The African economy was hit hard by the commodities rout. However, the continent continues to attract foreign capital and it’s in the tech start-up space.
Angel investors and venture capitalists are investing millions of dollars into Africa-focused start-ups as the continent transitions to the mainstream of the global economy. Technology is playing an increasingly significant role in the spread of cellphones shaping the “Africa Rising” narrative.
Technological innovation has influenced multiple sectors such as energy, agriculture, banking and health care. The emergence of tech hubs has contributed to the development of the entrepreneurial ecosystem and assisted a significant number of start-ups.
According to Venture Finance in Africa research, conducted by VC4Africa, start-ups and ventures that participate in an incubator or accelerator programme, and regularly compete in tech-related events, are more likely to lock deals.
Data by research firm CB Insights shows that global start-ups raised $27.3 billion, while Kenyan start-ups raised over $47.4 million in funding last year. Those that have attracted the most investor attention include Kopo Kopo, a merchant payment system, and Bitpesa, a bitcoin trading platform.
For years, Kenya has been seen as one of the leaders in technology and innovation alongside Nigeria and South Africa. International media are hailing Kenya as the world’s latest unlikely tech hub.
Over half of Kenya’s population has access to the internet. East Africa’s largest economy is home to an expanding pool of cellphone users, a network of incubators and start-up spaces.
Nigeria is another hotbed of start-up activity. The economy is recognised as the e-commerce capital of Africa. Investors and entrepreneurs find the prospect of increasing operations to the continent’s largest population and economy attractive.
Three of the continent’s most popular e-commerce start-ups – Jumia, Konga and MallforAfrica – were founded in the country.
Most of these African ventures are operating in environments lacking much of the baseline infrastructure for technology such as affordable broadband and regular electricity. According to the World Bank, 24 percent of people in sub-Saharan Africa have access to electricity. Nearly 80 percent of Africa’s population – about 330 million adults – lack access to formal financial services.
“Most of sub-Saharan Africa’s tech applications are developing solutions to local challenges, and this is creating unforeseen opportunities for other markets and the disruptors,” says Azim Omar, Africa growth markets leader at EY.
Disruptive innovation, a term coined by Harvard Business School professor Clayton Christensen, means that one is both destructive and creative. Disruptive entrepreneurs displace a market, industry or technology, producing something new and more efficient.
“A typical example is Uber which is the ultimate disruptor and it’s the largest taxi company in the world that does not own a taxi. There have been so many taxi drivers, or unemployed people who can drive, and Uber has created a whole new market for them,” says Omar.
The Hello Group in South Africa has become a significant player in the international telephony and money transfer business, he says. The group was the first company in the country to receive an independent money transfer operator licence from the South African Reserve Bank.
According to the Global Entrepreneurship Monitor the US has over 27 million entrepreneurs.
The report notes Botswana and Senegal exhibited an upward trend year-on-year regarding the number of adults starting a new business (33 percent and 38.6 percent).
Last year, 62 countries from around the world participated in the study including eight African countries – Botswana, Burkina Faso, Cameroon, Egypt, Morocco, Senegal, South Africa and Tunisia.
Critics have accused African governments of not supporting the growing tech start-up ecosystems, but this is changing. South Africa, Kenya, Rwanda and Madagascar are playing a greater part in supporting the space.
Countries such as Ethiopia and Ghana are already feeling the pressure, conscious of the success of the Silicon Savannah in Kenya.
The African Development Bank predicts that the continent’s middle-class population will grow to 1.15 billion by 2060. Mckinsey & Company estimates that Africa’s overall consumer spending will surge from $860bn in 2008 to $1.4 trillion in 2020. Global tech giants like Microsoft and Google have realised the potential and significant venture capitalist funds like Amadeus and EchoVC are investing in tech start-ups.
“There are high levels of disruptive innovation in tech cities such as Cape Town, Lagos, and Nairobi and on Mauritius. Investors are looking for companies that are interested in going into other countries. They have realised that places such as Kenya are not the only hotspots,” says Omar.
Tomi Davies, chief executive of Technovision, says angel investors who want to invest in tech start-ups are sometimes frustrated by the structure of investments. “There aren’t clear policies, either around taxation or investment,” he says.
Yet, “regardless of what is happening on the ground, the middle class in Africa is growing, which means you have an increasing consumer base”.