Trends of co-working space in Africa
The number of co-working spaces in Africa is increasing.
As of 2013, there were only 24 co-working spaces in Africa, but now there are 295 places.
This clearly shows that Africa has many startups contributing to economic development.
Looking at the number of co-working spaces by country, three countries stand out specifically – Nigeria, Egypt and South Africa.
They are then followed by Tunisia, Kenya and Morocco.
So why do African entrepreneurs use co-working spaces?
Of course, like developed nations, there are some typical reasons such as “We want to save the expense of renting or buying an office” or “We want an environment where we can complete with other entrepreneurs”.But that’s not all.
In Africa, especially in areas where the infrastructure is not in place, there is a high need for a “secure reliable supply of electricity and securing of the communication environment”.So we’d like to look at the cases of co-working space in South Africa, Nigeria and Kenya.※※※※※※※※※※※※
Cape town office / South Africa
“Cape Town office” is a co-working space in Cape Town, South Africa.
It was introduced in Forbes magazine’s “The World’s Best 10 Co-working Spaces”.
The site is 600 square meters, with 90 desks and 3 meeting rooms inside.
In this facility, there are various usage plans.
An unlimited usage plan of about 2,800 ZAR (approx. $210) per month, plus a plan of about 1,100 ZAR (approx. $82) for 50 hours a month, etc.The network environment is also good.
200 Mbps communication speed is guaranteed in this co-working space.
Such communication speeds are secured in many other co-working spaces in Africa as well.
When considering the use of a co-working space in Africa, it is desirable to check the communication environment in advance.※※※※※※※※※※※※
Hub30 / Nigeria
Next, I will introduce “Hub 30” which is a co-working space established in February 2018 at Lagos, Nigeria.There is a monthly plan that allows for use of this space at any time, and can use mailboxes as well.
Furthermore, there’s a one-day plan where one is charged for only one day of usage.
There are some low price plans such as “₦15,000 (approx. $40) monthly plan” and “₦1,000 (approx. $3) one day plan”.
Open collaborative working space and private spaces for individual work are secured, and free Wi-Fi, a constant power supply, and printing service are also included.It’s one of the new co-working spaces so it might be a good example showing Africa’s co-working space business development.
iHub / Kenya
Finally, I will introduce “iHub”, a co-working space in Nairobi, Kenya.
It is a space that started in 2010.
They relocated in 2017 and have doubled in size from their previous location.
The new space features restaurants and grocery stores.
Events are often held for users as shown in the photo.Not only a co-working space, iHub also has an investment function in cooperation with AIF (Africa Innovation Fund) as well as providing consulting business for start-ups.
From the fact that Google, Microsoft, IBM and others are big partners, it can be said that the service performance and the credibility of iHub seem high.The founder of iHub, Erik Hersman is a person who has been leading the Tech industry in Africa.
In addition to iHub, he has developed a service for new sharing on mobile devices called “Ushahibi”.
He is also the founder of “BRCK”, a company that manages Wi-Fi spots with outstanding features such as waterproofing and solar power generation.※※※※※※※※※※※※As you can see from the three co-working spaces, there’s no big difference in terms of quality even compared to those of developed countries.On the other hand, from the perspective of users of these spaces, and number of problems have been raised.
“Sometimes events are held in the shared space, so you cannot use it at that time”
This seems to be a similar problem to co-working spaces in Japan and other developed countries.
“There are many co-working spaces in the center of the city, so traffic jams are serious”
This is unique to Africa, but it’s difficult to resolve without the cooperation of co-working space management.
Co-working spaces from now on
In 2017, the number of newly established startups increased by 37% from the previous year.
Therefore, the demand for co-working spaces for startups is expected to rise steadily.
Meanwhile, in parallel with the demand for co-working spaces, the demand for offices is rapidly rising.
In other words, the scale of startups in Africa has been expanding, and it is maturing into an environment with more employees.
Following the trend of increasing operation of co-working spaces, the number of office sharing management companies can also be expected to increase.
In addition, the potential for involvement of the real estate industry, which is a peripheral industry, has also expanded.
In this way, co-working spaces in Africa have a quality that is no different from that in the rest of the world.
So, if you have a business in Africa, using a co-working space is absolutely an option to consider.
Working in a secure environment and interacting with local entrepreneurs, you should have many opportunities to advance your business.
The argument for startups and entrepreneurship in Africa
According to Credit Suisse’s 2018 Global Wealth Report, total global wealth reached 317 trillion dollars in 2018.
Over 90% of this wealth is concentrated in the “three poles” of the global economy – North America (primarily the United States), Europe, and East Asia (primarily China and Japan).
The “global south” accounted for less than 5% of the total amount despite having over 50% of global population.
The entire continent of Africa accounts for less than 1% of the total (1).
At the same time, the African continent is undergoing rapid population growth with population expected to more than double to 2.5 billion by 2050, with over 840 million youth under the age of 25 (2).
