Foreign Investment Deceit: Africa Start-ups need protection

0
  • In recent years, the continent has witnessed the creation of a significant number of startups, many of which have proven to be heavily lucrative
  • Creating an organization is a powerful element, but owning or co-owning it and being the principal recipient of the wealth created is much more powerful
  • Aside from technology, spreading from infrastructure to agribusiness and energy, it is evident that the production equipment is frequently not held by Africans

In one of several highlights of late 2021 in the buzzing microcosm of African tech, The Nigerian corporation MainOne, founded in 2010 and grown to be one of West Africa’s key information storage facility managers and communication service providers, announced in December that it had been bought by a United States firm, Equinix, after a booming US$6 billion revenue in 2020.

The US$320 million acquisition, which was completed in early April, was widely hailed since it demonstrated that businesses founded and run in Africa are lucrative and may attract an enormous amount from Silicon Valley to the continent. Equinix, a Wall Street-listed company, operates globally with around 220 information storage services.

In another significant African acquisition, a United States-based company, Digital Realty, bought control of South African based Teraco Data Environments, a developer valued at US$3.5 billion. The developer is Africa’s largest data centre services provider.

Teraco serves more than 600 customers, 275 connectivity providers, over 25 cloud and content platforms, and an average of 300 enterprises across Cape Town, Johannesburg, and Durban. The US-based firm now controls all that African information.

Startups have attracted a total of US$5 billion so far this year. [Photo/Business Africa]
The takeover of MainOne and Digital Realty is but a tip in the growing startup iceberg. In recent years, the continent has witnessed the creation of a significant number of startups, many of which have proven to be heavily lucrative. “Technology-savvy younger people have established kinds of enterprises that we have not seen before,” Ngozi Okonjo-Iweala, the World Trade Organization (WTO) director, says. They are supporters of Flutterwave, InstaDeep, and Copia International.

The valuation of these African startups is increasing, as is the appetite of foreign traders, mainly venture capital firms from the United States, Europe, and even Asia. They have attracted a total of US$5 billion so far this year. In terms of fundraising, 2022 has gotten off to a strong start for these businesses, with the significant milestone of US$1 billion being reached between January and February.

Nonetheless, the current change is raising key concerns, such as whether Africa is genuinely benefiting from the global capital’s thirst for its technology or if it is being plundered of its gems.                                                   

Cyrille Nkontchou, the co-founder of asset manager Enko Capital, says that plenty of power is being created in a sector with a crazy high added value due to such funds, which devote money to capital to both establish and finance the development of African startups. “The reality is that everything happens as if many of the value developed is subsequently exported, which is a disgrace,” Nkontchou adds.

“Aside from technology, spreading from infrastructure to agribusiness and energy, it is evident that the production equipment is frequently not held by Africans,” says Bernard Ayitee, a London Faculty of Economics graduate. They founded Obara Capital, the central African hedge fund, in 2018. Creating an organization is a powerful element, but enthusiastically owning (or co-owning) it and being the principal recipient of the wealth created is more powerful.

Some countries have recognized this and enacted legislation to handle foreign money better. As a case in point, when US defence firm Teledyne attempted to acquire Photonis, a French startup based on night vision, the deal eventually fell through.

According to experts, foreign capital flows to the continent are expected to increase in 2022. [Photo/IT News Africa]
The French government was keen that Bpifrance, the country’s public financing financial organization whose mission is to support the development of domestic enterprises, should join in the operation by purchasing a minority interest. This may have given it the right to veto certain activities and corporate administration.

Typically, in recent times, France has established a regulatory and legislative arsenal that allows it to safeguard its flagships while maintaining a certain balance between desirability and monitoring of overseas funding, particularly in strategic sectors such as defence, energy, water, transport, and information internet hosting.

“It is not a question of instilling protectionist reflexes,” argues Alex Bebe Epale, a lawyer admitted to the Paris and Cameroon bars. “However, it is reasonable to have robust needs relating to, for example, applying native content material, essential alliances with native SMEs, and know-how changeover within the scope of such a transaction.” Keep in mind the question, “What does my country or region’s economic system achieve in the long run?”

