The Political Economy of the Ecosystem
Who benefits from the status quo
The six-loop model establishes that the African scaling ecosystem is trapped in a dysfunctional equilibrium. The natural question - one the original publication did not ask directly - is: why? Not in the sense of what causes these dynamics, which the loop model addresses. But in the deeper sense of who benefits from the current state, and therefore who has a structural interest in its continuation.
This is a political economy question. It asks not just what the incentives are, but who controls the conditions that set them, and what they gain from setting them the way they do. It explains why the most powerful actors in the ecosystem are rarely the most enthusiastic advocates for structural change.
Mancur Olson's The Rise and Decline of Nations - the foundational treatment of distributional coalitions in political economy - names the structural mechanic. Stable institutional systems accumulate distributional coalitions over time: small groups with concentrated interests in maintaining specific arrangements that benefit them, who are systematically more effective at organising collective action than the dispersed beneficiaries who would gain from reform. Olson's central empirical claim - replicated across many comparative cases - is that the longer an institutional system has been stable, the more accumulated coalitional weight it carries, and the harder reform becomes. The African scaling ecosystem support architecture is younger than most of the systems Olson studied, but the structural mechanism is identical: concentrated benefits to a small number of actors, dispersed costs across a large number of would-be ventures and founders, and accumulated coalitional infrastructure that resists structural change.
Charles Tilly's Durable Inequality extends the analytical framework. Tilly's central insight: durable structural arrangements rarely persist because the actors inside them are pursuing inequality as a goal. They persist because the institutional designs that produce inequality solve other coordination problems for the actors involved - recruitment, monitoring, accountability, succession - and the inequality is a side effect of arrangements that are individually rational. The implication for ecosystem analysis is precise. The actors who benefit from the current African scaling ecosystem are not pursuing dysfunction. They are pursuing legitimate institutional interests, and the dysfunction is the aggregate emergent property of the arrangements they have built. This makes the political economy harder to address, not easier - because every component beneficiary can correctly point out that their individual conduct is reasonable, even as the aggregate they produce is not.
The multilateral and bilateral donor system - UN agencies, DFIs, bilateral aid agencies, and the large international NGOs that implement their programmes - is the most powerful set of actors in the African scaling ecosystem. Its power derives not primarily from its capital, though the capital is substantial, but from its bundled position: simultaneously providing funding, convening influence, technical assistance, data, and legitimacy in ways that no other actor can match. This bundled position generates significant institutional benefit. UN agencies with ecosystem mandates justify their budgets and maintain political influence by virtue of their ecosystem presence. DFIs justify their concessional capital mandates by pointing to market development activities. Bilateral donors demonstrate development impact to their domestic constituencies through programme delivery metrics. None of this is conspiratorial - each of these benefits is a legitimate institutional interest. But the aggregate effect is that the multilateral and bilateral donor system has a structural interest in maintaining the conditions that make its presence necessary.
A capability-dense ecosystem with strong indigenous institutions, deep private capital markets, and well-designed government policy does not need the same scale of multilateral programme delivery. The multilateral system becomes less relevant - less needed for capital, less needed for convening, less needed for credibility - precisely as the ecosystem becomes more capable. Individual programme designers are frequently motivated by genuine commitment to ecosystem improvement. But the institutional incentive structures within which they operate reward programme delivery, not capability development. This is the political economy explanation for the programme-rich, capability-thin and role-collapse loops treated in Feedback Loops: the loops are not anomalies. They are the predictable output of the bundled-position incentive structure.
The ODA contraction materially changes this picture. The system's bundled advantage was predicated on abundant external capital. As that capital contracts, the bundled position weakens. Multilateral actors whose convening influence derived from their funding role find themselves convening from a weaker position. DFIs whose market development mandates were justified by capital availability face harder questions about what those mandates mean when the capital is declining. This creates an opening - not guaranteed, but real - for the rebalancing of ecosystem roles. The Olson framework makes the analytical move precise: distributional coalitions weaken when the resources sustaining them contract, and the political-economic conditions for reform open at exactly the moments when the existing arrangements come under external pressure they cannot absorb internally.
Foreign venture capital has been a transformative force in the ecosystem. The capital it brought enabled ventures that could not have been built without it. But its structural interests are not identical with the ecosystem's. The offshore incorporation requirement - which most international VCs enforce as a condition of investment - routes governance and IP ownership through foreign jurisdictions where international investors have greater legal certainty. This benefits the investor; the cost is paid by the ecosystem. The substantive treatment of the offshore-incorporation dynamic and its second-order effects on the founder experience flywheel sits in Political & Regulatory Barriers and Feedback Loops; the political-economy implication is that the foreign VC interest is not aligned with the ecosystem interest at the structural level, even when it is aligned at the individual venture level.
Large technology multinationals - Google, Microsoft, Meta, Amazon - have established significant presence in African markets. Their primary benefit is talent access. The African technology talent pool represents a significant global labour arbitrage opportunity. Developer centres in Nairobi and Lagos enable these companies to access high-quality technical talent at costs substantially below what equivalent talent commands in their home markets. The talent drain that African scaling ventures consistently identify as one of their most acute constraints is, from the technology multinational perspective, a feature rather than a bug.
