate industry momentum report explains that while macroeconomics concept of development correctly looks at the economy as a whole, policymakers must not be naïve to think policies of the ‘whole’ will foster development of the individual and vice vasa.

The researcher is of the view that policymakers, that is, economic mandarins who run the affairs of government, should rely on input from the microeconomics sector of a company to make the macroeconomics policies of an industry and, therefore, the nation.

Innovation: Success stories in Africa

From South Africa, Kenya to Ghana and Nigeria entrepreneurs are rolling out innovative ideas to drive business in Africa. In Ghana, fintech Oze‘s platform is channeling credit, payment processing to thousands of small scale firms through partnerships with leading banks. This way, Oze is offering SMEs a hand up, and opportunity to thrive in a competitive market.

In neighbouring Nigeria, healthcare startup Healthtracka is ensuring that Nigerians do not need to make long queues in often crowded clinics for critical lab tests. Instead, the startup’s workers visit your home, pick samples, and deliver the results to you at a fraction of the cost, effectively revolutionizing healthcare–one of the biggest pain points for governments.

Kenya’s M-PESA is making airwaves globally, easing payments while accelerating cash transfers, including diaspora remittances. These three examples go to illustrate how African businesses are not just dreaming big but, actively embracing innovation to power a brighter future for economies.

One wonders the possibilities economies in Africa could gain if similar innovations were nurtured, and encouraged to scale at the speed of need, on the continent. To achieve this vision, however, governments must step in.

Whereas funding is one of the biggest hurdles that slows down innovation in Africa, other s challenges loom large. For instance, the question of data protection remains a moving target, often causing more fears than assurances for innovators.

Africa’s depth in skill remains a big question. Additionally, inconsistent strategies in enforcing intellectual property rights hamper progress. Last but not least, the continent is deeply fragmented in terms of markets, with cross border trade and applicability of innovation being just a mirage.

What is the place of innovation in Africa

Which begs the question, what is the place of innovation in Africa, a continent that is bursting at the seams due to abundance of resources. Are policymakers in governments keen on tapping the power of innovation to drive industry? How engaged are policymakers in championing innovation across industries? How do these leaders encourage companies to innovate?

“People often speak of industry momentum as if it were a force of nature independent of individual companies’ actions… Harnessing technology and creating new offerings or business models, companies can forge new markets and propel new consumption,” the researcher points out.

Published this year, the report details that; “the trajectory and pace of industry growth very much rely on the innovation efforts of a sector’s constituent businesses.” Analyses shows that about 80 per cent of a typical company’s growth comes from its core business.

This means that it is the ‘individual’ business that catalyzes the performance of the ‘whole’ company; likewise, it is the performance of a ‘single’ company that fuels growth of an ‘entire’ industry. Obviously, performing industries drive the success of national economies.

However, policymakers (and businesses/companies) often make the mistake of thinking that if there is high-momentum in a given industry, then individual businesses in that industry will automatically ride the high performance wave and enjoy growth; that may not be entirely true.

“Companies that rebalance their business portfolios toward high-momentum segments can boost those portfolios’ performance, and thus their chances of being among the winners,” the researcher details.

Innovation, understanding the S-Curve of growth

Granted, businesses and companies enjoy the fruits of a high performing industry, but it is only those that innovate that survive the inevitable development of the S-Curve. S-Curve refers to a product’s development lifespan. Normally, products and services enjoy a period of steep growth within which even the slightest of investment yields considerable returns, but that period eventually tapers off.

Laura LaBerge, a client capabilities director and co-author of the report describes the industry S-Curve stating, “a new market experiences a period of rapid growth until it becomes saturated, causing its growth to slow. In an industry made up of mature markets, growth momentum declines to the rate determined by macroeconomic factors. Beyond this point, the growth of a company within that industry will tend to come at the expense of other companies’ market share or consumers’ wallets.”

“This is where innovation comes in—and those who make the boldest moves often gain the biggest benefits.”

Innovation opens new markets, creates jobs

As pointed out, businesses and companies should not wait to enjoy an entire industry’s growth (which itself is brought about by individual business’ innovation) but rather, they should themselves invest in innovation as the root to business growth and related increased returns.

African governments and policy influencers should also keep this fact in mind, ‘innovation in individual businesses fuels entire industry growth’ and creates policies that favour, encourage and stimulate innovation not only in businesses, but by individuals as well.

Business incubators, research and development funding should be the norm and not the exception in a country looking to proactively grow its economy. “Factors such as excess capacity, government subsidies, and other incentives can reduce the risk of the innovation investment and that way encourage innovation,” LaBerge explains.

Notably, in this modern era there are numerous green-technology and digital development government incentives, this is a niche that businesses can utilize.

Also, policymakers should realize that funding for innovation yields much greater returns and also does not necessarily entail funding the entire product’s life cycle.

When national policies encourage and support innovation, individuals and businesses are more likely to strike a partnership with big companies that will finance product development, mass production, and distribution, etc.

“It should be kept in mind that big business often watches start-up activity to gauge new market trends, and are increasingly partnering with or acquiring smaller companies to fuel their own breakout growth,” the researcher reassures stakeholders.

“The incumbents combine the start-ups’ innovative ideas with resources, customer relationships, and other competitive advantages the smaller companies (and individuals) lack,” she explains.

Companies should also look at complimentary and supplementary value addition. What this means is that, where companies lack innovation, or if a product or industry is in the slowdown part of the S-Curve, “then rather than trying to be gold miners, are embracing the concept of selling picks and shovels instead.”

What the expert is saying is that companies can and should look at branching out their investment from their core-business to sideline options such as complimentary and supplementary products and services.

Breakout innovations are great for industry momentum, but do you need to be the one to carry them out or can you just ride the wave of another industry member’s successful big bet? the researcher asks.

The answer is straight forward and firm; “It turns out that those who take the (innovation) risks gain significant advantages in the markets they create.”

In fact, the report shows that “a review of the top 20 global companies found that 14 of them were innovators that shaped new markets and enjoy the highest returns.”

The researchers point out that when a business invests in innovation then it is always ahead of the S-Curve, which means, the business is always enjoying the point of high returns while others suffer the S-Curve slowdown phase and inevitable end, these businesses are always at the start of the S-Curve, the high value point.