How standard of living in Africa is making start-ups innovate around disposable income

An organization in its early phase of existence is referred to as a start-up. Entrepreneurs that desire to create a product or service think there is a market for launching start-ups. Because start-ups often have high startup costs and low revenue, founders frequently look for money from a variety of internal and external sources, including personal savings, loans from family and friends, business venture capitalists, and crowdsourcing. There are start-ups in different industries like Information Technology, agriculture, communication, health and other sectors.

Start-ups and Innovation

Establishing a start-up takes careful planning, including consideration of factors like business location, cost of goods or services, product packaging, and supply efficiency. Start-ups frequently run the risk of failing because of unfavorable environmental and industry conditions. Embracing new opportunities and focusing on innovation, among other methods, are accelerators for a business’ survival and growth. Although, it is true that established businesses also frequently collapse. Technology has advanced throughout time, and many start-ups are combining the cutting-edge idea of tech into their respective fields. For example, tech is now being used to improve education as in edtech, finance as in fintech, and more use cases are being introduced to daily activities. Statistics show that start-ups are expanding most quickly globally in the technology sector. Over the past few decades, Africa has seen an exceptional number of start-up generations.

The State of Start-ups in Africa

The phrase “start-up” became more common in the 1990s as the number of enterprises centered on technology and the internet rapidly increased.

According to an analysis, African start-up marketplaces hit historic heights in 2021 at over $4 billion, which represents a nearly 20x rise since 2015. Start-ups have been increasingly popular in Africa as a consequence of a variety of factors, including drawing on previous success stories from the west, attempting to address grassroot challenges, adapting global content to local quirks, and adhering to supportive policies. Both in terms of current economic events and cultural developments, there are numerous different facts at play here.

In terms of living standards, the rate of extreme poverty in rural areas in Africa was close to 50%, which was far higher than the rate in urban areas, which was about 11%. According to the conference board’s Global Economic Outlook, the pace of global GDP growth will reach a recessionary level in 2023 after starting to decline from 3.1% in 2018 to 2.7% in 2022.

Africa has clearly also been impacted by the global economic downturn, which has resulted in a sharp decline in living standards, lower-quality goods, higher costs, and inflation. When prices increase generally yet fewer goods are available for the same amount of money in an economy, this is called inflation.

When there is inflation, sources and forms of incomes are affected from passive income to investment income to disposable income. Our focus here is the disposable income which is the money left to take home after tax and other deductions. Most households depend on disposable income for survival and the trending inflation gradually steals from this income of an individual in form increased grocery prices, cost of feeding. This has led to the term “sachetization”.

This approach is used by startup business owners to satisfy declining demand and maintain operations. Sachetization is the idea of distributing products, which are typically sold in greater amounts, in smaller quantities using sachets in an effort to increase sales. Sachetization helps consumers purchase what they can afford. When only a small amount is required, consumers do not need to buy big quantities of the commodity. So far, this has appeared to be sustainable, with the exception of its drawbacks, where it has been observed that sacheted items are of low quality, contain fewer items than is indicated, and even defraud the consumer into purchasing smaller packages when, in reality, a larger package would have been more appropriate.

Reduced disposable income has also affected start-ups in maintaining production costs, purchasing raw materials, increased interest rates on loans, market instability and declined demand.

Therefore, to get through the process of inflation individuals, households and businesses seek sustainable measures to meet their needs. A few include:

• Cost efficient purchases
• Budgeting
• Opportunity cost methods
• Valuable investments etc.

Emmanuel Otori has over 9 years of experience working with 100 start-ups and SMEs across Nigeria. He has worked on the Growth and Employment (GEM) Project of the World Bank, GiZ, Consulted for businesses at the Abuja Enterprise Agency, Novustack, Splitspot and NITDA. He is the Chief Executive Officer at Abuja Data School.