Local political and business elites benefit from complex regulatory environments that function as gatekeeping mechanisms. The substantive treatment of regulatory capture as the political-economy framework operating across African markets - drawing on Bates' Markets and States in Tropical Africa, North-Wallis-Weingast on limited access orders, Khan on political settlements, and Levy's Working with the Grain - sits in Political & Regulatory Barriers. The implication for political-economy analysis is direct. Multi-step business registration, opaque licensing processes, and discretionary foreign exchange access create rents - economic value that flows to those who control the regulatory machinery. A transparent, efficient regulatory environment would eliminate these rents. Established corporates face competitive disruption from scaling ventures and have an interest in regulatory complexity that imposes high compliance costs on new entrants. The interest is in moderate, managed disruption - innovation at the margins, not at the core. Transparency International's Corruption Perceptions Index 2024 shows that the markets with the highest regulatory complexity correlate with both the lowest CPI scores and the highest rates of offshore incorporation - the two dynamics reinforce each other through exactly the regulatory-capture mechanism Bates and the broader African political-economy tradition have documented for half a century.
The academic and think-tank community that studies African entrepreneurship has a structural interest in the continuation of the research agenda. The substantive treatment of the academic-practice gap and Mode 2 knowledge production sits in Dynamic Ecosystem Collaboration; the political-economy implication is that the incentive structures of academic publishing reward novel contributions to an ongoing literature, not definitive solutions that close it. The result is a continued emphasis on description and diagnosis over prescription and implementation. Initiatives like the AGCAE and the Utrecht/i4Policy collaboration on the AEEI are explicitly designed to break this pattern - publishing findings that practitioners can use, in forms they can access. But they remain the exception within an academic system whose incentives point in the other direction.
The coalition for change
Understanding who benefits from the status quo is only half of the political economy analysis. The other half is identifying who benefits from a different equilibrium.
Peter Gourevitch's Politics in Hard Times - the foundational treatment of how reform coalitions form during political-economic transitions - names the structural conditions under which durable reform coalitions emerge. Three are necessary: shared exposure to costs imposed by the existing equilibrium, sufficient resources to organise collective action despite the dispersed-cost / concentrated-benefit asymmetry Olson identified, and a shock or crisis that destabilises the political-economic conditions sustaining the existing arrangements. Frieden's work on policy coalitions in open economies extends the analytical apparatus: reform coalitions succeed when they can credibly promise that the post-reform equilibrium will distribute benefits more broadly than the existing arrangement, and when the actors with the most to gain from reform also have the institutional capacity to commit to sustaining it. The African scaling ecosystem has all three conditions emerging simultaneously for the first time - but conversion of conditions into a durable coalition is not automatic.
Scaling ventures themselves have the clearest interest in structural change. They face the daily costs of the capability trap, the misaligned incentive engine, and the capital architecture mismatch. But they are individually too small, too time-constrained, and too dependent on the ecosystem actors who benefit from the status quo to mount effective collective advocacy - exactly the dispersed-cost asymmetry the Olson framework predicts. The substantive treatment of advocacy infrastructure that overcomes this asymmetry - Sabatier's Advocacy Coalition Framework conditions, Keck and Sikkink on transnational networks - sits in Dynamic Ecosystem Collaboration; the political-economy implication is that the SA Startup Act Movement's decade of coalition-building is the most instructive African example yet of converting dispersed venture-level interests into sustained coordinated voice.
Experienced African founders who have successfully scaled ventures have both the interest and, increasingly, the structural position to drive change. They understand the ecosystem's problems from the inside. They have the networks and credibility to convene actors across the ecosystem. The founder experience flywheel treated in Feedback Loops is not just an economic mechanism - it is a political economy mechanism. The correction period has created more of these people than the ecosystem has previously had. Past founder cohorts are now structurally better positioned to drive ecosystem development. The Saxenian New Argonauts dynamic referenced in Ecosystem Characteristics operates here at the political-coalition level: diaspora and recently-transitioned operators have both the economic capacity and the political credibility that pure programme implementers do not.
Local institutional investors - pension funds, sovereign wealth funds, insurance companies - have long-run interests in ecosystem health that international capital does not share. Their beneficiaries are African citizens whose retirement security depends on the long-run performance of the African economy. The scale of misallocated institutional capital is striking: speaking at the AfDB's 2025 Annual Meetings, Solomon Quaynor, AfDB Vice President for Private Sector, Infrastructure, and Industrialization, documented that African pension funds, insurance companies, and sovereign wealth funds hold $2.1 trillion in assets under management - but over 80 percent is locked into government treasuries, funding recurring expenses rather than capital development. The 2025 African Financial Summit further evidenced the misallocation: less than 10 percent of pension funds outside South Africa and Nigeria is invested in domestic capital markets, and just 1.5 percent in infrastructure or alternatives. The substantive treatment of the institutional-capital architecture sits in Capital Systems and Political Economy of Capital; the political-economy implication for reform-coalition analysis is that this is the single largest pool of African actors with structural interests genuinely aligned with ecosystem health. Ghana's National Pensions Regulatory Authority issued a directive in May 2025 - formalised under the Ghana Venture Capital and Private Equity Compact - requiring local pension funds to allocate at least 5 percent of assets to domestic private equity and venture capital by 2026, the first such move on the continent. The structural significance is sharpened by what the mandate replaces: pensions had been legally permitted to allocate up to 25 percent to alternatives, but actual deployment was less than 1 percent. Permission alone failed to mobilise capital. The shift from cap to floor - releasing approximately $337 million in growth capital - signals that the political arithmetic for mobilising institutional capital is beginning to shift.
