The current status quo will see Africa’s economy grow but is unlikely to see the continent be self sustaining in terms of food as the population doubles by mid-Century.
The food gap today exceeds $10 billion annually,
even with 80% of Africans farming the land. And despite more and more funds, families, and foundations investing in Africa, the missing middle of capital (i.e. the gap in capital between ideation and
$1 million in annual revenues) only grows bigger with the current model is too slow to keep up with the demand for capital as the few funded companies succeed.
It took 200 years for Europe, the U.S., and the other so called “developed” economies to be majority middle class. Africa doesn’t have 200 years.
It took China 35 years to pull 500 million of its
1+ billion citizens out of poverty. Africa doesn’t have the centralization and authoritarian systems to follow this path.
India took 25 years to pull 450 million of its 1.2 billion citizens out of poverty. Africa doesn’t have a centralized bureaucracy to follow this path either. Africa needs outside help, but in the form of massive investment capital, not yet-more philanthropy.
The solution is to provide investment structures which can eventually flow trillions of dollars into the African economy. Flowing not because Wall Street investors suddenly care about Africa, but because there are profits to be made as 500+ million Africans pull themsevles up into middle class.
The solution has a few parts:
- Bundle startups to diversify risk, taking advantage of the distributed nature of African nations.
- Bundling companies more quickly creates institutional-scale investments.
- As quickly as possible, grow these bundles into public companies, opening up the IPO window in Africa.
- Continue investing into the bundles, ultimately listing these companies in London, Hong Kong, and New York.
- At scale these bundles become conglomerates helping their subsidiaries follow with their own IPOs.
- When the founders of these subsidiaries are finally ready to start something new, the holdco can buy out the founders with public shares.
The first bundle is Africa Eats:
- 27 African fledglings from 10 countries, all focused on smallholder farming.
- A combined $7 million in revenues in 2019 growing an average of 50% year after year since 2014.
- Add $5 million in growth capital in each of 2021 and 2022 and take this company public by 2024, ideally simultaneously in multiple African markets.
- Projections grow the value of the portfolio beyond $100 million of market cap by 2027, sufficient to co-list in London.
- By then at least 5 of the 20 subsidiaries should be large enough to be public.
- Upon success, repeat this model for energy, agtech, fintech, education, and every other growth sector in Africa.
At scale these bundles are public investments into African sectors, similar in feel to an exchange traded mutual fund. By the 2030s they should have sufficient trust and track record to be part of every American, European, Chinese, and Indian pension fund and endowment portfolio, allowing the capital from the rich countries to flow where it is needed most, into Africa.
The biggest hurdle to growing Africa’s economy faster is capital. This holding company investment model is the simplest path to fill the capital gap all the way from retail investors to small-but-growing African startup.