11.29.17

Sustainable, not sexy

BY Mills Soko 3 MINUTE READ

Poverty is on the rise in South Africa, a new report from Stats SA says. The proportion of people living below the poverty line declined from 66,6% in 2006 to 53,2% in 2011, but increased to 55,5% in 2015, according to the August Poverty Trends in South Africa report.

At the same time, South Africa is facing an increasing population, fuelled by rising life expectancy and high levels of migration. Many of these people are young and unemployed.

This means two things. One, a robust, thriving economy is needed to support the expanding workforce. And two, the steadily growing population will place additional demands on resources.

A clear solution is investment in clean tech. Two birds, one stone: grow the economy and save the earth. But a little caution is needed.

What can we learn from the boom-and-bust of the early 2000s? Initially, clean tech inspired major optimism abroad. In 2006, Silicon Valley was abuzz, believing it had struck the next big thing. “Seduced by grand visions of making a fortune while saving the planet, venture capitalists invested a then-record $123 million in the first round of fundraising for 16 new companies that year,” reports Green Tech Media. By 2008, this would rocket to nearly $1 billion in over 100 new companies.

Sadly for investors, the bubble didn’t take long to burst. After 2009, barely 25 new clean tech companies were funded by venture capitalists. The harsh reality was that clean tech start-ups just could not deliver the outsized returns found in other sectors.

Wired sums up the initial mistakes. Comparing the early buzz around clean tech to the failed Internet bubble, Juliet Eilperin writes: “What followed was yet another Silicon Valley gold rush, as the firms on Sand Hill Road were pulled along by the promise of new fortunes and the hope that they would be the ones to wean America off fossil fuels… Never mind the fact that green technology had been struggling to achieve critical mass for decades.”

Therein lies the crux. Eilperin points out that for clean tech to succeed, patience, realism and investment in heavy industry are essential. Of all the energy start-ups that received their first VC funds between 1995 and 2007 only 1.8% achieved “unambiguous success”, or an initial public offering on a major exchange, she notes. The average time from founding to IPO was 8.3 years. “If you’re signing up to build a clean-tech winner,” she adds, quoting venture capitalist Matthew Nordan, “reserve a decade of your life.”

Despite a series of sobering realisations, clean tech is today experiencing a revival. Patience and perseverance have resulted in some key scientific breakthroughs, and enterprising companies that have stood the test of time are – as Business News puts it – “sitting pretty” at the centre of the clean tech boom. But clean tech is still not a silver bullet. And, especially in Africa, sustainability must be at the forefront of future efforts.

Rather than investing in solving risky and “big, scientific problems” that start-ups aren’t ideally positioned to fix in the first place, Fortune magazine argues, the next wave of clean tech investment should – and will – focus on taking now-existing clean technologies and combining them with software and sensors to build new and useful products and services that solve human problems and disrupt markets. “By itself a battery does little, but with battery-enabled propulsion, we can completely rethink transportation, mobility, robotics, drones, and much more,” writer Peter Shannon argues.

The only limit here will be the entrepreneur’s imagination, he continues. The creative combination of technology, software and business models holds great potential for those who are willing to step up and take them. Policy is aligning to support this.

In August, Olawale Ayeni, regional head for Africa investments at IFC Venture Capital, confirmed that the International Finance Corporation was “pushing the envelope” across Africa, including in the clean tech sector. And the South African Select Committee on Trade and International Relations expressed excitement about new industrial zones that will include green tech hubs. Plans are also in the pipeline for green phone towers across Africa.

A new approach can lead to big changes. With careful investment, savvy management, and targeted innovation that seeks out the sustainable rather than the sexy, the next phase in clean tech in Africa may just boost economies, create jobs and build the climate resilience we need and hope for.

10.09.17

Generation Why-Not

BY Mills Soko 3 MINUTE READ

Youth Month brought with it the usual barrage of commentary on Africa’s youth bulge and concomitant dearth of jobs on the continent. The narrative is frequently that young Africans have no option but to step up and create their own future. Entrepreneurship is the answer. It’s easier said than done.

Young Africans are buoyantly entrepreneurial: Data from the Global Entrepreneurship Monitor, for instance, shows that three-quarters of Africans of working age consider entrepreneurship a good career choice. But at the same time, these entrepreneurial intentions don’t often translate into sustained businesses or innovations. In fact, innovation in sub-Saharan Africa—according to the same data set—is among the lowest in the world.

So, what’s getting in the way of these optimistic and energetic young people being able to do what everyone expects of them, building sustainable businesses?

Young entrepreneurs in South Africa and parts of the rest of the continent face something of a perfect storm. GEM lists a number of obstacles in the region: unfavourable legislation, a lack of R&D support, and other structural difficulties. Respondents to the most recent GEM survey listed difficult access to funds as their number-one challenge. Poor education and training also comes up repeatedly as a contributing factor.

At the same time, economic conditions are worsening. Where, then, will we find our top under-30s? Perhaps the answer lies in what we can do for under-30s to make innovation, disruption and entrepreneurship easier. If the Gen Y’s and I’s are to deliver serious disruption on a larger scale, especially following South Africa’s downgrade to junk status, they need all the support they can get.

Trade and Industry Minister Rob Davies recently pointed out the necessity for increased R&D support as we face the fourth Industrial Revolution, promising a renewed focus on digitisation, innovation and big data capabilities in the release of the department’s ninth iteration of South Africa’s Industrial Policy Action Plan.

