Major Themes in Africa's Digital Tech Economy
that will continue in 2022.
We’ve used up the last minutes of a very fast-paced year and have transitioned into the early days of the new year. There are so many things happening at once in different places on the planet.
Jeff Bezos infamously commented:
“What’s going to change in the next 10 years?” That is a very interesting question; it’s a very common one. I almost never get the question: ‘What’s not going to change in the next 10 years?’
And I submit to you that that second question is actually the more important of the two — because you can build a business strategy around the things that are stable in time.”
This comment tallies with the Lindy effect (the idea that things that have survived for a long time will continue to survive). Bezo’s is conveying that the Lindy effect — Betting on things that don’t change, can be a great business strategy.
This is not to say change isn’t good, it’s great actually. It is great when it is about changing our behaviour. But human needs rarely don’t change, when they do, it’s about naturally replacing something else for a core need that remains the same.
Meanwhile, there are themes emerging in the African tech and startup ecosystem that we can bet on that will not change for a long time. With the most popular theme being the unicorn uprising. However, there are other major themes we can continue to anticipate in Africa's digital economy in 2022 and beyond.
Let’s look at some of them.
Startup Funding in Africa will Continue to Soar
Many global investors see Africa as the next economic frontier, so a lot of VC money sailed into Africa's tech & startup ecosystem in 2021.
A year that saw the continent birth 5 new unicorns (Opay, Wave, Chipper cash, Flutterwave & Andela), and exciting exits (like Stripe acquiring Paystack, WorldRemit got Sendwave, Flutterwave bought Disha and MFS Africa acquiring Beyonic and Baxi).
In 2021, Over $4.3 billion was invested in African startups across 818 deals, compared to the $1.1 billion total funding received by African startups in 2020. The continent received about ~2% of the estimated $200 billion that was invested in venture capital globally (as of the second quarter of 2021).
The VC industry in Africa is expected to exceed $10 billion by 2025. So we are sure to see more African Unicorns, more startup exits and acquisitions happen in Africa this year 2022.
Especially as Startups in Africa begin to explore other forms of funding outside VC (equity) like debt and crowdfunding. And more local investors (institutional & retail) enter into the VC fray in Africa.
Fintech is Africa's Tech Frontier For Now
Fintech continues to be Africa's tech darling and will continue to be so, as long as global VC funding continues to flood into the continent's fintech space.
In 2021 the most prominent VC funded startups were fintechs, such as:
Super app seeking Opay ($400 million),
Chipper Cash ($250 million)
Francophone’s Africa’s first Unicorn Wave ($200 million)
South Africa digital retail bank TymeBank ($180 million)
Flutterwave ($170 million Series)
Jumo ($120 million)
Egyptian fintech startup MNT-Halan ($120 million)
MFS Africa's ($100 million)
and SA's payment and tech company Yoco ($83 million).
Fintech in Africa has always been exciting, especially when it comes to mobile money (payments) but not so much with lending, insurance or wealth management. But this is gradually changing as more fintechs spring up to tackle these verticals.
Then there's the growing trend of embedded finance fueling Buy Now Pay Later Services on the continent alongside the growing tide of Crypto & Defi as financial services continue to improve on the continent with fintechs at the centre of innovation.
Africa's API Economy Renaissance
In 2021, open banking APIs became a major driver of fintech innovation in Africa.
API startups on the continent like Okra, Mono, Union54, One Pipe & Stitch are fueling a host of digital payment apps, P2P apps, digital wallets and other disruptive fintechs.
APIs works well for the financial sector as they allow financial institutions to easily exchange data and services with third parties (merchants, service providers and other financial institutions), enabling all the parties involved to enter new market verticals, reach new customers while streamlining their operational processes.
Financial institutions aren't the only ones leveraging APIs in Africa, Telcos (MTN & Airtel) are on the same path too.
Because of the numerous real-world applications (fully embedded product experiences) that APIs offer, opportunities for API startups are expanding around the world and more so in Africa, where there is a dearth of data.
While we can expect to see more API fintechs emerge in Africa, it is a wonder if we will see API startups go after other markets other than Fintech on the continent?
We just might. Especially in healthtech, where data and processes tend to live in silos.
There's is a lack of infrastructure in many markets across Africa, API startups might be the answer to solving healthcare and transport infrastructural issues on the continent.
APIs have the ability to unbundle and rebundle across different customer segments and deliver customized personal experiences. It will be interesting to see how they are used across Africa in 2022.
The Dawn of Digital Commerce in Africa
E-commerce took a while to take off in Africa, now it’s growing in leaps and bounds as social e-commerce thrives and B2B e-commerce startups seek to take the continent's informal retail markets (which has a 90% share of total retail sales) online by offering informal independent retailers and distributors solutions, that can transform their business.
B2B e-commerce startup Tradepot, raised $110 million in its bid to power retailers and merchants across the continent. There's also B2B agric marketplace, Twiga Foods, which raised $50 million as it seeks to expand its business of sourcing products directly from farmers and FMCG companies and delivering to informal independent retailers in particular.
Growing internet and smartphone penetration is powering e-commerce growth not only in Africa but globally. The continent's internet penetration is ~40% at the moment, increasing internet penetration in Africa to 75% can create 44 million new jobs in Africa.
The global e-commerce market is being tipped to be worth over $16.2B by 2027 with Africa expected to get a significant chunk of the cake.
Africa's digital economy has the potential to contribute about $180 billion to the continent’s economy (5.2% of its GDP) by 2025. It can also potentially contribute $712b by 2050.
As Africa's digital economy grows, we can expect startups in Africa to continue to drive innovation across the black continent.
Happy New year and till next time.
- Fosi