6 Reasons Why Macro Entrepreneurs Face Challenges Accessing Capital in the DRC.
I had the privilege of conducting a social innovation challenge in the East Democratic Republic of Congo (DRC) and visited some incubators to better understand the startup and social ventures eco-system in the region through my consulting organization Your Platform. During the sessions in Bukavu and Goma, I interacted with over 200 individuals, non-profit organizations, and micro startups that had incredible ideas and products but lacked the necessary resources to bring them to life or scale.
It's disappointing to see that despite the rising rate of unemployment and economic crisis in Congo, many young people have ventured into entrepreneurship and startups. However, they face significant challenges in mobilizing funds for their ventures.
Congo is the second-largest in Africa and 11th in the world, with an estimated population between 100 to 110 million in 2022, of which more than 53% are 18 years old or younger. Its capital city Kinshasa has an estimated population of more than 15 million, surpassing the populations of many African countries.
According to research conducted by consultants from Verod-Kepple Africa Ventures in cooperation with Haske Ventures on the startup ecosystem in the Democratic Republic of the Congo; in 2022, African tech startups raised a total of $6.5B, but only "38% of the funding flows into Francophone countries; West and Central Africa, with a total of $221.4M raised, represent 4% of total equity funding in 2022".
79% of VC funding in 2020 went to Jambo, a DRC-based startup (according to press reports) building a Web3 user acquisition platform. (Jambo is a Web3 super app enabling Africans to trade crypto, buy and sell NFTs, experience play-to-earn crypto games, and access top-notch global Web3 applications). I am not sure if a common Congolese person understands what this is. Even in developing countries, people are still illiterate about these types of businesses, unfortunately, these are the ones getting funds from VC.
Even though this only shows the tech space, you can see how low this is and the nature of these startups does not serve the interests of the common Congolese or solve basic problems.
When Thisekedi, the new president, came to power, he encouraged the diaspora to pair up with local entrepreneurs to invest in the country by creating an institution for an easy process called "Guishet Unique." Unfortunately, this did not last long until things went back to normal corruption and made it harder again.
Here are 6 reasons why Congolese macro-startup and individual entrepreneurs are struggling to secure funds to either scale or start their ventures.
Lack of access to loans for both local and international capital ventures: One of the main obstacles is the lack of access to loans (locally) and capital (internationally), which severely impacts business starters and less privileged entrepreneurs, causing their promising ideas to wither away. Banks in Congo have many requirements for lending money to people or small entrepreneurs because of high risks in return, and many do not have collaterals to provide; therefore, it becomes even harder. Additionally, you might think that wealthy individuals or successful local businessmen in Congo would provide financial support to local intrapreneurs, but unfortunately, they don't.
Lack of access to current technologies and transport infrastructures: Technological advancements also play a vital role in the success of scaling-stage businesses. Access to permanent electricity, internet, online sales platforms, and import-export capabilities are essential for growth, but these resources are often limited in the region. Beyond this, roads are a very important factor in business internally to facilitate cross-province business exchange; unfortunately, roads in Congo are nearly nonexistent.
Language barriers: French hinders opportunities for accessing capital and global markets. While English holds significant global importance, the predominance of the French language in business creates fewer opportunities for Congolese entrepreneurs to connect with international investors and markets. Even though Swahili is still a common language in East Africa, and Congo is a new member of the East Africa Community, still English is the business language in the region Congolese entrepreneurs will still struggle to use the opportunity of the East African business cooperation.
Dysfunctional government: The Congolese government does not promote local business and makes it harder for a common Congolese to have a good start or legal permissions. There is also limited access to licenses and proper documentation, and issues like corruption and a dysfunctional government create a challenging environment for small businesses and entrepreneurs to thrive. Anytime small ventures are on the rise, millions of unjustified and illegal taxes will land on you. Sometimes taxes become so expensive that your operating budget is affected, and you end up closing the business or taking it to neighboring countries like Rwanda or Uganda. This makes it harder for small businesses to thrive unless you are in the corrupt government circle.
Lack of knowledge exchange and information: Basic understanding of entrepreneurship, managing startups, raising money, and venture capital investment is seriously lacking. Without the existence of essential shared knowledge, the entire ecosystem will be led astray by opportunistic and ad hoc decisions made by both investors and founders. The bulk of the founders have never been outside of the DRC, and they lack the network and resources necessary to compare their business models to those in other markets. Some local investors are likewise ignorant, and they can pressure the entrepreneurs into accepting harsh terms without thinking about the drawbacks. There is a need for seminars and business workshops to discuss best practices and link Congolese stakeholders with the larger international community to create learning opportunities for all stakeholders in the DRC. Given Congo's potential for a thriving economy and its status as one of the most populous countries in Africa, it becomes crucial to extend support to small businesses and startups. Empowering these ventures can significantly contribute to the country's economic development and growth.
Ongoing Conflict and Instability: We cannot ignore the presence of ongoing conflict that has made Congo considered a dangerous country to live in or invest in. The international community and the media portray Congo negatively, and this scares investors from investing in Congo. Even though this can be a setback for many, still, this is not the everyday reality on the ground, and investors shouldn't be scared because the Chinese, Indians, and Lebanese are harnessing millions of dollars while Western investors are scared based on media propaganda.
By fostering an environment that encourages entrepreneurship and supporting startups, more businesses will emerge, financial circulation will increase, job opportunities will be created, and living conditions will improve, leading to positive changes across the nation.
Addressing the barriers faced by Congolese startups and small businesses requires concerted efforts from various stakeholders, including the government, investors, and international organizations. By offering financial assistance, technological support, and opportunities for global market access, we can foster an inclusive and prosperous economic landscape in Congo.