How to Start A Startup? is the First and Foremost Question that Strikes the Mind of Every Aspiring Entrepreneur. You will find the Answer of this Question before Completing this Article.
Hi Everyone Today We Will Talk About How to Start A Startup In Africa
It takes a lot more than a good idea to develop a successful Startup or Venture. You need to know where to find the resources, both financial and technological, and you need to find the right people with the right skills to do the job. Knowing where to look for these resources can save you precious time and money, and earn you some valuable partners in the process.
Africa today is on the verge of its own industrial revolution. Across the continent from Dakar to Mombassa, and from Cairo to Cape Town African business men and women are launching Ventures (Startups) in the wake of recent economic reforms. In many cases these projects begin modestly, with startup capital of between $20,000 and $2,00,000. What makes these productive ventures different from other businesses (such as services) is the critical component of acquiring and maintaining equipment.
Demand for locally produced goods in Africa is bound to grow rapidly as we enter the next millennium with larger and more educated populations. In the future, it will become less economical for African countries to import all their manufactured goods because of the high costs and the need to employ and integrate young, technically trained professionals into the economy.
African entrepreneurs and their partners abroad can play catalytic roles in promoting industries in Africa. Potential venture partners in the US can offer much needed technical and financial support and, equally important, access to relatively inexpensive but critical technology and management expertise.
This Article will Guide you through 5 Important Steps about How to Start a Startup in Africa.
Step 1: The Idea
It is not too difficult to find good projects in need of investment or other assistance. However, if you are starting from scratch with no leads, there are resources you can query to help you identify potential Ventures or Startups.
- African Embassies in the US. Often, the Commercial Attachés at African diplomatic missions in the US can provide you with information about companies in their countries that are looking for partners, or about public companies being privatized.
- African Chambers of Commerce. Contacting African chambers of commerce, though more time consuming and expensive, can lead to faster results if the chamber has a ready list of projects from its members. The form and substance of chamber support varies by country.
- The US Department of Commerce, US & Foreign Commercial Service (USFCS). Along with a network of district offices throughout the US, the USFCS has officers in selected African countries who gather information about potential business opportunities for companies and entrepreneurs in the US. These officers produce periodic country reports, including the Overseas Business Reports, Foreign Economic Trends, Industry Sector Studies, and Country Marketing Reports. You can also request targeted research from the field through the district offices.
- United Nations Industrial Development Organization (UNIDO). UNIDO is the industry-oriented agency within the United Nations family of organizations. Its main focus is to promote and support industrialization in developing countries, including Africa. The agency sponsors investment conferences and produces many publications focusing on manufacturing ventures in Africa. There are offices of UNIDO in Washington, DC and New York.
- The Africa Project Development Facility (APDF). This is a joint venture between the World Bank, United Nations Development Program, and the African Development Bank. With offices throughout the African continent, APDF was established to assist African businesses in preparing feasibility studies for business startups and expansions. It is worth noting that the Facility itself does not fund projects once the studies are completed. As a result, there are always potential and completed project assessments at APDF that require capital, technical assistance, market development assistance, or other support.
- The Multilateral Investment Guarantee Agency (MIGA). A member of the World Bank Group, MIGA’s principal role is to provide investment insurance for projects in developing countries. Increasingly, MIGA has taken on the role of co-sponsoring country and regional investment promotion seminars and workshops designed to stimulate direct foreign investment. The Agency has developed a useful database of investment projects in Africa and other developing regions, and many of these projects involve manufacturing or processing of unfinished products.
- The US Agency for International Development (USAID). Although an enormous amount of this agency’s resources have been targeted towards assisting South Africans in their reconstruction and development efforts, USAID does have ongoing private sector development-related projects in other African countries. If there is no current activity in your country of interest, the Agency may be able to give you leads on finding project-related information. It is always useful to contact the US-based country desk officers and their counterparts at the US State Department for useful information on initiatives related to manufacturing, export development, and agribusiness. The field officers can introduce you to local companies seeking partners or assistance.
At this step of the project development process, you the project promoter must make a commitment to visit the targeted country to meet and strategize with your potential partners. This is highly recommended even if the country of operation is your home country. It is possible to start a project without local ties, but your risk of failure will be very high.
Step 2: Determine the Feasibility of the Project
When a promising project has been identified, your next and most important step is to determine the feasibility of launching the Startup or Venture. This step involves drafting a carefully detailed plan of action which reflects the venture partners’ understanding of:
- Markets in which your products will be sold, including industry trends, tariffs and other barriers to entry;
- Domestic and International Competition in your chosen industry;
- Costs of Human Resources, technology, and other components of your Venture;
- Expected Revenue that the project can generate, as well as sources of capital. You should also take into account repayment strategies for any borrowed funds;
- Competitive Advantage: above all, this study must also support your belief that there is room in the market for your product and that you will be able to deliver a quality product at a competitive price.
