The African tech ecosystem is bouncing back after a slowdown during the pandemic, with local innovation fueled by increasing investment from foreign tech giants.
DAKAR — Despite a tense macroeconomic context, the growth of the African tech ecosystem shows no sign of slowing down.
In 2022, African startups recorded an 8% increase in investor funding compared to the previous year, according to a 2022 report from PartechAfrica Tech Venture Capital. The context remains favorable to the continent, which is attracting many foreign investment funds.
"The current period is one of a flight to quality," says Melvyn Lubega, an investor at French fund Breega, which has recently boosted its investments in Africa.
This resilience has surprised many observers. After the COVID-19 health crisis, the strength of African economies and continued high growth rates surprised some economists, who had expected a catastrophe.
But digital technology is not immune to good news. Despite an international context of investor withdrawal, liquidity scarcity and never-ending inflation, African tech remains in the green and has managed to attract 1,149 unique investors in 2022, an increase of 29% compared to 2021.
With $6.5 billion raised, African startups set a new record, confirming a strong trend that has continued for several years. Tech giants have understood that the continent could be a future El Dorado and have multiplied their physical presence there.
Facebook installed a new high-tech incubator in Lagos, Nigeria in 2018, while Google chose Ghana to open one of the many artificial intelligence laboratories that are beginning to spread across the continent. Large international groups like the Japanese corporation Sumitomo or French companies Total, Axa and Orange have also shown increasing interest and are now major investors in African startups.
Panel session on the business of payments during the 2023 edition of the Africa Money & DeFi Summit.
Africa Tech Summit via Twitter
Not all nations are equal
Another point of pride is the continued, steady feminization of digital sectors, although it remains far below international standards. The share of startups created by women has increased by 2 percentage points, from 20% in 2021 to 22% in 2022. Kenya and Nigeria appear to be particularly advanced on this front. This is an important issue, according to Breega.
"When you include a gender perspective in your investment decisions, you end up with higher returns," explains Lubega. "More than half of our first investments had a female co-founder."
His assertion is backed up by studies which highlight that integrating women at the highest decision-making level of organizations is a crucial path to improvement in corporate performance.
But Africa is far from being monolithic, and inequalities between countries remain systemic. "Investments have historically been concentrated in four English-speaking countries: Kenya, the organizer of the last AfricaTech Summit, Nigeria, Egypt and South Africa," explains Lubega.
Everything is not rosy — and Africa is not immune.
In 2017, for example, these four countries accounted for 84% of funding. French-speaking countries, on the other hand, are far behind, despite praise for Algeria, Tunisia and Senegal, which respectively attracted $150 million, $117 million and $105 million in investments in 2022.
While some countries have already taken the lead and are preparing to win the race to become the African Silicon Valley, others are catching up. Rwanda enjoys marked political voluntarism and is emerging as a "digital country" behind the Smart Africa Alliance. Algeria, which hosted the African start-up conference last December, is on its way to follow a similar path. These two rival events also demonstrate that, in terms of digital technologies, the maneuvers of influence between states are playing out in the open.
Experts on the continent warn against excessive optimism. Everything is not rosy, and Africa is not immune to the pessimism currently affecting global tech actors. For several months, giants established on the continent including Wave, Swvl and 54Gene have laid off employees.
Despite growth prospects, industry experts remain clear-sighted: in the long run, African tech is destined to change its perspective and follow the global trend, where prudence and a return to fundamentals are the key words.
"Entrepreneurs will now focus on certain key fundamentals of the business, such as positive cash flow or profitability. These aspects have remained too marginal for too long, when growth at all costs was still at the heart of the entrepreneurs' strategy," says Lubega.
Entrepreneur Melvyn Lubega speaking at Telkom Tech Summit in South Africa, 2022.
Melvyn Lubega via Instagram
African fintech and green tech on the rise
But despite the context, Africa continues to assert itself as an immense field of creation for startups and as a support for investment funds. Nearly eight out of 10 young Africans are interested in entrepreneurship. The workforce is abundant and increasingly well-trained, and the needs of African populations are numerous and cross-cutting. "It is more a question of where we see the opportunity to create an impact and, ultimately, to capture the value created by solving the problems we are generally faced with," says Lubega.
To guide its investment choices, Breega, for example, looks to the United Nations Sustainable Development Goals. The good news: the potential is endless for impact investment funds: Agritech, EdTech, Healthtech, Fintech and Greentech. The list of needs that startups can help meet is potentially limitless. "In each of the sectors in which we invest, we must focus on creating sustainability," says Lubega.
There is hope for the African digital ecosystem.
These sectors also have the eye of investors. In a report published in February, AfricArena, a technology business accelerator, calculated that startups specializing in the fight against climate change had raised $1.17 billion in 2022. In the Fintech sector, the number of startups has increased by 81% between 2019 and 2021, reaching nearly 600 young companies today, according to data from Mastercard.
Fintech-related funding has also seen phenomenal growth between 2021 and 2022, with an increase of nearly 900% to reach $1.56 billion raised. And the growth prospects are more than promising. McKinsey predicts an eight-fold increase in the cumulative revenue of African fintech firms by 2025, compared to 2020. The reason for this success? "There is a large portion of the unbanked population," says Lubega. "Understand why they are not banked, and then we can meet their needs where they are." Other sectors that are growing rapidly include clean tech and health tech.
What about tomorrow? There is hope for the African digital ecosystem, despite the many obstacles that still need to be overcome. Persistent difficulties in accessing financing, sometimes faulty internet connectivity or insufficient support from governments still undermine the full deployment of the continental digital sector.
Still, the arrival of many Western and Asian venture funds on the continent should help to free up investment and enable the operational emergence of a diverse array of ambitious new players.