The second half of the 20th century and the first 20 years of the 21st have been characterised by both rapid population and economic growth in Asia. Starting with Japan, followed by the Asian tigers of Hong Kong, Singapore, Taiwan and South Korea, and more recently and dramatically the rapid rise of China, a number of Asian countries have been successfully able to capitalise on their demographic dividend to rapidly industrialise and kickstart economic growth.
This growth has been accompanied by a rapid decline in poverty across Asia – the scale and speed of which are unprecedented in human history (3).
Recent reporting by the New York times suggests that intergenerational mobility is higher, inequality lower, and perhaps most importantly, optimism more widespread in China than the United States (4).
Most economic indices now clearly indicate the locus of global economic and wealth growth has shifted from the United States and Western Europe to Asia.
Similarly, the IMF forecasts Indian economic growth to overtake even China at over 7% for 2018 and 2019, with associated socioeconomic indicators such as maternal mortality, social mobility, extreme poverty and unemployment showing distinct, although less dramatic improvements (5).
In sharp contrast, despite periods of rapid economic growth, African countries have failed to show consistent improvements in socioeconomic indicators with per capita incomes often failing to keep up with rapid population growth. World Bank research released in 2018 indicates that although the rate of poverty has decreased across most of Africa, the absolute number of people in extreme poverty is higher today than it was in 1980, with over 200 million people living on less than $1.25 per day (6). Similarly, Brookings Institute research indicates that Nigeria has overtaken India as a locus of extreme poverty – a shocking statistic given the 7x difference in population (7).
The median age in most sub-Saharan African countries remains below 20, with the average for the continent as a whole at just 19 years (8).
A rapidly growing, youthful continent with stagnant incomes and increasing poverty levels has led many policy makers, demographers and economists to warn of increasing civil unrest and political instability across the continent.
Perhaps most concerningly, economists including Ha-Joon Chang have argued that the path to economic development available to Western countries and developing Asia has become closed to African countries – the ladder has been kicked away.
This is a result of both deliberate action – the proliferation of global rules and norms against active government intervention enforced by organisations like the IMF and WTO – and through technological advances and mechanisation that have rendered the labour-intensive industrialisation process pioneered in East Asia unviable (9).
Given this economic reality, what are concerned actors, African states, and Africans themselves to do in order to foster sustainable economic development at a scale that can pull millions out of poverty?
One solution is to utilise the youthful dynamism and entrepreneurial nous of people living on the continent – a solution driven by local people with local ideas rooted in their communities.
Entrepreneurial activity runs among the highest in the world, with 5 African countries in the top 10 globally, according to research by the Global Entrepreneurship Monitor (10):
Yet, high levels of entrepreneurial activity have failed to create significant employment or revenue generating companies. Indeed, the African Union has stated that “the continental trend is one of resilient but jobless growth”.
As the most populous country on the continent, Nigeria is again an instructive case – with a working age population of over 100 million (up 80.6% over the last 10 years alone), and steadily increasing GDP (up 26.9% over the last decade), living standards have actually declined for the majority of its population, with its Sustainable Economic Opportunity (11) score declining by 0.1% over the last 5 years (12).
Why has growth been “jobless”, and more importantly what can be done to in order to create stable growth in employment and sustainable economic opportunity? One answer is scale. The overwhelming majority of entrepreneurial activity in Africa occurs in the low-tech informal sector. Close to 90% of all African jobs outside the agricultural sector are in the informal sector – characterised by instability, low wages, lack of employee protection and unsafe working conditions (13).
Even in the comparatively well remunerated and growing tech startup sector, particularly strong in South Africa, Kenya and Nigeria, the number and scale of businesses remains extremely small. An analysis by VC4A of the South African tech startup ecosystem, the most advanced on the continent, indicates that 41% of South Africa-based startups generate no revenue at all, with only 6% of companies generating more than $500 000 in annual revenue (14). The tech sector in Cape Town – the largest in the continent – employs only 40 000 people (15). Of the 294 unicorn companies globally (private companies valued at more than $1 billion), Africa has only 3 - Cell C and Promasidor in South Africa, and Jumia in Nigeria, of which only Jumia could be considered a tech unicorn in the traditional sense (16). By contrast, China has over 100. Given the small number of large, globally competitive companies in the formal sector outside of South Africa, it is critical for African countries to create more unicorns and in the process generate sustainable employment.
Next week’s article will cover the critical shortage of funding in the African startup sector, and discuss the scope for increased cross-border financing from Asia.
 Chang, Ha-Joon. 2002. Kicking away the ladder: development strategy in historical perspective. London: Anthem.
 The Mo Ibrahim Foundation defines Sustained Economic Opportunity as the “extent to which governments enable their citizens to pursue economic goals and provide them with the opportunity to prosper”
Funding African Startups
In the previous article “The argument for startups and entrepreneurship in Africa", we discussed the importance of entrepreneurship and startups to African economic development through creating sustainable employment.
To gain a deeper understanding this article will look at data on the financing and funding of African startups and consider potential solutions.
According to the International Finance Corporation, a division of the World Bank, African entrepreneurs raised $556 million in 2017, a 53 % increase on 2016.