“We have no option but to prepare ourselves as quickly and creatively as possible,” he said.“Are we able to respond to the opportunities presented by the digital age in a way that supports our national priorities by providing better responses to challenges of poverty, underdevelopment and unemployment?” It’s a great question.

A further intervention could lie in educating youth on how funding and other systems work. Environmental and management science, life orientation and a certain amount of career guidance are included in the school curriculum, but too little of this focuses on the realities of starting and running a business. How helpful if promising young people were assisted with entrepreneurial advice alongside tertiary education applications.

Based on the feedback from aspiring entrepreneurs, the information required by SMEs should also be made easily accessible to all aspiring business owners. Comprehensive and up-to-date government web and print resources should be set up in easily accessible places so that entrepreneurs can find clear and accurate information about business registration, human resources legislation, insurance and other essentials. This information should be housed centrally, so that the entrepreneur isn’t in danger of missing key aspects.

More supportive policy can take into account the importance of the informal sector, which contributes a significant portion to our economy and is saving millions from destitution. The informal sector holds important potential for skills development and, with some mentorship, may also hold potential for formal business development.

According to Sarah-Ann Arnold, who runs the MTN Solution Space (an incubator based on the UCT Graduate School of Business Waterfront campus and in Philippi), experiential incubators and accelerators that are easily accessible to potential entrepreneurs— where they can develop new business opportunities, forge new links with industry and academia, and trial ideas in a relatively safe environment as well as reinforce skills already obtained—are crucial.

Entrepreneurship can give our youth a better future. But those of us on more established footing need to give them a hand-up: through legislation, education, financial assistance and mentoring. Building a business environment that’s more connected, more knowledgeable, and more competitive can only do good.

03.09.17

No shortcuts to development

BY Mills Soko 3 MINUTE READ

If we want to create impact in Africa, we need to attend to the task of creating successful businesses

When it comes to Africa’s development challenges, we don’t need bright flares or dazzling innovations; we need slow-burning and sustainable fires that bring about systemic changes

Things are looking tougher for Africa in 2017. After a decade of exuberant growth, recent GDP data shows that key economies in sub-Saharan Africa continue to slow, dragging growth in the region down to a disappointing average 1.1% per annum—its lowest in six years. Add to that global threats, including uncertainty surrounding a Trump administration in the US, and you could start to get quite gloomy about prospects on the continent.

But such pessimism, I believe, would be misplaced. As businessman and philanthropist Tony Elumelu—champion of the concept of Africans investing in Africa—has pointed out, the commercial rewards for investing on the continent are still significant. And done right, they can bring significant economic and much-needed social benefits.

In fact, despite volatile global conditions, there’s significant investment interest in the continent both at home and abroad, particularly in the impact investment space, which looks for businesses that deliver social value along with financial returns.

According to Rachel Keeler, writing in the Stanford Social Innovation Review recently, Africa has been the top geographic focus for impact investment for the past few years already. The only problem is that the number of interested investors far outstrips the number of investable enterprises. There are simply not enough “safe bet” high-impact companies on the continent at the moment.

So how can African entrepreneurs and innovators position themselves to take advantage of this interest and create robust businesses that also deliver social and economic value?

The website Rise Africa Rise says that first and foremost, entrepreneurs need to think like investors. This starts with having a clear and articulable vision of what they are trying to achieve, and a strong business model for how they plan to do this, along with distinct measures in place to track and demonstrate impact. In short, they need to embody good business principles first and innovative potential second.

Let’s face it, innovation is frequently touted as the cure-all for creating new markets, jobs and solutions to age-old development problems, but despite its seductive lure as a quick fix for Africa’s challenges, innovation in and of itself is never going to be a substitute for sound business. It is not—as Christian Seelos and Johanna Mair put it rather elegantly in their article in the SSIR—a shortcut to development. Innovation, they argue, does not magically solve big problems faster. More dangerously, the belief that it does can mean that the value created by incremental improvements of the core, routine activities of organisations (which are altogether less glamorous) can be sidelined—creating more harm than good.

A recent analysis of KPMG’s International Development Advisory Services investment portfolio across Africa confirmed, perhaps unsurprisingly, that successful businesses also have the most impact. If we want to create impact in Africa, we need to attend therefore to the task of creating successful business; that includes paying more attention to the businesses that fail and understanding why this is, in addition to celebrating the ones that succeed. This will require a co-ordinated effort from business, government, civil society, media and academia working together to support and build business on the continent.

If we don’t do this, we risk the tragedy of exciting new ideas (no matter how good they are) burning brightly and briefly before crashing to the ground, never to be seen again because they don’t have the right business infrastructure in place to support them. When it comes to the development challenges facing this continent, we don’t need bright flares or dazzling innovations; we need slow-burning and sustainable fires that bring about systemic changes.

The scale of our challenges continues to grow. The UN estimates that by 2050 Africa’s population will reach 2.48 billion, the majority being youth. And despite progress toward millennial goals, there are more poor Africans today than there were in 1990, two in five adults are still illiterate, and violence is on the rise. Clearly, new approaches are needed.

So, if Africa’s innovators and entrepreneurs want to do one thing differently this 2017, it should be to re-orientate themselves toward sound business principles to ensure their business are robust and able to stand the test of time. And if the rest of us want to help, we need to work together to make sure we are giving them the support they really need.

Mills Soko is the director of the UCT Graduate School of Business and an associate professor at the school, specialising in international trade and doing business in Africa. With a career that has spanned business, government, civil society and academia, he is uniquely positioned to understand the role these sectors have to play—collaboratively and individually—in addressing critical issues of Africa’s development and competitiveness.