Why East Africa lost out to West Africa at the $1m Jack Ma initiative

There were just two entrepreneurs of fast growing small- and medium-sized businesses from East Africa pitching their case among the final 10 contestants who jostled for a piece of the $1 million grant from the Jack Ma Foundation under the umbrella of the inaugural Africa Netpreneur Initiative in Ghana on November 16.

Christelle Kwizera who runs a water distribution social impact venture and Kevine Kagirimpundu whose venture deals in producing eco-friendly shoes, both from Rwanda, walked away with $100,000 and $65,000 respectively, with Ms Kwizera emerging as the second runner up in the contest.

The absence of Kenya, Uganda and Tanzania was surprising given the dominance of the three countries in the region’s disclosed private transactions.

According to data and research firm PitchBook, which tracks and aggregates information on raising capital, a total of $2.8 million was raised through 40 disclosed transactions whose ticket size did not exceed $250,000 in East Africa in 2017.

Kenya commanded the lion’s share at 53.1 per cent of all transactions, while Rwanda accounted for the smallest proportion at 5.1 per cent.

In 2018, the ratios were not significantly different. For the total $2.76 million raised through 38 disclosed transactions, Kenya accounted for 64.5 per cent while Rwanda took just 1.8 per cent. These numbers give a sense of the landscape and concentration of viable businesses within the East African region.

To make sense of this I sat with Sam Gichuru, the founder and chief executive officer of Nairobi-based accelerator and incubation hub Nailab, which also served as a lead partner to the Jack Ma Foundation in the Africa Netpreneur Prize Initiative.

Jack Ma Foundation reserves the right to determine the criteria through which it selects candidates for the top prize.

Mr Gichuru said that whereas Kenyan businesses had made it to the top 20, there was a major drawback.

“Because this project was essentially run from Nairobi with Nailab as a partner, the absence of businesses from Kenya was a point of concern. When we looked at the data, however, we realised that 90 per cent of the good businesses in Kenya that could apply for this grant are expatriate-owned. This competition was designed for African entrepreneurs in Africa running businesses in Africa. So, the majority of small and fast-growing businesses in Kenya couldn’t qualify,” Mr Gichuru said.

Kenya’s much touted Silicon Savannah has been on the receiving end for being dominated by expatriates, which is reported to have the net effect of creating a funding gap in favour of expatriate-led ventures.

As for Uganda and Tanzania, Mr Gichuru said the businesses targeted for the award may not have been aware that they were eligible.

“There were a lot of small businesses in Kenya, Tanzania and Uganda that really did not understand that this contest targeted them. This competition was not for start-ups, it was for small- and medium-sized businesses, and there were lots of jua kali type businesses applying for this award from other countries except East Africa,” Mr Gichuru said.

Start-ups are often associated with rapid growth and disruption of the status quo in the business environment. Small businesses are typically hinged on gradual scalability of operations over the medium to long-term.

Mr Gichuru said the inaugural Africa Netpreneur Initiative contest attracted many more applicants from Nigeria than it did from Kenya, indicating that the perception that the contest was targeted at a given niche of businesses worked against the East African region.

The goal is not to cast the initiative as a contest between East and West Africa or one among East African Community member states, but to show that there are nuances across the region and continent that determine how the deployment of the capital is carried out.

The Jack Ma Foundation has committed $10 million worth of grant funding for 10 years, a move that should see similar business-pitch contests at least until 2028.

The benefits of patient capital are two-fold. First, it helps de-risk such small- and medium-sized ventures, thus potentially unlocking larger ticket size capital through avenues such as private equity and debt transactions going forward.

Second, it enables high-risk businesses to mobilise capital without the immediate pressure of generating a return. As such, the businesses have ample room to determine how best to focus on improving their processes to optimise performance.