Rethinking risk: How the financial sector can partake in the African Creative Industrial Revolution

This article was contributed to TechCabal by Tochi Louis.

For decades, Africa’s creative economy has thrived in pockets, driven by the indomitable spirit of its creators and internal stakeholders. With Nigeria recently becoming the sixth-largest music-exporting country in the world—trailing behind creative economy juggernauts like the US, UK, Colombia, and South Korea—every melody, every frame, pulses with the potential to not only reshape our image and narrative on a global scale but also to evoke a promising economic future. However, one question persists: what’s the extent of the financial sector’s involvement in this renaissance?

For too long, the financial sector has cursorily viewed the local creative economy through a lens of skepticism, largely stemming from a misunderstanding of its value chain and perceived volatility that is not always reflective of our reality. It’s time we start having honest conversations and map out strategies to bridge the divide.

The creative ecosystem is not monolithic. It spans industries such as music, film, and fashion, and even intersects with sectors like real estate and tech. Yet, as Wakiuru Njuguna, Managing Director of HEVA Fund, a key player in creative financing, points out, “The creative sector has too often been seen as a charity case, when in fact it represents a powerful engine for economic growth if oiled properly.” This mindset has stifled the financial sector’s will to tap into the full potential of Africa’s creative ecosystem. 

A major part of this hurdle also stems from the misperception of creatives themselves. As Chin Okeke, Founder of Misan Partners, explains, “There’s a view of creatives as just creatives. People do not understand that creatives have business acumen.” This illusion has created a chasm between the financial sector and the creative economy, with the former seeing only surface-level creativity rather than the robust, multifaceted industry and infrastructure powering it. Chin insists, “To truly understand it and change that perception, they [financial sector] have to view it from an industrial perspective. The value chain, the assembly line, input-process-output—it’s no different in music and film than it is in oil and gas or real estate.”

Banks and private investors routinely argue that the creative economy carries too much risk, largely because it is viewed solely as a collection of isolated artistic endeavors, rather than as an ecosystem ripe with opportunity that requires appropriate, tailor-made backing. There’s a valuable lesson to be learned from Africa’s agricultural sector, which has long benefited from tailored financial products like micro-loans and crop insurance. Wakiuru suggests that the same level of responsiveness be extended to the creative industries: “What we are seeing is a need for financing that’s as nuanced as the sector itself. It’s not about injecting  money into  the sector but about creating financial products that reflect the realities of each value chain within the industry.” 

When dealing with a sector like the creative economy, which primarily generates intellectual property, Wakiuru advises against using the same lens across board to evaluate risk. She cites the need for financial models that blend different forms of capital, from grants to venture capital. Chin also echoes the validity of a blended finance approach: “It allows us to stack different types of capital along the value chain, from grants to equity, to unlock opportunities at every stage.”

In her decade-long run at HEVA Fund, Wakiuru has built financing facilities responsive to the creative sector, aligned with their respective markets. She highlights the importance of local context, noting that Africa comprises many countries, each with its own spending and consumption habits, as well as cultural influences. For instance, one of the largest video-on-demand platforms in Kenya has over five million Google Play downloads and has built, a strong business case around affordable, culturally relevant content delivered through a pay-per-view model, championed by local talent.

Wakiuru complements Chin’s perspective, challenging the perception that ‘success in the creative economy should ultimately be tied to foreign demand’. “We could consider demand from the diaspora,” she asserts, “but that ultimately depends on the investor’s agenda and the kinds of opportunities they’re pursuing.”

Chin explains that layers of opportunity in various creative industries can be viewed differently. “If we look at the Music industry, 98% of the revenue comes from outside Nigeria. Thus, you would focus on exports for short- and mid-term investments. On the other hand, Film presents a different picture. Here, the short- and mid-term opportunities for revenue lie within the local market.”

Chin points to promising indicators such as a growing youth population, improved education, lower mortality rates, and rising disposable income to buttress this. “The demand is there. We want to consume our own products—our clothes, music, and films. The supply is also there. What we’re missing is the infrastructure to make it accessible. That’s where the local opportunity lies.” 

He adds, “If we can produce nearly a billion streams on Spotify in the first half of 2024 and rank in the Top 25 out of Spotify’s 184 markets by streaming appetite in just three years of Spotify launching in the market, the real question should be about scaling that number from one billion to ten billion. How do we make content accessible to our 240 million people, projected to grow to 400 million in the next 30 years? Such high activity on social and streaming platforms would trigger a domino effect in other regions with higher Average Revenue Per User (ARPU) in streaming, which would aid exports. That’s the opportunity.”

Ultimately, as long-standing stakeholders in the creative economy, we encourage the financial sector to adopt a deeper, beyond-surface-level approach to understanding our industry and rethink its relationship with risk. We’re happy to help the financial sector understand that while short-term sponsorships and marketing budgets may provide quick wins, they don’t address the systemic needs for making the creative economy sustainable and impactful. 

That is the essence of the Misan and HEVA-curated Creative Economy Investor Roundtable at the upcoming Moonshot by TechCabal Conference. Progressive collaboration between the financial sector and creative industries requires humility from capital providers to engage credible industry professionals with the requisite experience because it’ll enable an orientation on the gaps, opportunities, and risks.  As Chin succinctly puts it, “It starts with partnership and trust—trust those who have built and know the industry so you can  deploy the right type of capital with a better understanding of risk and return.” 

For too long, Africa’s creative industries have been ready. The question is: is the financial sector?

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Tochi Louis is the founder of The Jollof Diary, a data, business and market intelligence platform for Africa’s creator economy and music business. He also contributes to developing creative economy initiatives in emerging markets.