Investments

The Home Grown Model for Investments in Africa – Diaspora Remmitances, Crowdfunding and Micro VC Investments

I came across the Bloomberg’s article on the black wealth gap over the weekend. The summary is that African Americans held less than 2% of corporate stock and mutual funds in the U.S. as of the end of March 2020. 

Yes, the summary is really for the US markets but this triggered other thoughts about investments in Africa. In recent weeks, I have been tracking the venture capital flows into the African market and the pattern seems to align with the Bloomberg report. 

In a recent PWC summary of a report from the World Bank, it was estimated that global remittances grew by 10% to $689 billion (2017: $633 billion) in 2018, with developing countries receiving 77% or $528 billion of the total inflows. The diaspora remittances into Nigeria was about $24 billion as of 2018. PWC estimates that the remittances into Nigeria would reach about $34 billion by 2023. 

I am going to focus on the Nigerian case as a proxy for what is happening in most Sub Saharan African countries. While the remittances may appear significant in terms of size, the significant portion of these remittances are to support consumption by dependents and families of these foreign based Africans in diaspora. There are opportunities to further grow the size of the remittances by expanding the purpose and breadth of the remittance flows into capital investments in a structured manner. 

In many African countries such as Nigeria where the unemployment rates have been growing at alarming rates, there has also been a simultaneous growth in entrepreneurship by the young Africans, from Nigeria to Kenya, from Egypt to Tanzania, up to South Africa. 

In these various emerging market economies, due to the level of poverty and inadequate credit systems to support the growing small business owners and entrepreneurs, there is a gross undersupply of seed stage capital and early growth capital. 

Whilst there have been a growing venture capital supply to the African market, especially to the tech sector, most of these funds have been targeted at the mid tier and larger ticket sized projects, usually above $10M funding. In addition, most of the entrepreneurship development grants made insignificant impact as they were not properly conceptualized or implemented. 

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In markets such as the US, the business and regulatory environment has encouraged the growth or equity crowdfunding and micro venture capital projects. These programs have been able to provide the needed funding to founders of smaller sized projects, even as low as $10,000. 

In the last few months, I have engaged a few Nigerians in the US and Canada on this challenge with a view to getting a better understanding of the challenges. I have also been in touch with over 3,000 small business owners who are members of the SME community that I have been growing and mentoring over the past few years. As a result of these engagements, it is becoming clearer that there is a need to create a new “home grown” approach to enhance the supply of capital to founders that might be unable to raise financing from the existing platforms. 

Last month, I formed a mini think-tank group that included investment bankers and angel investors to further evaluate the opportunities. It was a blast. We came up with a model that’ll achieve two things – provide seed and early stage capital, operational and strategic support for founders across Nigeria and provide opportunities for small investors, including the Africans in the diaspora, to begin investing in early stage investment opportunities with opportunities for good returns that were previously only available to only high net worth individuals and large venture capital funds.

The above “home grown” approach to investing in Africa would help to create or preserve wealth for the investors while also create wealth for the founders, employees, suppliers and communities where those businesses would operate, from Nnewi to Ijebu Igbo, from Kano to Aba, from Cairo to Cape Town, from Tema to Accra, from Nairobi to Dar es Salaam. 

If we will not be allowed or granted access to the table in our neighbors’ house, then we must learn to create and set up our own table with our own buffet at home

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