Investing in startups can boost digital economy

AT 62, Evelyn Masatu is relatively a newbie to the pensioners’ club. For starters, she is just two years into retirement and has been enjoying her well-earned retirement perks without having to worry about the next day’s demanding schedule of her former job.

Secondly, she believes she still has an option overload as to where to invest her money and time to ponder on the same, that is until she when was approached by her nephew seeking an investor to inject a modest sum for his startup to take shape.

She has never had the faintest inkling as to what a startup is and since all her adult life she had diligently worked for one employer, a government entity, her skepticism was not misplaced.

Her reaction to the idea of investing in a company that is starting from ground zero is not uncommon, many people understandably think it is a risky venture to do so because they have faith in established institutions.

Mercy Thomas is the Program and Partnership Lead at Sahara Accelerator. Her roles involve matchmaking startups and SMEs with potential investors. She is also a co-author of a report recently launched by Sahara Ventures titled “Towards Realizing the Startup Economy in Tanzania” prior to hosting the Sahara Sparks event.

She strongly believes that the digital economy is the way forward for countries like Tanzania and Africa in general, and yet the fear amongst individual and institutional investors continuously hampers the progress of entrepreneurs in the digital economy.

It should be understood that investment is not about the investor doing a favour to the entrepreneur and vice versa, it is a mutually beneficial commitment where both parties set up conditions under which the investor agrees to inject funds in exchange for equity that is believed will grow in value.

“Technology will strongly help Tanzania keep up with other countries in the digital economy and it will replace many people in the job market as the world switches from analogue. However, the challenge remains that not many people are aware of what startups do,” she said.

She also believes that there is little exposure in Tanzania on matters pertaining to investment in general, and there is also very little that is known about opportunities that abound by investing in startups, and the country also needs to revisit some policies and regulations to attract more investment in the area.

“Tanzania needs to encourage more positive information emerging from our startup ecosystem and celebrate those who have closed major deal rounds and significantly impacted society and attracted significant capital from investors. We need to attract global firms and companies to develop an interest in Tanzania and establish strategic offices,” she said.

Facts tend to speak for themselves, and here are but a few that offer a glimpse of the potential for innovation, technology and entrepreneurship for job creation and the socio-economic well-being of the continent in the years to come.

As of 2018, six of the fastest-growing economies in the world were from Africa. Better yet, Africa is the youngest continent in the world, with a median age of 25 and its population will continue to grow until it doubles by 2050.

Fifteen fastest-growing cities are in Africa, three of which are in Tanzania (Dar es Salaam, Mwanza, and Songea in the Ruvuma region). The continent’s GDP is expected to reach an estimated US$ 5.63 trillion by 2025, according to the AFDB’s 2018 African Economic Outlook report 2018.

Tanzania’s population is projected to increase from 53.9 million in 2015 to 186.9 million by 2065. Young people aged 15-34 are projected to increase from 17.8 million to 62.3 million by 2065 and her estimated annual growth by 2022 is pegged at USD 77.6 billion.

Dar es Salaam is one of the world’s fastest-growing cities and it is expected to attain megacity status by 2030 with 10 million denizens. Just a generation or so ago, the city had a mere 400,000 inhabitants.

On that backbone, Africa, and Tanzania if we take into account the maxim that charity begins at home, no longer has to be trapped in a revolving door of poverty because increased urbanization creates opportunities for investors and businesses looking for human capital.

It also creates opportunities for the adoption of new technologies and innovations, creating further opportunities for startups with new innovative businesses to address emerging urban challenges.

The growing population creates demand for goods and services which translates into the need for increased production and service delivery.

Technologies that improve efficiency and offer convenience can thus be rapidly adopted as evinced in increased interest in Fintechs and Logistics technologies – potential for innovation, technology and entrepreneurship for job creation and socio-economic good of the continent pickup and delivery technologies startups.

All that is needed is the unleashing of the potential of young people in Africa through investments in their innovative ideas, technology and entrepreneurship – a true way to empower young people in the country as is advocated by the government.

“Investors are interested in investing in the market where they can exit safely. Most investors struggle with the exit strategy from our ecosystem. Government should engage with key stakeholders to understand how to develop systems and structures that will ensure local, regional and global individuals and institutional investors can exit once they have invested in Tanzanian startups,” she said.

According to the report, at the moment many investors are compelled to invest in Tanzanian businesses if they can only be guaranteed that the company can operate outside Tanzania.

Under such circumstances, the government loses significant income that would have been generated from the exit process and the trend is not a Tanzanian problem but an African problem, Thomas said during the launch of the report.

“African startups are increasingly domiciling overseas and in tax havens. If we can create smooth exit mechanisms for investors, other African startups will want to exit in Tanzania. It will also help attract individuals and institutional investors to establish offices in the country and encourage more capital to flow into the country and create jobs,” she added.

The report’s launch by Sahara Ventures was part of activities in the build to Sahara Sparks, a platform launched in 2016 with a focus on building innovation and technology entrepreneurship ecosystems in Africa to foster transactions and conversations around innovation, technology and entrepreneurship.