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Small and medium-sized enterprises (SME's) are the backbone of most economies in Africa. Innovative and creative entrepreneurial approaches are needed to help African SMEs adapt to global standards and realize their economic impact. SMEs in Africa face different social, ethical and environmental challenges, opportunities and dilemmas than their counterparts in Europe or the US.

Their problems are shaped by economic factors (e.g. poverty, debt, industrialization, trade flows), political factors (e.g. level of democracy, corruption, legislation, institutional capacity), social factors (e.g. cultural context, urbanization, ethnicity, basic services, public health, HIV/AIDS), and ecological factors (e.g. drought, desertification, deforestation, resource scarcity, pollution).

SME Challenges & Opportunities

Labor costs may be low but often not enough to offset the high costs of transport, raw materials, utilities, and other inputs. African businesses therefore find it difficult to compete in export markets, particularly in markets outside the region, and to compete against imports of a range of goods from other developing regions.

Moreover, many African companies, especially SMEs, lack reliable financial data that allows financial organizations to scrutinize the health and prospects of the company. Most SMEs in Africa also lack assets that can act as collateral and mitigate the risk involved. As a result, capital in Africa remains too expensive for most entrepreneurs looking to build a sustainable enterprise.

Africa faces the challenge to provide better economic opportunities to its citizens, through sustained growth led by the private sector and to alleviate the poverty that has long plagued the region. A strong private entrepreneurial sector plays a vital role in this respect, in particular the small and medium-sized enterprises (SMEs) that provide many Africans employment, income and hope for a better future. As the Shell Foundation says:

"SMEs contribute around two thirds of national income and provide the foundation for a stable middle class in many countries. They help form strong communities and are a powerful force for poverty reduction. Indeed, SMEs play a significant role in building economic stability and sustainability for the future."

SMEs Need Financial Resources

Paul Collier, in his book The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It, he argues that the bottom billion needs private capital and says:

"clearly there are brave people within these societies who are struggling to achieve change. It is important to us that these people win their struggle, but the odds are currently stacked against them.

He goes on to explain the numerous challenges ahead, but introduces a valuable line of thinking that builds the case for supporting local entrepreneurs seeking to implement solutions that are designed for a local context, the needs of a billion consumers rising as a middle class.

Andrew Mwenda, the chief editor of the Independent Magazine in Uganda, argues we need to replace "Poverty Reduction" with "Wealth Creation."

The focus needs to be taken off of symptoms (food, medicine and peace keepers) and in the effort to start addressing the real underlining problems i.e. the ability to generate an income, a trading opportunity and the ability to find a well paying job. His argument is clear; wealth is a function of income.

The focus should be placed instead on entrepreneurs as agents of wealth creation. Entrepreneurs make up about 4% of the population and 16% of the population then follows as ‘entrepreneurial imitators.’ Any development efforts should thus be focused on these individuals and the areas of the economy where there are opportunities to productively grow. An emphasis should be placed on private investment and on the institutions and tools that can empower these individuals to do business.

Traditional Financing Options Fall Short

In order to promote the development of the private sector access to finance is crucial. This can take many different forms form bank loans to overdraft facilities. Unfortunately, Africa is still seen as a risky and expensive place to do business. Indeed, transactions costs are often higher than elsewhere. Speaking to entrepreneurs actively working to set up their business I find that getting a loan from a bank in Africa is like getting a root canal. They always take more than expected and the process is painful at best. As reported in Uganda’s the New Vision:

"Data shows that the lending rates remained high over the past year, standing at over 20% but consistent with trends over the past five years. Despite a slight decrease over the financial year from a peak of 21.8% in August 2009 to 19.6% in January 2010, lending rates remain high by international standards and significantly higher than in any of the other four East African Community partner states, where the average is about 15%.” East Africa is not alone and entrepreneurs face these rates or worse across the continent.

And don’t think its only the small business who struggle, I remember interviewing Mo Ibrahim, the founder of Celtel, and hearing about the challenges he had getting funding for a telecom proposition that was already in the black and operating in thirteen countries, otherwise the lucrative foundations for what is now Zain (recently acquired by Bharti).

Amazing to learn that a company that eventually made 100 people millionaires the day it was sold, had just of a hard time finding the financial support and business trust needed to make it happen. Of course few would turn him away if he called this afternoon, but where was the support when he started out and how many other entrepreneurs on the continent are in this situation today?

