The State of Africa's Digital Revolution
Startups and tech aren't a panacea to Africa’s woes, but they're an essential component of any competitive economy.
This is a bi-weekly newsletter about the most interesting tech trends and startups powering Africa’s digital economy.
Here are some numbers.
Over 1,000 unique investors participated in at least one deal on the African continent in 2022.
In the same year, over 1,000 startup deals of $100k or more were announced in Africa.
Also, startup venture funding in Africa edged from $4.6B in 2021 to ~$5B in 2022, while global venture funding got to $445 billion — a 35% decline from 2021.
So Africa only captured 1.12% of the total funding by startups globally in 2022. The year before the continent captured only 0.74%.
There is some growth. But there is still so much work to do.
Despite a global economic downturn in 2022, the continent's tech ecosystem still had a decent year with African startups raising slightly more money in 2022 than they did in 2021, where other continents experienced a decline.
While Africa’s big 4 countries (Nigeria, South Africa, Egypt & Kenya) continue to dominate the continent’s tech ecosystem, other countries like Ghana and Algeria are just coming out of their shell.
The continent is still scratching the surface of the possibilities that startups and tech can bring to the table.
A lot of the time fingers point to infrastructural and regulatory issues as the biggest barrier for startups on the continent. Notwithstanding, Africa’s struggle with basic infrastructure and governance is well documented.
Africa is facing multiple challenges.
Even though the continent’s internet connectivity and tech ecosystem seem to be on an upward trajectory, its electricity supply, logistics and transport industry, and literacy levels (education) have barely seen any growth.
The continent’s rapid population growth — 60% of the population will be under 24 by 2025, creates a further pressing need to generate economic opportunity and ensure people and families can earn a living.
Africa’s internet economy is projected to grow to $180 billion by 2025, around 5.2% of the continent’s GDP, which could further increase to 8.5% by 2050. Yet across Africa, only 18% of households have an internet connection, and data costs remain a major obstacle.
All these challenges make you wonder about the potential impact that startups and tech can really have in Africa.
The work to integrate more technology into African economies in a bid to fulfil its potential is enormous.
For starters, there needs to be affordable internet access available across the continent — a precondition for digital transformation, but still a barrier today in Africa.
Also, the continent’s vibrant startup scene requires much more smart funding like gender-lens investing — an investment strategy that makes more investment into women by deliberately integrating gender analysis into investment analysis and decision-making. For instance, only 3% of tech startup funding in Africa has gone to all-female founding teams, while 76% went to all-male founding teams.
Even though there’re studies that say startups co-founded by women are noticeably better financial investments. Research by Boston Consulting Group found that for every dollar of funding, a female-led startup gives on average 78 cents back whilst male-founded startups generate just 31 cents.
Entrepreneurship is especially hard in Africa. African businesses operate in tough, under-resourced, and often under-regulated environments with scarce enabling infrastructure.
Every African entrepreneur must accept the realities of the fragmented markets they operate in. Even more so for startups, whose value is often based on revenue multiples — the value of a business relative to the revenues that it generates.
In 2021 Africa minted 5 new unicorns, while in 2022 not a single unicorn was spawned on the continent. Unicorns can be a good signifier of a startup’s ecosystem growth, but they’re not the say all do all. Value-generating exits like the Paystack (Stripe) deal can be a better signifier of growth.
And more importantly, the continent has a severe need to invest in traditional literacy and digital literacy to ensure more Africans can participate in the digital economy.
By actively promoting infrastructure investments, especially in rural areas, more Africans will be able to come online and harness the economic growth and benefits that will come with that.
In our uncertain AI-about-to-be-conquered world, tech is not just its own industry these days—it's a human system of values, a way of interacting with the world.
If you don't think this is true, then try to define what "tech" actually means. It does not refer to software, or hardware, or manufacturing. Fintech?… I don’t think so.
Tech is a gushing oil well that bolsters new, unproven ideas up and up like a rocket ship and rains them down to the masses.
