Startup founders and entrepreneurs across Africa are attracting huge funds from investors but they have to worry about informality and fragmentation limiting the availability and affordability of products and services.
It could also be an opportunity for both players to strategize and adopt a new business model to take advantage of the opportunity.
According to Disrupt Africa, Africa’s “big four” startup ecosystems – Nigeria, Egypt, South Africa and Kenya – raked in a combined US$1,977,910,000 over the course of the year, 92.1 per cent of the overall total in 2021.
In all, 161 Nigerian startups raised a huge combined total of US$903,680,000. That total funding figure is up 501 per cent on the previous year, when Nigeria ranked second on the continent with its combined total of US$150,358,000. This year, no other country came close to Nigeria, and it contributes a whopping 42.1 per cent of total funding secured in Africa.
The ecosystem is poised to experiencing exponential growth accelerated by strong market fundamentals and the impact of the COVID-19 pandemic.
According to report, titled “The Inflection Point: Africa’s Digital Economy Is Poised To Take Off”, obtained by TechEconomy, it says Africa’s digital economy is approaching its S-curve, a period of rapid, significant growth that will positively impact the continent’s GDP, job creation, and overall economic outlook.
There are projections that Africa’s digital economy is large and growing, with estimated market size of $115 billion – expected to reach $712 billion by 2050. By 2050, Africa will be home to a third of the world’s young people and the continent is urbanizing faster than other regions.
“We’ve seen a few eye-catching funding rounds and acquisitions in Africa’s technology ecosystem in recent years but the findings of thos report suggest that we barely scratched the surface,” Topsy Kola-Oyeneyin, Partner at McKinsey and Company, said.
The report said the COVID-19 pandemic is also driving digitisation on the continent, encouraging more Africans to engage in digital activity. As a result of these dynamics, more investors are paying attention to the potential of African technology.
Between January 2020 and December 2021, funding for African digital startups grew 2x faster than global rates. Proven exit paths are also emerging for early investors with the increase in mega-rounds, liquidity events, and unicorns. The combination of these events has primed Africa’s technology landscape for success.
According to Kola-Oyeneyin, a number of sectors across the continent are still underpinned by informality and fragmentation, limiting the availability and affordability of products and services.
He said the opportunities for disruption abound across the continent and this report will make it easier for interested investors to adjust their business models effectively to capitalise on these opportunities”.
The report, however, noted that there remains a ‘white space’ for investors to consider. Due to the quantum of deals in the 1-5mn USD range in the last year (600), relative to the 5-50mn USD range (~150).
More so, it is unlikely there will be sufficient supply in the market as companies from the 1-5mn USD range graduate to larger ticket sizes. With the right financial support, the current excess of innovation can be more effectively leveraged to drive even more development and prosperity on the continent.
“The data gathered in this report is clear – Africa is the next digital growth frontier, Tosin Faniro-Dada, CEO and Managing Director of Endeavor Nigeria, said.
Dada said combination of our young and digitally savvy population, an emerging technology ecosystem, and the impact of the COVID-19 pandemic on behaviours is set to trigger an inflection point in our digitization journey.
“We have been excited by the increased levels of funding that our entrepreneurs are attracting but we want to make it even easier for more investors to bring out their cheque books to catalyse the growth that we believe is pending”.