The Case for Venture Capital

Venture Capital can be characterized as long-term, risk equity finance in new firms where the primary reward is capital gain.

Complementary to existing lending facilities and micro-finance programs, there is a growing need for Private Equity and Venture Capital, to fuel the development of the private sector in Africa. Equity investments can be instrumental in helping small enterprises grow into medium-sized enterprises and semi-formal into formal businesses. An important role in this respect can be played by Venture Capital (VC) Funds.

VC funding can support business opportunities through investment relations with private companies in the South and the North, introduce new business concepts and offer mentorship and guidance many entrepreneurs need to tackle tough challenges they will face along the way. Hence the VC impact on the business environment can be significant.

Looking to support the continent’s aspiring entrepreneurs there is reason to believe we need a lot more of it. VC4Africa is one way we canhelp bridge the gap between need and solution. Looking at a map like this we can see there is still a long way to go.

This post was originally published as The Need for Venture Capital in Africa.

Across colleges in North America, ProjectFOCUS is raising awareness and capital to invest in solar-powered, income-generating internet cafes in Uganda with amazing, replicable computer lab fundraising skills.

But they're not just about fundraising or computer technology, they're also innovators in ICT4D. On June 5th, when they opened the Lyantonde Internet Center in cooperation with ICOD, they used bicycles to extend the reach of the Internet Cafe beyond it's physical office space. Watch the opening ceremony video to learn how:

By donating bicycles to farmer groups' elected "information agent" in the five villages of Luwama, Kyewanula, Kitazigolokwa, Iwensinga, and Lyantonde, ProjectFOCUS is increasing information dissemination among farmers in rural Uganda.

So the next time you're wondering how you can expand the impact of a computer lab, don't forget the basics like facilitating transportation to and from the cafe. A simple bike race and donation can change the whole perception of Internet access in rural areas.

Michael Trucano, a recognized expert on deploying ICT in education, recently blogged about Worst practice in ICT use in education:

Here's a list of some of what I consider to be the preeminent 'worst practices' related to the large scale use of ICTs in education in developing countries, based on first hand observation over the past dozen or so years. I have omitted names (please feel free to fill them in yourself). The criterion I used for selection was simple: The given worst practice was easily observable in multiple prominent initiatives, with (one fears) a high likelihood of re-occurrence, in the same or other places.

As one of his humble understudies in ICT4E, I found myself in agreement - these are worst practices that are repeated again, and again, and again, when technology and schools are mixed. As you read them, please think about how you'll NOT let these practices happen in your next educational deployment:

Worst practice in ICT use in education

1. Dump hardware in schools, hope for magic to happen
This is, in many cases, the classic example of worst practice in ICT use in education. Unfortunately, it shows no sign of disppearing soon, and is the precursor in many ways to the other worst practices on this list. "If we supply it they will learn": Maybe in some cases this is true, for a very small minority of exceptional students and teachers, but this simplistic approach is often at the root of failure of many educational technology initiatives.

2. Design for OECD learning environments, implement elsewhere
With the best of intentions, and often 'assisted' by vendors, many groups (including many governments) have sought to simply transfer ICT-related models and practices from classrooms in industrialized countries to less developed education systems in other parts of the world. Sometimes this works, but unfortunately many places roll out programs and products that have at their core sets of assumptions (reliable electricity and connectivity, well-trained teachers, sufficient available time-on-task, highly literate students, space to implement student-centric pedagogies, relevant content, a variety of cultural norms, etc.) that do not correspond with local realities. The result is often (and not unsurprisingly) not very good.

3. Think about educational content only after you have rolled out your hardware
Deploying lots of computer infrastructure in schools is expensive (and complicated). So expensive, in fact, that many critical complementary investments (in training, in tech support, in content, etc.) are 'postponed' until a later date. Sometimes this is a calculated bureaucratic maneuver/risk -- the thinking is that, once the hardware is in place, the need for content will be more clear, and it will be easier to make the case for related funding at that time) -- and other times this is simply a lack of good planning. But it is a fact that, in many places, only once computers are in place and a certain level of basic ICT literacy is imparted to teachers and students is the rather basic question asked: What are we going to do with all of this stuff? Related to this ...