While tech can be notoriously self-indulgent, it has the potential to deliver growth, improve prosperity and transform societies.
It took a pandemic to finally awaken the tech slumber that spiralled the world.
In Africa, the tech industry is seeing some growth, yet when you crunch the numbers this growth isn’t significant enough.
Creating sustainable companies in Africa that can go on to be Unicorns or become value-generating exits will involve both attracting more startup capital to the continent and generating success stories.
African businesses are becoming more ambitious, so VCs, regulators and operators need to step up to match and nurture their ambitions by serving the needs of the entrepreneur for business building, talent support, and guidance, from financing to exit.
Technological innovation happens at breakneck speed, and for most parts regulation can’t keep up.
It’s the more reason why African governments and policy-makers need to methodically collaborate with the private industry to create the right type of regulations for the ecosystem. Policies must be inclusive and provide a clear vision that favourably positions Africans as global citizens.
Africa’s startup ecosystem is providing new opportunities for a highly young population to collaborate, innovate and participate in ways that positively impact their lives and in turn their world.
An increase in internet access and a projected population explosion puts the continent in a position to capture a larger chunk of global startup funding.
To its credit, Africa is a hotbed for the fintech sector and has become a centre of mobile and peer-to-peer finance. The continent registers close to half of the world’s mobile money accounts.
While the fintech sector has been the MVP when it comes to funding and growth on the continent, other sectors like energy, logistics, and retail are joining the party.
For the first time since 2019, in startup funding, fintech came second to logistics in Q4 of 2022.
It is hard to overstate the impact tech could have on people’s lives in Africa.
With 300 million more people coming online in Africa over the next five years, the possibilities are endless.
It could improve social inclusion, expand access to knowledge, financial services and healthcare, create new business opportunities, and provide more consumer choice.
Startups and tech have a solid chance of transforming the continent by helping its economic recovery and solving large-scale societal problems.
But it will only happen with collaboration, when everyone is positively involved — governments, policy-makers, operators and investors need to work together to maximize the opportunities to unlock the benefits of the digital economy for every African.
Startups are a bet that the future will be radically different from the present, and they are valuable on the way up because they are, effectively, a call option on that future coming true.
Startups that have a unique value proposition will have a deep impact on the continent. And the continent needs a lot of these startups.
Africa still has a long way to go in solving its deep-rooted problems despite the tailwinds of tech and startups on the continent. Even so, tech and startups are currently the biggest levers the continent currently has in improving life on the continent.
African startups are still a long way to significantly improving socio and economic life on the continent. They’ll need an enabling environment if they’re to fufill their potential of transforming the continent.
Technology offers Africa a tremendous opportunity for growth, prosperity and opportunity. I’m a realistic optimist that believes that Africa’s digital revolution is still nascent and immature, but there’s a window of opportunity that the continent cannot miss if it will break the shackles of its current challenges.
I always felt that funding news in Africa, albeit essential, sometimes felt like a distraction from the bigger picture, especially in these times when there’s little time to take a step back and examine the bigger picture with a critical eye.
Also atimes you can only focus on what’s directly in front of you.
So here’s where I’m at:
So right now I’m less interested in keeping up with everything that’s happening and being the first to know or see something. I’m much more concerned with engaging in the world around me and immersing myself in the challenges of everyday Africans.
I’m finding myself drawn to businesses, startups, tech and people that seek to solve real problems and increase access, not just offer cheaper alternatives. It’s not just what they do, it’s how they do it.
Startups or tech companies might not solve Africa’s systemic issues, but they can create products that improve access and increase awareness of needs or challenges not just locally but for the diaspora as well.
Part of this shift has been guided by the evolution of my own priorities and how I spend my time. I’m investing in myself and my own growth in ways that I hadn’t previously.
There is always room and time to change. We’re capable of more than we can know. And so is this newsletter; Tabbing.
In the coming weeks, there will be an evolution of Tabbing. I hope you’d come with me on this journey.
- Fosi.