In this guest post, Sw7 co-founder Keith Jones tells us how African governments can promote socio-economic development on the continent by supporting tech startups and innovators.
We have all seen the headlines, the news, the plans. By creating lots of jobs in small businesses we are going to lift the economy, solve the social problems in Africa and build a growth economy. Can we?
The comments we often hear: if you are a tech business, you are doing more with less, creating a geared business and not really addressing the real issues at hand, which is driving employment.
In the nine-point plan from the South African government, tech innovation is in there somewhere, but it’s not a standout priority. The government is focused more on creating a large number of services jobs than it is at looking to the relatively small amount of jobs that the tech sector has to offer.
To simplify the needs of small business, they need three things to succeed: access to skills, for they need to have the foundational skills to run a business; access to market, for they need to be able to sell their product; and access to capital, for they need to be able to fund their business.
The government and financial institutions will say they are addressing all three as best they can. They may be, but the part of the equation that matters the most is missing, the customer. The customer wants a service that meets their needs and solves a problem at a fair price. Adding another services business into the market, with a similar product and price, is moving the deck chairs around on the Titanic.
Moving spend from big businesses to small is removing economies of scale from the market, and with it, efficiencies, competitiveness and jobs. Without the customer in the equation, all the efforts are focused on the details of the problem, rather than the problem itself – market liquidity.
We need more cash flowing in the system to be able to lift the economy. The government views the market through their taxpayer goggles. The only place cash comes from is taxpayers; create more jobs, that creates more taxpayers, and creates liquidity.
In the early stages of trying to stimulate the economy, where we are now, the amount of cash in the system is fixed, so addressing the three areas listed above is not going to have any effect. Creating jobs without adding liquidity to the market is building a house of cards.
Once liquidity is created, the market can lift, we can then attempt to enter a virtuous cycle, where the growth creates liquidity and we get the growth economies we are looking for. This generates more cash and creates more taxpayers, if the government can effectively recycle the cash. If you apply simple market dynamics, the concept of creating jobs on it’s own is a notional one. It’s not going to happen.
As ever, the single largest problem we have in Africa is the last mile. How to connect with and serve large communities of people that have limited resources leveraging limited infrastructure. To create jobs we need to put 50 cents in the dollar into the pocket of the consumer at the end of the month, not 20 cents. We need market liquidity to increase to create an environment where small businesses can flourish.
This is what tech innovators do for a living. Their job is to create opportunities where others see none, they save the customer time and money by finding a gap in the market where they can add value. Market dynamics rule, if they can’t help the customer and drive efficiencies, they won’t get adoption and they can’t enter or scale.
They can only get adoption if they are solving a problem the market needs solving. To survive and thrive they drive economies of scale and savings to disrupt markets, and to gain adoption, they pass these benefits on to the customer. In doing so, they create access to data and understanding of the market, the problem and the customer.
A market can only be effectively supported when there is data available. A tech innovator can only enter a sector when they have found ways to access new markets or collapse the inefficiencies in existing ones. Both activities drive the market liquidity we are looking for.
This is not to say that tech innovators are going to solve all of the problems we face in Africa, but when you look at the focus and energies of the government and large organisations, one of the most valuable resources we have, the creativity, appetite and energy to solve the problem the tech innovators bring, is one of the most underutilised.
The problem is reporting and accountability. Governments can’t use taxpayer money creatively and can’t be seen to be helping the few when the many have such a pressing need. Helping tech businesses is an assist rather that a direct goal. Goals win elections, assists are hard to account for.
The energy, focus and rhetoric from African governments shows they haven’t got it when it comes to the tech innovation sector. They don’t get the multiplier. The level of change that tech innovation is bringing to every aspect of our lives in every market in the world is apparent, more so perhaps right now in the more developed markets.
What is clear is that tech innovation is going to play a pivotal role in transforming the African fiscal and social landscape. In my view, and I’m biased of course, it is going to play the leading role, as it creates liquidity in every aspect of every business it touches.
Creating 20 tech businesses employing 10 people each is not going to move the needle. If one of these businesses can deliver a service that saves 100,000 people 50 cents a day or an hour a week, that is the stuff that changes markets and creates jobs.
If five of these businesses can each reach out to 0.2 per cent of the population in their country and create cash or time liquidity, that is enough to move needle and make a difference. What if we can create hundreds of tech businesses that do this? What if they can reach out to two per cent or three per cent of the population? That would be enough to start the growth engine.