For those who need assistance in preparing feasibility studies, there are some resources that can assist in this process. As mentioned earlier, the Africa Project Development Facility was established specifically to aid in the development of project studies. Often, however, the APDF officers receive many more requests than they can handle, and you may have to find other assistance in such cases.
If the project involves US inputs with the potential of importing US-made equipment, the US Trade and Development Agency (USTDA) can provide grants to project promoters to conduct the studies. If you plan to approach the African Development Bank (ADB) for possible finance, you could also seek feasibility study funds from the ADB-USTDA Trust Fund, which was established to assist US-based companies in their efforts to participate in African projects. These grants are given on a matching fund basis.
Step 3: Sources of Technology
Your next step is to acquire the necessary equipment for the venture and people with the right skills to manage the project and manufacture your product. One of the fastest ways to determine which technical inputs will be needed to launch a venture is to contact one of the many national Industry Associations in the US and ask to be put in touch with a company that already makes the same or similar product you plan to produce. There are a number of publications available at most public libraries listing the various industry associations and their contact information.
Once you have a rough idea of what technical skills and technology will be needed for your Startup/Venture, the next task is to determine how to acquire these inputs. Equipment and machinery can be leased in some cases, but you may be required to purchase them because they are intended for overseas use. Industry associations are often good sources of information on suppliers of both new and used equipment.
You may also contact the US Department of Commerce or Department of Agriculture. Both have industry desk officers who may have the information you need. Along with providing information on specific companies that sell the needed technology, these 2 agencies also have specific information about major trade shows nationwide which you may choose to attend. Hundreds, and often thousands, of producers attend these trade shows, giving you the opportunity to meet with them and determine the best way to obtain the appropriate technology along with optimal after-sales service.
After-sales service is very important. When acquiring technology, make sure you gt the guarantee of the seller to provide after-sales service and supplies. Many manufacturing projects have failed because of minor machinery breakdowns in which the project manager did not have access to the required service and supplies.
One useful source of technical assistance is the International Executive Service Corporation (IESC), an agency sponsored by the USAID and based in Connecticut. IESC places retired business executives in foreign companies for months at a time to assist in getting ventures off the ground. These volunteers have a variety of skills which are matched to the needs of the project.
There is also the African Management Service Company (AMSCO), a multilateral agency based in the Netherlands and managed by the World Bank’s International Finance Corporation. AMSCO, like IESC, places capable executives in African companies to provide technical and managerial assistance.
Finally, you may wish to contact bilateral or multilateral institutions with offices in your country of operation. They can help you identify, and in some cases finance, technical consultants or staff for manufacturing ventures. These cases will depend largely on the agency and country you approach.
Step 4: Project Finance
There is no substitute to having some capital of your own, but few people can afford to put up the full cost of a Startup or Venture. In many cases finance is available to offset some of the initial investment costs of establishing the operation. If you or your partner is based in the US, you can benefit from debt and equity financing available through the Overseas Private Investment Corporation (OPIC). OPIC’s mandate is to provide project finance and insurance to investment projects in developing countries involving US-based principals.
Project finance is also available from the International Finance Corporation’s African Enterprise Fund. This fund was established to allow the IFC to consider projects which are much smaller than those they traditionally handle. The African Development Bank’s Private Sector Development Unit (PSDU) provides similar services to those of the IFC in that it is the ADB’s private sector lending arm. 2 key factors to note in seeking OPIC, IFC, and PSDU funding are:
- Projects can take up to 12 Months to get funded because these institutions pay a great deal of effort to proposals to ensure that the public funds they handle are invested properly;
- Larger project will receive preference over smaller projects since the same scrutiny will be applied to both projects regardless of size, but larger projects will have a higher revenue stream when the borrower begins to repay.
You can obtain alternative sources of equity and debt financing from emerging African Venture Capital (VC) firms, such as the Ghana Venture Capital Fund, or the New South Africa Management Fund in South Africa; and from merchant banks, such as Connecticut-based Equator Bank, which manages the Africa Growth Funds I and II, and Meridien-BIAO, which has branches all across Africa and will soon be headquartered in New York. In mid-1994, USAID announced the launching of the $100 Million Southern African Enterprise Development Fund headed by Andrew Young, the former US ambassador to the UN. This fund will provide an additional financing source for manufacturing projects in the southern Africa region.
Step 5: Mitigate the Project Risk
Despite the best intentions and thorough planning, unforeseen events can occur that will disrupt your project. These could be sovereign risks such as unanticipated instability in the government of your host country, devaluation of the local currency, or from labor unrest. Along with providing investment finance, OPIC provides political risk insurance for projects involving US-based principals. As mentioned earlier, the World Bank’s MIGA also provides political risk insurance for projects in developing regions of the world, including Africa.