The African tech space continues to buck the continental trend, clocking up an increase in funding as other sectors face less certain economic times. Last year, according to a report by Disrupt Africa, over 120 African tech startups received a total of $185.7 million in funding. This year looks set to be another bumper year, if notable rounds for the likes of South Africa’s WhereIsMyTransport and Zimbabwe’s Esaja in the last few weeks are anything to go by.
The opportunities in Africa are in sharp contrast to elsewhere in the world, where, especially in terms of technology uptake, saturation is fast approaching. Investors are looking to diversify away from low-return and more highly competitive markets, and the “final frontier” that is Africa has become increasingly attractive.
This development has come at the same time as the risk profile of African markets improves, with investors more tempted to fund companies on the continent as a result of more transparency, better information and the growth of startup ecosystems in places like Cape Town, Lagos and Nairobi. All of this has created a new “scramble for Africa”, as investors look to gain an early mover advantage.
This funding is going to companies across a number of sectors. According to the Disrupt Africa report, solar was the most popular area for investment last year, bringing in almost 33 per cent of the total as the likes of M-KOPA Solar and Off Grid Electric raised large rounds. This makes sense, as according to the African Development Bank (AfDB), 620 million Africans lack access to power. That is a huge untapped market, with the possibility of huge returns and massive social impact, especially given the development of innovative business models such as pay-as-you-go.
The same ability to marry high returns with social impact can be seen in financial services, with fintech startups raising almost 30 per cent of the total funding last year. With 80 per cent of Africa’s population, around 330 million adults, unbanked, there is a huge opportunity here too. Other sectors are not missing out, though some have been on the decline relative to previous years. E-commerce is one such area. While foreign-owned international behemoths such as Jumia rake in the cash, smaller e-commerce entities are less attractive.
The funding space for African tech startups is still not as developed as it could be; with companies looking for smaller ticket sizes often excluded given foreign investors do not invest such small amounts. It is vital the funding continues to snowball. Though there are more active investors on the continent, there are still not enough. Tech startups are creating jobs, and addressing issues in areas such as education, health, energy, and food security. We are not there yet, but the signs are that after years of being ignored by overseas investors, Africa is now at the forefront of their minds.