Co-author of the book untitled “Entreprenante Afrique,” Jean-Michel Severino now drives “Investisseurs et Partenaires” (I&P), an impact investment fund for African SMEs. He shared with us the specifics of this new entrepreneurial dynamic, as well as what he believes the continent’s future will be.
Leaders league. How would you explain today’s entrepreneurial spread on the continent?
Jean-Michel Severino: Territories becoming more dense, due to a demographic growth and urbanization and this has created a favorable atmosphere for the creation of companies. In terms of education, people are better qualified than ever before. Even if the secondary and higher education system still has its deficiencies, it has produced a large number of highly competent personalities on the market. That’s without even taking into account returnees from oversees.
As late as 2000, Africa had almost no corporations of its own. Just a few multinationals - in the telecom, mining and petroleum sectors notably - the large public companies and some privatized ones were present. For a number of years now however, we’ve seen large African groups emerge. In parallel, a high number of SMEs are seeing the light of the day, starting to occupy the empty space, with exponential potential.
The emergence of a middle-class is also changing the entrepreneurial landscape: many entrepreneurs are coming from the middle class, who demand high quality services and products, a factor which is creating new markets.
Even so, this entrepreneurial emergence is slower than expected. New arrivals on the labor market are expected to reach 440 million at some point between today and 2020. If we are optimistic, we can speculate that the high economic growth of the continent will created 250 million jobs. That leaves around 200 million to fill. The informal sector should keep providing employment in years to come, but we should see the gap shrink mostly with startups and SMEs.
So transition from the informal sector to the formal one is a major concern. How can it be facilitated?
It is not an easy task to join the formal sector, mostly because some companies only survive if they remain informal. Indeed, transition to the formal sector requires an elevated level of competitiveness, together with sufficient profits, to survive on the market. Notably because imports are giving those companies lots of competition, while they have to pay higher corporation tax, fees and employment expenses.
During one of our first African projects, signing a contract making the company formal, with the entrepreneur led to the loss of a significant number of resellers, as well as the loss of the majority of the workers, who formally refused to be declared. An understandable decision when you consider the deficiency of the unemployment benefit, pension and social security systems for Africans.
transition to the formal sector requires an elevated level of competitiveness
Access to funding is a common problem for many African companies then.
Indeed. Savings are less common in Africa. Even if companies have more modest capitalization needs, the creation of equity capital is almost unheard of for a startup or an SMEs. Moreover, business angels and friends/family money, credible funding possibilities in Europe that play an essential role in the creation of companies there, don’t exist in Africa. And so companies turn to debt, but the African banking system is ill-equipped to serve SMEs. An elevated risk of loss in the SMEs segment makes profitability in this sector really low for African banks. Fund I&P is one of the only lenders to accept such a risk when supporting startups and SME development on the continent.
Can you tell us about some typical investments?
Every year, a third of our investment portfolio is dedicated to startups. We recently supported a Senegalese company named Ouicarry, which acts as an ecommerce intermediary for those without a credit or debit card, linking individuals to foreign shopping websites. Africans, who in most cases don’t have a credit card, can pay in mobile money on the online platform.
Every year, a third of our investment portfolio is dedicated to startups.
We have also invested in a Burkinabe startup in the oleaginous sector, producing soya oil for human consumption and for livestock feed. Our example is currently encouraging international groups to invest in this promising project.
Two thirds of our activities cover SMEs which require support to sustain their growth. For instance, in Madagascar we assisted a company in the development of a sea cucumber production unit, as well as a team of engineers producing oil from local seeds.
In Cameroon, we invested in ITG. The company provides services, integration of services and IT infrastructure, and is currently experiencing a period of remarkable growth. For us it is vital to support projects with a strong social impact, whether it’s suppliers, clients or on the supply chain. We also prioritize companies creating quality jobs. In this way, we look at the profitability of the project, together with extra-financial criteria when investing.
Club Africain des Entrepreneurs operates under the auspices of I&P. What are its objectives?
This club is an Ivoirian association dedicated the emergence of an African entrepreneurial class. With I&P on its side, the association supports exchanges on best practices, experience, training and business opportunities between entrepreneurs.
The network has 70 companies, and should progressively keep growing with a view to improving African entrepreneurs’ abilities and level of performance.
What place will Africa occupy in the world of tomorrow?
Quite the opposite of Asia, which has developed an economic model based on exports and outsourcing, African development occurs via the internal market and is driven by demographical growth. Significant commercial deficits, financed by savings from Europe, result. What we are talking about here is a real opportunity to -recalibrate the global macroeconomic variables and remodel the systems of international exchange.
Looking ahead to 2030, between 800,000 and one million jobs will be created by trade activities with Africa. By 2050, its GDP might even have reached that of the European Union. The continent will be a growth motor in the world.