According to experts, foreign capital flows to the continent are expected to increase. The entrance into force of the African Continental Free Trade Area (AfCFTA) in January 2021, and the possibility of accessing a stock market of 1.4 billion people, would undoubtedly motivate abroad teams to attack the continent.

Aside from overseeing foreign money, a fundamental question emerges for the continent’s leaders, particularly in the AfCFTA’s implementation: how can we also foster the formation of African enterprises controlled by African capital? According to Nkontchou, the continent’s economic model should “rely more on domestic financial savings than on international capital for equity financing.”

To accomplish so, structures must be built to safeguard these investments and reassure Africans who wish to ship their wealth to other continents. African pension funds may provide valuable leverage: “It’s long-term money with which you’ll take a bit more risk by investing in the greatest ideas,” he adds.

In every other scenario, Apple believes it is critical to consider a new type of financial institution, one that is adapted specifically to African economies and whose “goal may be, for example, to aid and fund the informal sector to enable true SMEs to arise.”

Sovereign Interest in African businesses

“Originally, you want a creative and foresighted person,” Ayitee explains. Then, it is necessary to put in place sufficiently robust financial structures, such as Lazard or Rothschild in France, to aid in the formation of a core group of successful enterprises in areas recognized as being of sovereign interest to African governments.”

These words have a particular resonance in the context of the sale of Bolloré Transports & Logistics’ African operations to MSC Group for €5.7 billion (US$6.2 billion), which is one of the year’s biggest deals on the continent.

In front of African governments, a French businessman sold a piece of the logistics empire he had built on the continent to another tycoon, a Swiss one, who watched helplessly as this operation impacted their economy, a vital sector. MSC appears to have discovered itself in competition with BTL’s several potential customers. Among the various businesses mentioned have been French, Japanese, and Asian names, but no African names!

Thus, raw materials exporters – for whom conveying pure supplies from their producing location to the beaches from where they are sent to the remainder of the globe is critical – find themselves entirely out of the picture in a situation taking place on their territory.

Why, more than 60 years after their independence, have West and Central Africa’s coastal governments failed to encourage the emergence of indigenous players or champions in this essential sport for their economies? This is something to ponder upon.

Liquid Telecom will deliver connectivity to AfriLabs innovation centres located within its fibre footprint. [Photo/CGTN]
African startups, however, are relentless to dominate tech in Africa. Today, a leading pan-African telecoms group Liquid Telecom has partnered with this firm- AfriLabs, to explore new ways to support local startups and promote sustainable innovation across Africa. From digital skills training and workshops to accelerator competitions, Liquid Telecom and AfriLabs will launch a new series of joint programmes designed to accelerate growth within the region’s tech startup communities, ultimately helping to stimulate economic growth.

Liquid Telecom will deliver connectivity to AfriLabs innovation centres located within its fibre footprint, including Nairobi Garage in Kenya, Bongohive in Zambia, BUNI in Tanzania and many more.

Cloud computing is the foundation for all technology innovation. Liquid Telecom will provide startups with access to critical development tools by leveraging the Microsoft Azure platform and GitHub software developer platform, which Microsoft recently acquired.

Leveraging Liquid Telecom’s infrastructure, partner network and market presence across Africa, startups will be able to develop and scale up their solutions with help from the Liquid team.

AfriLabs affiliate hub members will also be able to access Liquid Telecom’s digital skills training platform, which focuses on critical 4th Industrial Revolution skills, such as Artificial Intelligence (AI), Internet of Things (IoT), Machine Learning (ML), game development and cloud computing.

Read: Africa: Google picks fifteen startups for its accelerator programme

I am a journalist who is an enthusiastic tech, business and investment news writer from across Africa. There is always something good happening in Africa but most gets lost in the stereotypes. I tell the stories that matter to the Africans for Africa. Have a tip? You can contact me at j.kangethe@theexchange.africa

Leave A Reply