Why African start-ups are attracting foreign investments

From fintech to coding to logistics companies, African start-ups are attracting huge capital from international investors — and the numbers are growing significantly year on year.

The need for virtual banking and online services during the pandemic made start-ups on the continent launch new Covid-related offerings, especially in the tech, education, and health sectors (edtech and e-health), and this helped them to raise huge amounts of foreign capital.

A total of $2.25 billion was raised in the first four months of 2022, according to data from the Big Deal compiled by Max Cuvellier, head of mobile for development at GSMA, and Maxime Bayen, senior venture builder for BFA Global.

The $2.25 billion represents 2.5 times the amount start-ups on the continent raised in the same period in 2021, and five times they did in 2020.

Experts in Africa’s start-up ecosystem say the record-breaking investment deals attracted by start-ups are an indication that entrepreneurship is gaining momentum and has huge growth potential in Africa.

“The growth potential and the need to provide solutions to problems on the continent are what are fuelling the boom in Africa’s start-up ecosystem,” Uche Aniche, the convener of StartupSouth, said in response to questions. “There is currently a global lull in funding but it is not affecting Africa because most of its opportunities are still in the early stage.”

Aniche believes that the continent’s start-up ecosystem has transformed in recent years, attributing it to the wave of fresh young talents.

Africa, a region long defined by fragmentation, is now a fertile ground for entrepreneurship – with seven solid companies with unicorn status, along with many other promising young ventures.

Flutterwave, Jumia, Interswitch, fawry, chippers, Wave, and Esusu have hit the $1 billion mark.

Four of these unicorns are from Africa’s largest economy — Nigeria — while Fawry is from Egypt, Wave from Senegal, and Chippers from Uganda.

Joshua Adedeji, knowledge transfer manager at Innovate UK KTN, said that several factors are responsible for the surge in foreign capital in the space.

He said: “There are lots of challenges in Africa and the need to solve them is responsible for the boom in the space and why it is attracting lots of funding. There is an improvement to access of information and this is making it easy for people to apply for venture capital funding.

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“There is a big market in Africa owing to its 1.9 billion people and people are looking for the market. Other markets are saturated already.”

Africa is ripe for innovation in finance as cross-border trade is increasing daily with the African Free Continental Trade Agreement, while logistics, health and also retail are evolving owing to its young population.

The continent is getting more connected with Google and Facebook building undersea cables that will link more than 20 countries with Europe and the Middle East.

In addition, there is a raw entrepreneurial energy in cities such as Lagos, Cairo, Johannesburg, and Nairobi.

“The African start-up space has created thousands of jobs and activities within the ecosystem,” Oo Nwoye, executive director at Tech Circle, said.

Nwoye said the growing opportunities in IT, biotech, and other fields are luring young, educated professionals into entrepreneurship in the continent.