A startup's board of advisors?
Investing in Africa has been a regular topic of discussion among my friends and colleagues over the past year. I published a post
on this forum about a report that says African tech startups raised $1.4 billion in 2020 with the fintech sector receiving 25 percent or $354 million of the total amount. And I am confident this amount will be significant higher for 2021. While there are many reasons to remain optimistic about the future of Africa's digital economy, particularly in the fintech, agritech enterprise, and health tech sectors, investors should be mindful of the risks that exist which may negatively impact a company's operations and financial performance. One such risk is the growing security instability on the continent.
I often hear people from Africa express their frustration that many people residing outside the continent view their homeland as a place ravaged by war and disease. They say the global media perform a disservice by focusing on the negatives while neglecting to report on advancements made in key areas including economic development, education, and rule of law. I agree with their feelings of frustration as I have witnessed the exponential economic growth since the time I made my first investment in Africa in 1995. However, armed conflicts on the continent exist in many areas. There are concerns that these conflicts will spread to cities that have experienced significant economic growth over the past two decades.
At the time of publishing this post, there are growing insurgencies by jihadists and separatists in the Sahel, the ecoclimatic and biogeographic realm of transition in Africa between the Sahara to the north and the Sudanian savanna to the south (see map on the right). According to an article
published by The Economist
on Nov. 20th, 2021, "almost 9,000 European and American troops on the front line of what is now the West's biggest offensive against jihadists, in the Sahel. It is not going well. How it will end depends in no small part on whether the West learns the right lessons from its failures in Afghanistan."
During my time working on private sector development initiatives in Afghanistan
, my colleagues and I evaluated security risks based on the flow of funds and weapons to jihadists. Entrepreneurs and small business owners living in Afghan provinces that received the largest percentage of imported weapons and funds to support jihadists and violent extremists experienced more risks to their business including corruption, lack of access to essential services such as electricity and water, and restrictions on the hiring of women.
With the United States' withdrawal from Afghanistan this past summer, jihadists around the world "were elated by the fall of Kabul," In another article
published on Aug. 28th, 2021, The Economist
notes: "Through willpower, patience and cunning, a low-budget band of holy warriors has vanquished America and taken charge of a medium-size country. To Muslims who yearn to expel infidels and overthrow secular states, it was evidence that God approves. The ripple effects could be felt far and wide."
The article adds that "outside Afghanistan, the main ripple effects will be psychological. The Taliban's triumph will fire up jihadists in other countries, and spur recruits to join them. Some who live in rich countries will be inspired to commit acts of terrorism there. It does not take many such attacks to sow a sense of fear or roil domestic politics.
"Even worse will be the effect in poorer, weaker states, where jihadists aspire not merely to kill but to control territory, or at least prevent the government from doing so. In places like Pakistan, Yemen, Syria, Nigeria, Mali, Somalia and Mozambique, they already do. In several other parts of Asia, Africa and the Middle East, they threaten to. Many are asking: if our Afghan brothers can beat a superpower, surely we can beat our own wretched rulers?"
The Economist Intelligence Unit's latest Democracy Index
, which provides "a snapshot of the state of democracy worldwide in 165 independent states and two territories," says "[t]he deterioration in the global score in 2020 was driven by a decline in the average regional score everywhere in the world, but by especially large falls in the 'authoritarian regime'-dominated regions of Sub-Saharan Africa and the Middle East and North Africa."
Moreover, The Economist, in its Aug. 28th article, asserts:
Bad government creates an opening for jihadism. When a state is unjust, its citizens may imagine that one run by jihadists might be better. Even if they do not take up arms, they may quietly support those who do. Many rural Afghans decided that Taliban justice, though harsh, was quicker and less corrupt than government courts, and that Taliban checkpoints were less plunderous. This is one reason the Taliban's final march to power met so little resistance. The other was psychological: they won because when America pulled out Afghans did not want to die fighting for a lost cause. Similar principles apply elsewhere. Jihadists in north-eastern Nigeria are hard to beat because locals detest the central government and army officers sell their own men's weapons to the guerrillas and pocket the cash.
In an email message to my colleagues and clients where I shared a link
about a webinar the U.S. Department of Commerce is hosting on Nov. 30th, 2021, which will allow participants to hear real-time market conditions and learn about technology and commercial digital transformation opportunities in Ethiopia, Mozambique, Nigeria, and Kenya, I included a message saying that this event should be interesting given the first three of these countries are currently experiencing some form of conflict by jihadists or violent extremists. As for Kenya, the East Africa country is on high alert
because of recent suicide bombings
in neighboring Uganda.
Barring Ethiopia where the Tigray People's Liberation Front are taking towns on the way to the country's capital, Addis Ababa, most armed conflicts occur in rural areas far from capital cities or economic centers. Given the rise of authoritarian regime-dominated regions in sub-Saharan Africa, coupled with jihadists feeling emboldened by the Taliban's recapturing of Afghanistan, it may be a matter of time until we see armed conflict in cities that are experiencing a vibrant startup ecosystem.
I remain optimistic about business and investment opportunities in Africa, particularly in the continent's digital economy. But those who are launching a new firm or investing in one should perform an assessment of country-level risks
including evaluating the safety of the physical environment. In determining the risk of rising jihadism, follow the money
If you are investing in Africa, which risk factors are you paying attention to?
Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.