By Yegeta Tsegayetelila
Yegeta Tsegayetelila is an Anzisha blog contributor whose focus is on exploring entrepreneurship and business matters within the Ethiopian market.
The United States Small Business Administration, an agency established in 1953 to address the issues that small businesses across the country face, found in 2019 that more than 90 percent of startups in the country fail. The majority of these fail not in their first or second or even third years; 70 percent fail in their tenth year.
Understanding these numbers in their complete sense paints a clear picture of the level of the discrepancy between the United States’ startup ecosystem and Africa’s. While many in Africa have a rosy picture of the American small business industry, no doubt fueled by the likes of Hollywood and “entrepreneurship” culture, the reality is far from encouraging.
” Indeed, these factors show that the startup model that the United States and other developed countries follow is not fit for the African continent, including Ethiopia. Nor should Africans desire it to. The “developed” startup ecosystem is mainly characterised by companies treading water for the first few years rather than either failing or being swallowed.”
Consider the existence of an agency with the sole task of addressing the small business ecosystem for instance. The Small Business Administration has been in operation for close to seventy years; many other developed nations have similar administrative relations with the business community. In addition to the time that these institutions have had to mature, they have also been present through their respective countries’ growth and development at every stage in every sphere.
Forget Silicone Valley
The direct opposite is true for countries like Ethiopia. Not only is there no administrative institution in the country that deals with small businesses and startups, but the ecosystem has also primarily been functioning in the informal sector. Many continue to do so. Whilst already a concerning element, this is not the most pressing administrative issue that startups in Ethiopia would face; not by a longshot.
Take the example of a startup like eQub, an Ethiopian fintech company adopting traditional saving systems into technologically derived ones. It redefines Ethiopia’s ‘equb’ system, whereby a group of people who reach an agreement enter a pool where all members contribute a certain amount monthly or weekly and receive the entire pool on a rotating basis. The platform would address the needs of individuals who do not have ready access or even the capabilities to access traditional loans like banks and microfinance institutions.
The biggest complication? Ethiopia’s laws prohibit both foreign companies and third party operators to provide mobile money services. Only Ethio Telecom and the banks are exempt from this bar with Safaricom making headway to gain permission to provide mobile money services through M-Pesa. Amongst all the issues, perhaps the biggest stain on the startup ecosystem in developing countries, certainly in Ethiopia is this. Safaricom, owing to its vast investment guarantee as well as capacity in the telecommunications industry, has the keys to unlocking (probably) the vast majority of hurdles that it would face when looking to enter any market. Companies like eQub do not.
Of course, this does not mean that the level of significance that Safaricom has to the Ethiopian economy is comparable to that of any startup or even most corporations. This is irrelevant, however, to the business climate that the country desires to create to ensure maximum optimisation
The laws of the jungle – do the weak get eaten?
Startups are not only important in terms of the employment they create, the revenues they generate, or the innovations and innovative spirit that they proliferate. According to TechCrunch, one in six startups ends up being acquired by a larger company, a mutually beneficial transaction as the startup, part of it at least, gains access to the resources it typically lacks like financing, reputation etc. The acquiring company, on the other hand, gains access to fresh perspectives and dynamic teams that are accustomed to working under less than ideal circumstances.
Indeed, these factors show that the startup model that the United States and other developed countries follow is not fit for the African continent, including Ethiopia. Nor should Africans desire it to. The “developed” startup ecosystem is mainly characterised by companies treading water for the first few years rather than either failing or being swallowed. With the economic situation in African countries, entrepreneurs can scarcely afford to falter let alone fail.
Like any innovation or development that is adopted from the experiences of others, Africans have the opportunity to determine exactly how the entrepreneurial culture is translated on the continent. Given that the continent failed to improve much during industrialisation, or even the political movements of the mid to late 20th century, perhaps this is the time to realise that we do not have to repeat the failures of others.
By adopting a startup ecosystem that focuses on creating businesses that provide outsourcing options to companies, startups can hope to be more relevant in their industries and prolong or even guarantee their survival. Startups like MedkET (Ethiopia), which was founded by three medical students, are doing just that.
MedkET is a hospital shift scheduling platform that identified a major gap in healthcare institutions’ workflows and the consequent inefficiencies that these gaps caused. After being incubated for a year by the first healthcare industry-focused incubation programme (another aspect of the startup ecosystem that is vastly different in Africa) run by Orbit Innovation Hub, the startup recently signed an agreement with one of the major hospitals in the country, Zewditu Memorial Hospital.
By providing a service that hospitals desperately require and taking on all the cost and operations of implementing the system, MedkET has made itself essential to Zewditu and likely many other hospitals. The company already reports ongoing negotiations with several other prominent hospitals in the capital Addis Ababa*. Barring any catastrophes, both on MedkET’s side or the industry’s, it has virtually cemented itself in posterity.
The rise of the digital ecosystem
To the same extent, the same level of attention needs to be given to adopting methods that further a more digitized ecosystem. The benefits of the digital ecosystem, driven into hyperspeed by the COVID-19 pandemic, have created the opportunity for developing countries like Ethiopia to adopt systems without having to go through the trial and error process of organic adoption. Unlike many of the advances of the Industrial Age, analogue age, or any other much less significant epoch, the technological age has unlocked the potential for improved global equity. At the macro level.
At the micro level, the same happens as elite power holders do not have the option to refuse the Digital Wave. Perhaps to those in this position, it might even seem like a plague or disease indiscriminately shifting the form of socio-economic landscapes so carefully crafted. Just like plagues or wars take out the old and create new systems one way or another, ones that call on the youth to take up the reins of leadership so too has digitisation it seems.