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By Yaa Agyare – Dwomoh
In May 2022, global venture capital funding (VC) fell below USD 40 billion due to falling start-up valuations and the selloffs of once-booming stocks in vibrant sectors. Both the Asian and North American markets recorded 1% declines in venture funding, while Europe and Latin America saw a growth of 33% and 35%, respectively. Africa, however, was the only region in the world to record three-digit growth in the first quarter of 2022. During this period, African venture capital reached USD 1.8 billion, up 150% compared to USD 730 million in the same period in 2021.
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Africa has witnessed steady and consistent growth in start-up funding amid global slowdowns. Africa benefits from underdeveloped markets that require innovative tools to promote development and has a relatively young population that can quickly grasp the technology offered by start-ups. African start-ups further look to solve consumers’ primary needs while addressing the two most common challenges the region experiences, namely access to banking and energy.
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This is where existing businesses either do not exist or do not have the dynamism to make changes. For example, traditional banks have failed to broaden access to financial services, while fintech has bridged that gap and enabled faster and cheaper access to these financial services. These attributes have all contributed to the resilience of the African ecosystem in the face of the global downturn as several start-ups raising funds have gained strong traction in terms of revenue.
Fintech is now the most popular sector for investments in Africa. In 2021, fintech funding broke the USD 1 billion funding barrier and continued to receive the largest amount of funding on the continent, representing 54% of all venture funding deals. In 2022, the fintech sector was responsible for the biggest deals securing two-thirds of the total funding for Africa’s technology firms
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Four hubs namely, Nigeria, Kenya, Egypt and South Africa, drove these impressive figures throughout the continent. These hubs, known as the big four, dominate the African start-up funding ecosystem and are growing at different speeds. During the first half of 2022, Nigeria more than doubled its start-up capital raised and Kenya’s capital raised increased more than fourfold. Nigeria alone attracted 86% of all the funds raised in the region during the same period, making Nigeria the continent’s most vibrant venture capital market.
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African business leaders are forecasting a surge in tech start-up spending as foreign direct investment and improved internet connectivity help establish the continent as a tech superpower. 54% of executives expect spending on tech start-ups to more than double to USD 10 billion or more by 2025 as the West and China continue to be significant sources of investment in the continent. In the next ten years, Africa is believed to become a tech superpower as development in the African tech ecosystem is forecasted to double in size. This will further expand the continent’s role in supplying technology to the rest of the world.
The potential for investment growth is considerable as Africa only accounts for 0.2% of global money invested in technology start-ups. As interest from the West and China increases, so will the capacity for growth.
Yaa Agyare – Dwomoh is a Frost & Sullivan’s Consultant
