who will tap

Despite companies such as M-Pesa being pioneers in the mobile payments sector, Africa's tech scene is considered to be lagging its global peers. It hosts a thriving start-up scene, however, with a lack of capital being its chief downfall.

Africa’s tech ecosystem is booming, with the number of active tech hubs located in the continent jumping by 40% during the past year and about $1.16bn raised in equity funding for tech start-ups in the continent during 2018 – a 108% jump on the previous year, according to global investment firm Partech Ventures. Experts say this amount is likely to surge to $1.5bn in 2019.

The number of active hubs in the region leapt to 618 in 2019, up from 442 in 2018 and from 314 in 2017, according to mobile network operator trade body GSMA and think tank Briter Bridges. One-quarter of these hubs offer only co-working spaces, while 52% are incubators or accelerators. Nigeria has the greatest number of tech hubs with 85, followed by South Africa (80), Egypt (56), Kenya (48) and Morocco (31). Four African countries make up the continent’s so-called ‘innovation quadrangle’: Nigeria, South Africa, Kenya and Egypt.

In terms of cities, Lagos, Cairo, Cape Town, Nairobi and Johannesburg are in the top tier with 20 to 40 hubs each, while Casablanca, Accra, Abidjan, Tunis and Abuja are in the second tier with more than 15 apiece. Emerging cities include Dakar, Bamako, Kampala, Dar es Salaam and Lomé, each with more than 10 hubs. However, Nairobi was the only African city to feature in fDi’s Tech Start-up FDI Attraction Index 2019, ranking 24th out of 30 cities worldwide. It attracted 0.191 tech start-up greenfield projects per 100,000 inhabitants. 

Exciting ecosystems

“The most exciting tech ecosystems in Africa are in Nigeria, Kenya and South Africa,” says Zachariah George, co-founder of Startupbootcamp AfriTech, a high-growth accelerator based in Cape Town. “Uganda, Rwanda, Côte d'Ivoire, Ghana, Senegal and Egypt come next. All areas of tech are represented but fintech, insuretech, software as a service and big data stand out.

“The amount being raised in the region has jumped to more than $1bn from only $20m to $30m in 2011. Geopolitical stability is vital for Silicon Valley investors to consider putting their money into tech in a specific country. However, I think there are a dozen or so African countries that will be among the next wave to receive foreign investment. These include Malawi, Namibia, Botswana, Mozambique and Madagascar.” 

He adds that disruptive technologies are being developed in Africa that then spread to the developed world. Mobile banking took off in Africa about 12 years ago – ahead of the rest of the world – when companies such as M-Pesa were established. The continent also led the world in introducing pre-paid debit cards to cater to the many Africans who do not have bank accounts or credit histories. 

Tech ecosystems are emerging even in countries with high levels of political volatility: for example, Somalia, the Central African Republic (CAR) and the Democratic Republic of Congo (DRC) all have nascent tech sectors. Somalia’s capital, Mogadishu, hosts the Mogadishu Tech Summit, while the DRC has Kinshasa Digital Week and Bangui, the CAR’s capital, is home to Centrafrique Tech Hub.

French and Senegalese governments, in particular, are committing large sums of money to empower the tech ecosystems in Francophone Africa. French president Emmanuel Macron unveiled a $76m African start-up fund at VivaTech in 2018. It is administered by the French Development Agency and $58m of the total sum is available for equity-based investments in Series A to Series C start-ups. 

Standout start-ups

Jumia, Africa’s largest e-commerce firm, headquartered in Lagos, became the continent’s first start-up to list on the New York Stock Exchange in April 2019. It listed 17.6% of its equity and raised $196m. However, the company is still not yet profitable and has made accumulated losses of almost $1bn since it was founded in 2012. 

Andela, a software outsourcing company launched in Nigeria in 2014, is another high-profile African startup. It raised $100m in a Series D round in January this year and builds distributed software engineering teams with developers spread around Africa to meet the global shortage of tech talent. The Series D round was led by Generation Investment Management, an investment management firm co-founded by former US vice-president Al Gore. 

One of Andela’s co-founders was Nigerian entrepreneur Iyinoluwa Aboyeji, who also co-founded another successful African start-up, Flutterwave. It provides an API that lets users process credit card and local alternative payments, including mobile money. Other innovative startups include HouseMe, a digital platform out of South Africa that connects prospective tenants and landlords; and MPost, a Kenyan start-up that allows subscribers to use postal services through their mobile phones. 

Capital needed

“Access to capital is a huge issue in Africa,” says Veronica Mulhall, head of marketing at MEST Africa, a tech incubator and hub based in Accra, the Ghanaian capital. “We see far too many valid ideas, great start-ups that cannot get off the ground because of a lack of capital. We hope to see more early-stage investors in the space in the future.”

Some experts based in Africa say that e-commerce has been slow to take off in the region because African culture can be distrustful of doing business with strangers.

“The African tech ecosystem is booming,” says Keith Jones, founder of Sw7, one of Africa’s biggest tech accelerators, based in Johannesburg. “There is so much demand going unserved in the region; we are so far behind the rest of the world but we will catch up fast. African business-to-business start-ups, in particular, are world class. The tech talent pool in the region is not big enough to support the sheer number of tech start-ups being set up.”

In association with Microsoft and Amazon, Sw7 is launching a virtual accelerator platform, which will enable African start-ups to acquire the support they need without the need to physically attend a location. 

Market-watchers say that the early-stage tech start-up ecosystem in South Africa is centred around Cape Town but Johannesburg – the country’s financial capital – dominates the late-stage scene. “Cape Town is known as Silicon Cape,” says Mr Jones. “It is popular as many people like to live close to the beach. The Western Cape government has also been far more proactive than the city of Johannesburg government. It has created a stimulating environment for early-stage tech.”

This article is sourced from fDi Magazine
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