FX risk, others stall venture capital funding in Africa

Foreign exchange risk, difficulty in repatriating funds and other challenges are limiting venture capital financing in Africa, experts have said.

In 2021, $5.2 billion was raised in Africa, the highest in the past seven years but the lowest compared to other continents like North America and Asia.

The largest region for venture capital funding remain North America, with $330 billion invested, Asia with $165 billion, Europe with $116 billion, Latin America with close to $19.6 billion, Crunchbase data shows.

“Countries that do really well in South East Asia in terms of funding and successfully building their ecosystem are those that are stable enabling them to minimise the risks for investors,” Robin Teurlings, CEO of The Startup Buddy, said during the Insead Africa Business conference on Wednesday.

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“That’s why we see a lot of funding go into East Asian countries such as Indonesia, Singapore, etc.”

Africa is faced with a lot of challenges, which discourage some investors from investing in African start-up companies.

Shriva Mohan, investment principal at Edge Growth, said: “There is a lot of huge depreciation of foreign exchange risk, difficulty in repatriating funds, corruption, red-tapism and the likes.

“Africa isn’t left behind from the effect of high-interest rate driven by the Fed which could lead to more foreign exchange depreciation, lower returns for investment, the lower growth projection for businesses, and drying up of capital.”

He, however, said things are beginning to change when it comes to raising capital in Africa. “It took 30 weeks to raise $2 billion in 2021; however, this has taken 17 weeks to raise in 2022. This has raised the expectation of capital raising to triple in 2022.”

According to the African Private Equity and Venture Capital Association report, African technology took centre stage in 2021, with 81 percent of venture capital deals in 2021 in technology or technology-enabled companies operating across a variety of sectors.