That said, in the same year Latin American entrepreneurs raised $1.9 billion and Indian entrepreneurs $7.4 billion (1).
The graph below compares the population, GDP and startup equity financing of the three regions (2).
Table 1: Equity investment, population and GDP in emerging markets
The above data clearly indicates that Africa lags far behind India in terms of equity financing to entrepreneurs despite having similar population and overall economic size.
Furthermore, even within this relatively limited pool, 84% of total funds to the region in 2017 were concentrated in just 4 countries – South Africa ($167 million), Kenya ($147 million), Nigeria ($114 million) and Egypt ($37 million) (3).
This suggests a critical lack of startup financing, not only to the region as a whole but even more so to entrepreneurs located outside of major innovation hubs like Cairo, Cape Town, Johannesburg, Nairobi and Lagos.
Given their similarities in demographic size and economic development, what is the reason for the more than tenfold disparity in startup funding between Africa and India?
This issue can be examined broadly from two perspectives – the supply side and demand side.
Starting with the supply side, let us first examine the largest financing deals over the past two years in India and Africa:
Largest Startups Investments in India over 2017/2018 (4)(5)
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Largest Startups Investments in Africa over 2017/2018(6)(7)
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The difference in funding between the two regions over the last two years is stark, with each of the top 5 deals in India receiving greater funding than all startup funding across the African continent combined.
A further important point from the above data is that the majority of startup financing is cross-border.
The three largest sources of financing for Indian startups over 2017-2018 are corporate venture capital (CVC) investments by Softbank, overwhelmingly the largest funder through its Softbank Vision Fund, Naspers and Tencent.
Naspers, itself a South African company, is of particular interest as it is also the largest investor in African startups over the same time period.
It has further investments across the developing world including most notably a 31% stake in Tencent itself valued at over $100 billion.
This suggests that the disparity in financing is not a supply-side issue but a demand-side issue – there simply are not enough startups operating at a sufficient scale on the African continent to match the level of financing demand seen from Indian startups.
What are the causes for insufficient financing demand by African startups?
Although there are likely to be numerous and complex, three primary reasons stand out.
The first is fragmentation.
Although as a continent Africa has similar economic and demographic weight to India, it consists of 54 sovereign states with disparate economic, legal, financial and regulatory environments.
Flipkart, India’s largest e-commerce site, serves over 1 billion customers whereas Takealot serves less than 60 million in South Africa.
Indeed, market size and a lack of global, or even continental, ambition appears to be a key factor preventing the appearance of startup unicorns in Africa (8).
Although other small markets, including Portugal, Sweden and Poland, have produced unicorns domestically, this still seems far off in the African startup ecosystem.
The second issue is insufficient human capital.
According to UNCTAD’s Technology and Innovation Report 2018, 29.2% of recipients of first university degrees in STEM subjects graduated from Indian universities, and only 0.9% from African universities (9):
Table 4: Percentage of bachelor's degree students of STEM degree by country / region in 2012
In Asian countries STEM degrees accounted for a total of 32% of all degrees awarded, with numbers as high as 42% in China.
By contrast STEM degrees accounted for 18.5% of degrees awarded in the European Union, 16.7% in the United States, and just 7.2% in Africa (although the share in Ethiopia was 29.5%).
This indicates a lack of engineering and IT skills that are critical to the successful management and expansion of startups, the majority of which are operating in the tech sector.
A third, related issue, is the relatively undeveloped state of startup ecosystems in most African countries, particularly at the seed stage.
VC4A’s analysis of South Africa’s tech startup ecosystem points out numerous deficiencies, including a lack of experienced entrepreneurs, no focus on pan-African growth, unclear government policy, shortage of seed funding, restrictive IP legislation, and extremely low levels of mathematical and science literacy (10).
Such problems are magnified in other African countries which lack South Africa’s wealth base, relatively sophisticated corporate sector, strong university system, and close ties to Europe and the United States.
The consequence of these problems – continental fragmentation, poor human capital, and weak startup ecosystems, is that most African countries fail to produce a sufficient number of seed and early-stage startups with the potential to grow to the scale necessary to compete even with startups from other developing countries for major financing.
One radical proposal would be to stimulate demand for startup financing by massively increasing the domestic capital supply. Jason Levin, a South African entrepreneur, has suggested that the government direct all public sector pension funds, in particular the PIC, to allocate 0.5% of funds under management to startup venture capital.
This would boost early stage funding in the sector by close to $1 billion (11).
The question remains though, whether African markets have the skills and capacity to take advantage of such financing. Indeed, as recent multi-million, and even billion dollar investments by companies like Softbank and Naspers indicate, the supply of large scale financing exists, what African countries need to focus on now is to increase the demand through seed and early-stage financing, substantially higher investment in STEM education from primary to tertiary levels, and comprehensive strategies to both improve the startup ecosystem in each individual country and, importantly, coordinate them with one other to mitigate the fragmentation of African markets which are individually too small to compete effectively with other emerging regions.
The author : Nicolas Du Bois (The Executive of And Africa)