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Igniting innovation-based growth in Africa

Although Africa has 18% of the world’s population, it accounts for only 0.3% of global R&D spending and 0.5% of patent applications,  writes Tolu Oyekan, Partner, BCG

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Tolu Oyekan, Partner, BCG on Innovation growth AfricA
Tolu Oyekan, Partner, BCG

Despite being the second largest continent by population and its huge landmarks, Africa still lags behind in several indicators vital for a successful industrial revolution.

The region is still behind in the most important measures of innovation capacity. Although Africa has 18% of the world’s population, it accounts for only 0.3% of global R&D spending and 0.5% of patent applications.

Trade statistics paint a picture of a relatively low-tech, low value-add region: Africa produces 0.4% of global high-technology exports and 0.8% of middle-technology exports, such as industrial machinery, autos and chemicals.

Unlike previous waves of industrial change, competing in the digital age doesn’t require deep scientific expertise or massive capital investment. Instead, innovators and entrepreneurs in emerging markets are in a position to tap into flows of talent and digital knowledge; and convert them into novel goods, services and business models.

Specifically, Nigeria has been making steady progress in digitalization, technological advancement and innovation. The advent of the internet has impacted Nigeria positively; connecting businesses, individuals and enterprises in a seamless manner. Internet access and mobile phone usage has grown dramatically, as has Science, Technology, Engineering and Mathematics (STEM) education.

Nigeria has a potential to unleash innovation that could transform industries and improve well-being across the region. These innovations can be seen in the transport, health, education, payment and fintech sectors.

Nigerian startups have attracted hundreds of millions of dollars in equity funding. Voltron Capital is one of the well-known active investors in Nigeria tech startups and Africa at large. Since its inception in 2014, it has invested in 33 startups.

The Fintech (Financial technology) sector is one of the major and fastest-growing start-up ecosystems in Nigeria and these companies in Nigeria are driving tangible change for businesses.

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According to a study by Boston Consulting Group (BCG), the number of African tech startups receiving funding between 2015 and 2020 increased by 46%, nearly six times faster than the global average.

However, the progress Africa has achieved has been concentrated in a handful of nations: Nigeria and five other African countries (Egypt, Kenya, Morocco, South Africa, and Tunisia.)

These six countries account for half of all African mobile communication subscriptions, for example. Internet access and mobile phone usage has grown dramatically. In 2021, Nigeria had 108.75 million internet users.

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This figure is projected to grow to 143.26 million internet users in 2026.  Four nations receive around 85% of the continent’s venture capital investments and 70% of STEM graduates.

South Africa, Egypt and Morocco account for 70% of public R&D spending in Africa. By their analysis, only two nations—South Africa and Kenya—have comprehensive regulations related to innovation.

In a recent report by BCG, Morocco’s 200-company automotive cluster is launching R&D initiatives linking manufacturers to universities and Kenya has emerged as a hotbed for fintech.

South Africa’s dynamic health technology ecosystem includes more than 120 companies. Incubators, entrepreneurship training and investment funds are making Egypt the region’s fastest-growing startup ecosystem.

The good news is that talents in the region who are trained in the skills needed for fields like AI and advanced analytics are proving that they can integrate seamlessly into global value chains. Freelance workers in such digital disciplines are in high demand, and the COVID-19 epidemic has made leading corporations far more receptive to remote work.

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This means that, for once, governments that invest in training can create jobs at home that will contribute to socio-economic development and innovation in Africa—rather than a brain drain.

Given the region’s diverse markets, there is no uniform approach to building and nurturing an innovation-driven economy that will work in all of Africa.

The most appropriate strategies and mixes of policies will depend on which types of innovators—such as Multinational corporations, local champions, or startups—are being targeted.

There are, however, three basic steps that African governments need to follow to activate their national innovation system: build a national innovation strategy, stimulate domestic innovation activity, and enable the new national innovation ecosystem.

Building a National Innovation Strategy

Governments need to set their sights on innovation-driven fields that can create value well into the future by defining a national ambition and targeting priority innovation sectors.

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This can be done by considering the evolving opportunities in the emerging, digitally connected, Industry 4.0-driven global economy. Based on this analysis, policymakers should identify industrial sectors that are in the strongest position to achieve key national goals.

Nigeria has taken the initiative to adopt a National Strategy for the development and expansion of the tech ecosystem into communities, schools and innovation-driven enterprises (IDEs), thereby providing opportunity for various sectors of the economy to leverage technology to transform business models, enhance productivity and efficiency; while also creating jobs and wealth for operators.

Stimulating Domestic Innovation Activity

To successfully launch different innovation clusters to stimulate innovation activity and attract foreign partners, African governments should provide operational, technical and financial support; encourage collaboration, invite open innovation and provide an innovation-friendly regulatory environment.

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Enabling the New Innovation Ecosystem

A well-designed policy framework can lay the ground for a thriving innovation economy. But governments—especially in developing economies such as those in Africa—must also play a lead role in driving the investments that are needed to build innovation capacity.

Governments can leverage the success of leading-edge companies to support the development of innovation ecosystems by collaborating with the private sector to build supporting infrastructure, develop the talent pool and actively pursue and support pro-innovation investment.

While there is no single innovation strategy that can work across such a diverse region as Africa, the basic approach of defining national strategies, stimulating innovation activity and enabling the innovation system applies. Success in these areas will require collaboration among all actors in the innovation ecosystem: local companies, small entrepreneurs, academic institutions and investors.

The specific policy formula should vary according to each country’s level of economic maturity, existing innovation capacity, competitive strengths, market ambitions and national needs.

As African nations continue to aggressively invest in their innovation capacity and implement the right blend of strategies and policies, we believe the continent is poised to write a new chapter in its economic history. But Africa should move now while there is still ample opportunity to get on the top deck with innovation cycles that are redefining the future.

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