4. Assume you can just import content from somewhere else
Some places recognize the need for quality educational content from the start, but assume they can simply import it from somewhere else. In addition to obvious potential cultural issues, the successful integration of content developed elsewhere into daily teaching and learning practices is inhibited by a lack of clear understanding by teachers of the relevance of such materials to the required curricula. Much effort typically needs to be expended to map this content to explicit objectives and activities in the local curricula. (And of course: Teacher training helps too!)

5. Don't monitor, don't evaluate
This should be self-evident. That said, there are only a handful of really credible, rigorous impact evaluation studies done of educational technology initiatives in developing countries. Most evaluation work focuses on (perceptions of) changes in attitudes as the result of the use of educational technologies, and the success (or lack of success) in meeting varius simple metrics (number of computers installed, number of teachers trained, etc.). Such information is important, of course, but it is hardly sufficient. What is the impact of ICT use in education? If we don't evaluate potential answers to this question, rigorously and credibly, all we are left with is well-intentioned guesswork and marketing dross.

6. Make a big bet on an unproven technology (especially one based on a closed/proprietary standard) or single vendor, don't plan for how to avoid 'lock-in

Let's acknowledge that the speed of technological changes almost always outpaces the ability of educational planners to keep up. In response, some policymakers seek to get 'ahead of the curve' by placing large bets on new, largely unproven technologies in an effort to 'leapfrog' what is happening in other education systems. In other cases, education systems effectively outsource most of the capacity to manage activities in this area to a vendor or other third party. There are potentially valid reasons to pursue such courses of action in some cases, but they are inherently very risky, especially if clear plans are not made on how to 'exit' such decisions and relationships.

7. Don't think about (or acknowledge) total cost of ownership/operation issues or calculations
What does ICT use in education cost? Some people would have you believe it is only the initial cost of hardware. Businesses have long known that this is not the case, but many education policymakers seem not to have grasped (or willfully ignore) this fundamental issue. We know that "total cost of ownership or operation" (TCO) is often underestimated, sometimes grossly, when calculating costs of ICT in education initiatives in developing countries. Estimates of initial costs to purchase equipment to overall costs over time vary widely; typically they lie between 10-25% of total cost. That said, there is a dearth of reliable data, and useful tools, to help guide education decisionmakers in their assessments of the true costs of educational technology initiatives.

8. Assume away equity issues
One compelling justification for large-scale investments in the use of ICTs in education is that theycan help address equity issues related to the 'digital divide'. That said, introduction of ICT in schools often exacerbate various entrenched inequities in education systems (urban-rural, rich-poor, boy-girl, linguistic and cultural divides, special needs students -- the list is long). Things can be done to mitigate such challenges, and indeed pro-equity approaches of utilizing ICTs are possible, but they don't happen without careful proactive attention to this issue.

9. Don't train your teachers (nor your school headmasters, for that matter)

If there is one clear lesson from the introduction of educational technologies in schools around the world, it is that teacher training is critical to the success of such initiatives. Outreach to teachers, through both regular technical and pedagogical support and on-going professional development, should be seen as cornerstones of any large ICT investment in schools. And: Targeted outreach to school principals is often crucial if teachers are to have the necessary freedom to take advantage of new opportunities offered through the use of ICTs.

10. ___

[I thought I would leave #10 blank as an acknowledgement that there are many additional worst practices that merit mention, but I have run out of space. Do feel free to submit your candidates below.]

Raila Odinga registering to vote in 4 minutes flat

Regardless of their political affiliations, ICT firms should be pushing electronic voter registration and voting in every country of Africa. Why? Not only does it increase participation in the elections process, and make it more transparent, it also makes great business sense.

Here's an example from Business Daily Africa: the Kenyan constitutional referendum earned several suppliers of technology goods and Internet services millions of shillings when the Interim Independent Electoral Commission (IIEC) used electronic registration and voting in 18 constituencies.

Nokia, the largest handset manufacturer, supplied IIEC with 18,000 mid-tier mobiles worth Sh38 million, according to documents seen by Business Daily. Listed telecom firm Safaricom provided 100 megabytes (MB) of data for each of the mobiles, earning it over Sh2 million in the two-day process.

Apart from handsets, the IIEC staff used laptops and other peripheral devices to conduct voter registration, voting, and tallying of results. The electoral body has said it plans to spend about Sh32 billion in a step by step process to build the infrastructure that would see Kenyans vote electronically in 20,000 polling centres around the country by 2012.

Now that's a political change I think every ICT company can vote for!