The nuance matters, however. The domestic surge is led by African DFIs, corporates, and state-backed bodies - not by commercial pension funds or family offices. DFIs do not behave like commercial LPs: their mandates come from ministries, their risk tolerances are shaped by donor frameworks. A self-sustaining ecosystem forms through exits that generate local returns that local investors then redeploy commercially - a cycle that has not yet completed at scale.
African governments with genuine reform mandates have demonstrated that the political economy is constraining, not determining. Rwanda has shown that a government with the political will to reform can achieve regulatory improvement at a pace that the political economy analysis suggests should be impossible. The substantive treatment of state-coordinated multi-decade industrial policy - Senegal's MADIBA, Rwanda's Kigali Innovation City, Morocco's Tangier Med - and its connection to Mazzucato's mission-oriented innovation framework sits in Innovation Infrastructure and Spatial Scaling Dynamics; the political-economy implication is that political leadership willing to absorb the short-term costs of displacing entrenched interests - in regulatory reform, in procurement, in how public capital is allocated - can change the environment materially. The African Union's Startup Model Law Framework, launched in July 2024, represents a significant continental policy architecture initiative providing a template for all 55 member states. The question is whether the political will exists at sufficient scale and consistency to compound into structural change.
What the political economy analysis means for reform strategy
Three direct implications follow.
The most important reforms are those that reduce the structural advantages of the status quo's beneficiaries - without directly confronting them. Olson's framework names why direct confrontation systematically fails: distributional coalitions whose existence depends on specific institutional arrangements mobilise effectively in defence of those arrangements, while the dispersed beneficiaries of reform mobilise less effectively. The reforms most likely to succeed are those that change the conditions producing the advantages without forcing the coalition to defend its position directly. Independent evaluation of donor programmes reduces the information advantage that multilaterals hold. Standardised data infrastructure reduces the information asymmetry that advantages international capital. Domestic incorporation support and locally-denominated financing reduce the structural advantage of offshore incorporation. None of these interventions directly confront any beneficiary actor. All of them change the structural conditions that generate those actors' advantages.
The coalition for change must be built around actors with structural interests in a different equilibrium. The ecosystem reform agenda has historically been driven primarily by multilateral actors who have structural interests in the status quo. The result is reform that is real at the margin but does not disturb the core dynamics. Building a reform coalition around experienced founders, local institutional investors, and governments with genuine reform mandates is more likely to produce durable transformation. The Gourevitch framework names the analytical condition: durable reform coalitions form when actors with shared exposure to existing-equilibrium costs gain sufficient resources and institutional capacity to organise - and when external shocks weaken the coalitional infrastructure sustaining the existing arrangements. The ODA contraction is the external shock. The 2025 founder transition wave and the institutional-investor mobilisation are the resource accumulation. The institutional-capacity question is whether the SA Startup Act Movement, i4Policy, Endeavor and the Pan-African Policy Taskforce can be scaled into the continental coalition the conditions now permit.
The framing of the reform agenda matters. Political economy analyses that name beneficiaries of the status quo risk generating defensive reactions that make reform harder. The Tilly insight applies here: most actors benefit from the status quo without consciously choosing to, because the institutional designs they operate within solve other coordination problems for them and the inequality outcomes are aggregate side effects rather than individual goals. The most effective framing is therefore not one that assigns blame - most actors benefit from the status quo without consciously choosing to - but one that makes the structural case for reform visible: showing that a different equilibrium is available, that it would benefit a broader coalition of actors than the current one, and that the transition costs are manageable. The ODA contraction has, ironically, made this framing easier: when the argument for maintaining the multilateral-led programme ecosystem was that it was the only capital available, reform required displacing a functioning system. When that system is contracting under external pressure regardless, the argument for reform shifts from displacement to replacement - building the endogenous capability that fills the gap the contraction leaves.
The political-economy condition for reform has shifted more in the last three years than in the previous twenty. Whether the shift produces structural transformation depends on whether the coalition for change is built and sustained at the scale the moment now permits. The substantive recommendations and the African Scaleup Lab proposition that operationalise this analysis sit in Recommendations; the implication for the political-economy lens is that the question is no longer whether reform is structurally possible. The conditions are emerging. The question is whether the coalition is built fast enough.