Foreign investor funding for startups in Africa has been directed largely to eastern Africa, with startups in Kenya, Rwanda, Uganda and others being the biggest winners. CNN recently reported that startups in Ghana are getting just about a third of what their counterparts in east Africa are getting.
Co-Founder and COO of local health-tech startup company Redbird, Andy Quao, blames this mainly on unfriendly local policies and/or lack of them – which makes startups in Ghana largely unattractive to foreign investors and funding agencies.
He noted that particularly for startups in the healthcare space, the challenge is they are competing with the huge public sector healthcare system; and there are no direct policies to stimulate start-up activity in the space – which does not motivate investors that much.
Andy Quao is therefore proposing that government comes up with policy interventions which deliberately stimulate investments into startups in the country: because, as of today, not many investors are much interested in startups as opposed to directly investing into the existing big players on the market.
He noted, for instance, even the minimum capital requirement by Ghana Investment Promotion Centre (GIPC) is not friendly for a startup, because not many investors will be willing to throw millions of dollars at a young startup just to meet government regulatory requirements.
Not long ago, another local tech startup complained that even the Ghana Revenue Authority (GRA) demanded that they pay at least GH¢25,000 tax ahead starting its operations. The GRA had unilaterally estimated that the startup was going to make GH¢100,000 a year, so they demanded a quarter of that even before the company started.
Many other financial technology startups are facing challenges in meeting the Bank of Ghana minimum capital requirement, since they don’t even have the funds needed to grow their businesses even though they have very innovative products.
This, Andy Quao said, is not friendly for startups in Ghana and also demotivates foreign investors. Meanwhile, local investors demand ridiculous amounts of shares in startups for very little money requested from them – which ends up collapsing the business even before it takes off.
He also noted that such unfriendly policies are what make a lot of Ghanaian startups register their companies in tax havens outside Ghana to attract foreign investors; and they end up not contributing much to Ghana in terms of taxes, even though they may be making a lot of their money from Ghana.
“I believe, as part of the Digital Ghana Agenda, government is trying to do something to fix these challenges, and we believe that is the way to go so we look forward to the rollout of such policies,” he said.
Meanwhile, the CEO of Redbird, Patrick Baettie, also noted that another reason for low investor funding of Ghanaian startups is because the startup ecosystem in Ghana is still young and not well developed – so investors are not necessarily confident about recouping their investments.
He explained that payments for startup services, for instance, is a big challenge because whereas elsewhere services can easily be charged to credit cards and other payment systems, startups in Ghana are largely left to find their own way of receiving payments – and this is not attractive to investors.
The Redbird CEO however observed that this is changing gradually with mobile money and other payment platforms like ExpressPay, Hubtel, Etranzact and others coming into the system. But again, the challenge is with level of penetration for these payment platforms and how much they have been adopted.
“So, whereas use of these payment platforms is growing in the right direction, it is not yet comparable with what pertains in other jurisdictions where investors are throwing a lot more money,” he said.
Meanwhile, there have been concerns about how foreign investor funding for local start-ups may end up putting the entire local technology space in the hands of foreign multinationals with locals serving only as agents; particularly because a lot of these funds come in the form of equity or convertible equity – in the case of Redbird for instance.
Currently, in Ghana all the telecom operators who form the bedrock of the local tech industry, and almost all the major commercial banks, are multinationals. So, the concern is if the tech startups and Fintechs continue to strike equity deals with foreign investors, soon that space will also be controlled by multinationals.
But the Redbird COO, Andy Quao, said Ghana is only a market of 30 million people, which is not much of a motivation for any multinational to want to have dominance. But on the flipside, no local company looking to expand beyond the shores of Ghana can do it all by themselves without the expertise and partnership of players and investors who have walked that path.
He said the talk of Ghanaians always owning majority shares in local companies does not necessarily make business-sense, because “owning 10 percent of a billion-dollar company with foreign partners and global reach is definitely better than owning 51 percent of a US$5million local company with a limited reach”.
Andy Quao said until Ghana gets local investors who are willing and able to hold up tech startups and help them grow and reach global markets, “we will continue to need foreign investors and multinationals who have the financial muscle and expertise to take local innovation beyond the shores of Ghana”.
He believes what’s important is that Ghana is being projected as a source of relevant tech innovations which have the potential to be successful anywhere in the world – and this should be a source of comfort to players in the ecosystem rather than generating concerns about multinationals potentially taking over.