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Startups in Africa : Engine of economic growth

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Startups in Africa : Engine of economic growth

Africa provides a fertile ground for startups to emerge and grow, supported by investment and incubation platforms. Despite this, early 2024 fundraising figures indicate a continuing recessionary trend, mirroring the previous year’s decline.

Pillars of the African startups boom

Africa’s burgeoning economy, coupled with its rapid adoption of technology and wealth of talent, positions it as a compelling and strategic destination for long-term investors. With a youthful population, Africa not only boasts a plentiful workforce but also a growing demand for innovative services. This rich human capital not only enhances the appeal of foreign direct investment (FDI) but also propels government efforts to mitigate risks and promote investment.

These efforts include fighting corruption, improving the education system, and promoting technological innovation. By way of illustration, the Democratic Republic of Congo is striving to promote entrepreneurship and startups through strengthened legislation. « The strengthening of the legal framework for businesses, with the adoption of a ‘Startup Act’, creates an environment conducive to the development of technology startups and, ultimately, makes the country a nation of entrepreneurs », asserts the General Coordinator of Ishango Startup Center and Kin Startup Academy, Félix Mangwangu.

Startup development in Africa

Startup development across Africa varies significantly, as evidenced by the top 100 startups identified by MyAfricanStartup. These promising companies hail from 20 different African nations, with Kenya, Nigeria, South Africa, and Egypt collectively hosting 60 % of them.

Kenya leads the pack with 22 startups, closely trailed by Nigeria with 21. Interestingly, 7 French-speaking countries are represented on the list, with Senegal ranking fourth, boasting 8 startups. However, it’s notable that only 36 % of these startups have a female founder or co-founder.

Correlation with the digital and energy transition

The rise of startups in Africa resonates strongly with global priorities such as energy transition, sustainable development, and continental-scale digitization. These startups are at the forefront of both the digital and energy transitions, not merely capitalizing on these shifts, but actively driving them forward. They are pioneering innovative and sustainable solutions to address the economic and social challenges facing the continent.

Making digital services more accessible

Enhanced internet accessibility and the widespread use of smartphones have significantly streamlined the development and uptake of digital services. The increasing prevalence of Information and Communication Technologies (ICT) is empowering young startups to craft innovative digital solutions across various sectors. By 2025, it’s projected that e-commerce will entice around 520 million consumers, showcasing the transformative potential of digital advancements.

Increased innovation in many sectors

Startups are revolutionizing pivotal sectors like agriculture, healthcare, and education through innovation. This digital revolution is also reshaping the financial landscape, leading to the emergence of Fintech. Within this domain, there are various offerings such as payment platforms, mobile money transfers, neo-banks, online banks, peer-to-peer lending, blockchain technology, and cryptocurrencies, among others.

Riding the momentum of renewable energy adoption in Africa

Numerous African startups are dedicated to renewable energy, energy efficiency, and expanding energy access, especially targeting off-grid solutions for underserved rural regions. They’re pioneering more affordable and accessible models, such as pay-as-you-go solar home systems, to ensure communities have reliable access to electricity.

Startup maturity : Major challenge

The maturity of African startups plays a pivotal role in their ability to fuel the continent’s economic growth. « Mature startups » are those that have successfully moved beyond the initial creation phase and are developing sustainably. These companies typically boast a proven business model, a burgeoning customer base, and established brand awareness.

In Africa, reaching this stage of maturity necessitates adequate financial resources, a conducive regulatory environment, access to skilled talent, and entry into expanding markets. However, it’s important to note that the maturity levels of African startups vary significantly across the continent. Some countries, such as South Africa, Nigeria and Kenya, have more mature startup ecosystems. This state of achievement is reflected in :

  • Greater resilience in the face of economic challenges.
  • An ability to innovate and adapt to a constantly changing environment.
  • An ability to attract significant investment.

Indeed, investors are more inclined to finance companies that demonstrate their viability and growth potential. The « Reporting on startup performance in Africa : What Investors Want to Know » reveals that 71 % of technology investors are reluctant to fund startups without regular reports on their performance.

Recessionary funding trends

In 2022, venture capital financing in Africa surged to approximately 5 billion USD. However, due to prevailing global economic challenges, transactions plummeted by a significant 39 % to 1.9 billion USD in 2023. The announced fundraising on the continent hit a modest total of just 77 million USD in January 2024.

The subsequent month saw equity commitments amounting to USD 156 million and debt commitments of 59 million USD. Despite the burgeoning startup scene in Africa, fundraising figures for the first quarter of 2024 totaled 466 million USD, reflecting a stark 47 % decline compared to the same period the previous year.

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