From: hbr.org

by: Ndubuisi Ekekwe

Last month, I visited my village of Ovim in Southeastern Nigeria. I met a painter who also manufactures the paint he uses for his work. According to him, his business nearly collapsed early in the year when he could not access the foreign exchange market to import the raw materials required for his paint production. At that time, the Nigerian central bank was running a currency control regime which stifled the importation of goods for small businesses.

But despite these challenges, the painter came up with new ideas to keep his business going. He created a new type of paint, from non-toxic materials, using materials sourced locally. The new paint has no smell and dries within minutes of application. I was impressed. I invested in his business and told him that people like him are the future for Africa.

My experience is typical in the continent these days. As one travels from Nairobi to Lagos and from Dakar to Kigali, a feeling of optimistic exuberance emerges because African-inspired institutions are forming. The collapse of the commodity boom has pushed countries and their citizens to invent other ways to survive because benefits like unbridled imports are no longer sustainable. Now many things are coming together which will help transform some African economies by the sheer power of their entrepreneurs. The cloud, open source software, cheap computing resources, and ideas from local technology hubs are redesigning Africa. Even if the commodity boom returns, these structures will remain because they are homegrown and well-designed. In fact, it shows promise for a golden era of entrepreneurship anchored by local innovation.

In order to understand this shift, we need to better understand how it developed. In the peak of the Great Recession, most African professionals who were located in the U.S. and Western Europe returned to their native countries after they lost their jobs. They went back with top-grade technical skills, managerial experiences, and international networks. But because there were limited available jobs in Africa as the recession decimated stock markets and businesses, most of these individuals went into entrepreneurship.

They also partnered with local professionals. Today, we are seeing companies with core intellectual properties (IPs) emerging out of Africa. These entities like Safi Sarvi (an organic fertilizer producer) and UMT (a 25-minute non-blood malaria tester) are focused on solving local problems. Unlike in the past when African technology business were centered on becoming a representative of a global technology giant with compensation based on commissions and mark-ups, the new companies are creating their own innovations and where possible competing with the foreign ones.

This adaptation by the local companies to indigenous creativity is a response to new market realities.  After the recession, and with the commodities boom, companies and governments absorbed the high costs anchored on the local representation business model. But as the latest commodity market bust accelerated around the continent with governments struggling to pay workers salaries in countries like Nigeria and Ghana, something dramatic happened. Banks, insurance companies, and manufacturing firms started looking for local technology solutions because foreign products were eating into their margins and the economies were in bad shape for them to increase prices. That opened opportunities for local companies like Lagos-based AppZone and Nairobi-based Craft Silicon, both fintech companies, to expand operations across the continent.

The present economic upheaval in the continent offers prospects for local companies that offer products that can be priced without direct consideration of the forex market. As governments move money out of commercial banks, thereby depressing bank revenue base, the banks are cutting costs to be leaner, innovative, and more affordable. African entrepreneurs will play major roles as they redesign business models in a period of currency controls, currency devaluations, and government stasis.

Investors and those planning to open businesses in the continent should be aware of this change in the competitive landscape. In this period of economic turbulence, the locals have the edge because they have embraced frugal innovation. Barclays Africa is exiting Africa because it cannot compete in a suddenly tough market, while Equity Bank Kenya is flourishing.

The old construct of acceleration of consumerism where foreign brands merely open sales offices in Africa without design or research centers will be challenged by African entrepreneurs. Now that governments are weakened and taxing local entrepreneurs for revenue, a new reality has emerged. Most governments have since stopped international training and importation of certain products. Increasingly, African companies are moving away from acquiring foreign software because they cannot find the dollars to pay for them.

This is a virtuoso moment in Africa with its 1.2 billion people latent opportunity. Convergence of foreign exchange scarcity and abundance of local indigenous capabilities will bring a new dawn even as governments are funding local entrepreneurs and challenging them to make customers their “growth investors.” Just like my village painter, across the continent with mines of knowledge emerging, even as mines of platinum and oil are ravaged; these entrepreneurs will transform the continent with the brainpower of the citizens and offer the road map to a new African economy.