Nigeria tech ecosystem’s march to the throne of a most attractive destination for investors in Africa is likely to be a reality again in 2021 but its local venture capital (VC) scene would take the second seat once again. In Egypt, though, this is hardly to be the case as local investments compete equitably in the tech investment activities in terms of volume.
Over the years, tech investment has grown significantly in Egypt. In 2019, for example, the number of funded ventures rose to 159 percent on 2018 figures, data from Disrupt Africa shows. The number dropped to 82 startups in 2020 on the back of the pandemic, the country was nonetheless second only to Nigeria and also means that the number of funded Egyptian startups has grown by 1,540 percent since 2015 when only five startups secured investment.
Egypt, actually, ranked number one in Africa in the number of equity deals with 86, representing over 83 percent growth year-on-year and almost a quarter of the continent’s VC transactions in 2020, according to Partech’s report. In terms of total equity funding, Egypt also sees the highest growth rate out of the top 4 markets with over 28 percent year-on-year growth, attracting $269 million to represent 19 percent of the total funding and maintaining its third place but significantly closing the gap with Nigeria and Kenya.
Egypt owes much of its rise on the continent’s tech ecosystem to a local ecosystem driven by high-quality entrepreneurs and increased activities from local investors plugged into the many regional Middle East and North Africa (MENA) funds. However, these would not have grown to the level it is without intentional government investment in technology.
The Egyptian government is one of the biggest investors in the tech ecosystem in Egypt. The government does this through its public venture capital programmes. public venture capital organizations are organizations that are funded and controlled by government institutions. These types of organizations are either completely funded by the government or partially funded by the government.
According to experts, public venture capital organizations usually have a slightly different aim than other VC firms; their main goal is usually focused on promoting the growth of Small and Medium Enterprises (SMEs). In other cases, their aim is to invest in certain industries or certain areas. When both the government and the private sector contribute to the funds of Public Venture Capital organizations, they are called hybrid funds.
The Central Bank of Egypt in 2019 established a fintech regulatory sandbox as well as the $57 million Fintech Fund. According to the bank, the funding to be mobilised directly and indirectly by the new platform is expected to start with $50-100 million upon launch reaching $350-500 million over a period of five years.
Apart from the Fintech Fund, the Egyptian government also runs a number of incubation programmes both independently and in collaboration with other organisations.
The government also made a lot of investment in providing technology infrastructure in the country that enables tech businesses and the ecosystem to thrive.
The first education in Egypt is considered among the best on the continent, this is responsible for a number of the universities in the country ranking among the top institutions of learning in Africa. Two of these universities are among the top ten in Africa.
Second, investment in internet infrastructure has seen pushed the country’s internet penetration to 54 percent, 2 percent less than the global average of 56 percent, but well ahead of Nigeria’s penetration at 42 percent. The number of mobile connections in Egypt in January 2020 was equivalent to 91 percent of the total population.
Egypt also ranks high (15th) in ease of doing business in Africa, according to the World Bank.
The government’s efforts hadn’t gone unnoticed as it has led to the establishment of private sector-led several funds and private equity firms into the country. In the past, such government patronage even led to the creation of the Egyptian Private Equity Association (EPEA) by local private equity players.
Moreover, the economic stability in the country which has been restored following the Arab Spring which ushered in a period of great unrest is restoring investors’ confidence in the North African country.
For example, Vazeeta, a health technology platform, which $40 million funding raise was the most closed by any startup in 2020 was led by a company with extensive investments in the Egyptian economy. Vazeeta’s $40 million in Series B capital in a round led by Gulf Capital, an Abu Dhabi-based private equity firm with shares in public listed companies on the Egyptian Exchange and other limited liability companies.
More than a local investors plug, Egypt’s startups are also reaping the benefits of its political and economic affiliations with the Middle East region, something that its peers in West Africa lack despite being members of the Economic Community of West African States (ECOWAS).
One benefit of the relationship with the Middle East is the BECO, an early venture capital firm in the United Arab Emirates. Founded by Amir Farha and Dany Farha in 2021, the VC is focused on the MENA region and has backed 22 companies with Egypt’s Swvl and Vazeeta among the lot. BECO has helped the two companies raise total funding of over $80 million and $63.5 million respectively to support their operations in Egypt and expand their markets on the African continent.
The story of how Egypt hit the big times in Africa’s tech ecosystem will not be complete without the multiple angel networks it now has. These networks provide early-stage startups with funding sizes ranging from $10,000 to $100,000 and in some cases, reach a few million. They tend to be more agile than venture capital firms and respond quickly to new opportunities. Cairo Angels, for example, has investments in 29 companies across the MENA and leverages a network of 80 angel investors.
Egypt’s startups, however, need more exits to compete with the likes of Nigeria. The largest country in Africa has seen a number of major exits starting from Interswitch, Konga, Jobberman, and Paystack. There have also been startup acquisitions carried out by local fintech firms like Carbon.
In 2021 already, Nigeria appears to be leading the charts. Seven startups in the country raised $206 million in the month of March.
Flutterwave opened the month of March with a $170 million Series C funding that pushed its valuation to over $1 million; Havenhill Nigeria Limited, a clean energy company raised $4.5 million on the same day as Flutterwave; Kuda Bank followed with $25 million; Termii and Kwik came a day later announcing raising $1.4 million $1.7 million each. Afriex and Bankly raised $1.2 million and $2 million towards the end of the March.
Despite the impressive start, stakeholders in the Nigerian tech community know they have to keep looking over their shoulders.
Local investors are still not pulling their weight in Nigeria even though their funding size has improved. For instance, Afriex and Bankly raises were co-led by local venture capitalists. The government is also doing too little to encourage more investments in tech firms in the country.
“I know we are all hyped about our recent wins but Egypt is killing it with way less noise,” Iyinoluwa Aboyeji, co-founder of Flutterwave and Future Africa said on Saturday. “Ecosystem has work to do.” Future Africa co-led the latest round in Afriex.
