Africa’s entrepreneurship potential is currently thriving. The continent now boasts seven unicorns, up from zero in 2015, and has the largest free-trade area in the world. Also, compared to other continents, it has the highest proportion of entrepreneurs who are adults of working age.
Entrepreneurship was thriving in Africa before the COVID-19 pandemic, with 22% of people of working age on the continent have done so by 2020. But because of the COVID-19 pandemic’s effects on the economy and companies putting a freeze on hiring, more people are starting their own businesses. African business owners are also very active in the digital sector, which is expected to add USD 300 billion to the continent’s GDP by 2025.
So, the tech industry in Africa is an excellent opportunity for companies that want to grow internationally and gain access to a motivated workforce. The continent is opening up to investment opportunities worldwide and paving the way for new company models and ideas. But for the IT industry in this area to keep growing, several sectors need more help. In this article, we go into more detail about these problems.
A digital investment opportunity in Africa
Every year, more and more successful tech businesses open in Africa. This shows that the continent is a good place to invest. The World Economic Forum named six African start-ups as Technology Pioneers of 2022. These include Ampersand, a Rwandan start-up that provides a leading battery-swap energy network for light vehicles, and Access Afya, a Kenyan start-up that focuses on providing quality, affordable healthcare by making better use of patient data.
Eight African start-ups from Ethiopia, Kenya, Ghana, and Zimbabwe were included in last year’s WEF list. They were involved in genomics technology, agritech, and fintech. Due to the region’s increasing diversity and maturing tech environment, companies globally have a significant chance to use the talent and cross-sector experience of the area. Because the region is becoming more diverse and the tech environment is improving, companies worldwide have a big chance to use the talent and cross-sector experience of the area.
According to the African Tech Start-ups Funding Report, the total funding for African tech start-ups increased by 1,000% between 2015 and 2021. However, despite the high demand for capital and talent from the many entrepreneurs starting the next wave of African businesses, the continent still doesn’t have enough of either.
In June 2022, a report examining key elements of African tech ecosystems, suggested that while the extraordinary growth of venture investment since 2017 has been a great success story, it isn’t the most important narrative, as much of the continent’s untapped potential (skill-wise) is needed to be put into work to strengthen the digital economy further.
The report called “The Inflection Point”, published by the entrepreneur incubator Endeavor Nigeria, offered a broad examination of the size of the African digital opportunity. It also predicted that the size of the continent’s digital economy will grow to USD 712 billion by 2050, and insisted that the continent “has barely scratched the surface of its potential relative to other regions.”
Endeavor’s study was based on underlying factors, such as the GDP rates and consumer spending growth in African countries, the acceleration in the use of digital services during the COVID-19 pandemic, and the growth in the digitally savvy young population, who are also showing an increased interest in tech jobs. While the continent still lags behind other key digital parameters like basic internet usage, this is also seen as an opportunity meaning there’s plenty of room for expansion for companies in this arena.
Endeavor also had a positive outlook on the funding aspect.
“We don’t expect an economic downturn to dry up investments completely,” Tosin Faniro-Dada, Endeavor Nigeria’s managing director, told “Rest of World”. “We believe funding would be available for good companies solving real problems,” she said further.
Despite some African countries having higher interest rates and continued recessions since 2017, the continent has continued to raise significant capital. Venture investments in this part of the world have grown some 18 times since 2016, Faniro-Dada said.
Between 2020 and 2021, fundraising rates among African startups were twice that of the global average, albeit from a lower base. New data from research firm “Africa: The Big Deal” revealed that the first half of 2022 was a record breaker, with funding for African startups topping USD 3 billion in the first six months of the year. The total funding figure for the entire 2021 was USD 4.4 billion.
The possibility for the tech industry to prosper going forward
Tech companies must use tech skills to keep growing and succeeding in the area. There are reports that high-growth African start-ups can’t find enough skilled software developers on the continent. According to Google’s estimates, there are over 716,000 of them, with almost half of them living in Egypt, Kenya, Nigeria, and South Africa. Also, the average age of these developers is 29, which is younger than the average age of developers around the world, which is 36. This shows that older workers in all fields need to learn new skills. Young people should be helped to develop and get started on digital careers as soon as possible.
The good news is that businesses like Microsoft, Google, and Oracle are planning to expand their operations in the area significantly. Microsoft, for example, plans to build its first development centre in Africa in 2022 and hire 100 people by 2023.
Some of the talent accelerators set up are Andela, AltSchool, University, and Decagon. Their goal is to give people in the region new ways to get into tech. The latter intends to train 10,000 software engineers every six months.
Sector-specific investment is also proving to be essential. For example, cybersecurity experts at Venari Security have opened a new Center of excellence in Tunisia to help grow some of the country’s best talents and give cybersecurity experts new opportunities.
Tunisia has a thriving tech scene, with over 1,800 IT companies employing nearly 80,000 people and contributing 7.5% of GDP in 2018. Moreover, Tunisia is a good place. It is a good choice for cyber and other specialised tech because it ranks high for graduate skills, has good vocational training, and has a large pool of available workers.
Overcoming market obstacles in the area
It’s impressive to think that by 2030, Africa will have received 90 billion US dollars in innovation financing. However, to prevent stagnation, African countries must make sure that these investments continue to be appealing.
The lack of regional harmonisation makes it hard for new businesses to start. This makes regulations hard to understand, which may turn away potential investors. In addition, 54 African nations have different regulatory frameworks, which could reduce the benefits of start-ups.
It’s encouraging to see that the African Union and AfCFTA are working to further development in this sector, even though the problems are far from simple to solve. Collaboration between government and industry leaders will be necessary to create a clear, unified digital policy framework that will make it simpler for start-ups to enter local markets.
It’s essential to make ecosystems or tech clusters that look like the tech scene in Silicon Valley or like the one made for the robotics and automation business in Odense, Denmark. A strong Pan-African tech start-up network backed by an African government-led digital economic strategy will help connect markets and make job and investment opportunities.
An opportunity and skill cluster for technology
The tech industry can be an essential leveller and enabler for developing economies. As a result, African entrepreneurs have shown a strong desire for a wide range of tech start-ups to grow in the area.
As we’ve seen, there is a place for multinational corporations to establish their local presence in African nations, emphasising training and inspiring more people to pursue careers in technology. But there are also problems that the government, industry, and investors must work together to lower the risk of investments and make it easier for start-ups to grow and spread across the region.
Digital entrepreneurship is booming on the continent of Africa, which is a big part of why the area is getting better after the pandemic. Investment and security could be improved to help the continent grow into a tech superpower, and innovation clusters could be allowed to form.
Google in Africa
A partnership between the two continents started nine years after Google’s formal inception. The company, worth more than a trillion dollars on the stock market, has created and supported programmes focusing on Africa. It runs its business in sub-Saharan Africa from South Africa, Nigeria, and Kenya. In 2018, it opened an Artificial Intelligence lab in Accra, Ghana. This is where Artificial Intelligence projects for the whole continent would be planned and done. Last year, it said it would open its first development centre in Nairobi, Kenya, where it would hire product teams and engineers from all over Africa for the first time. It recently said it would establish its first cloud centre for Africa in South Africa.
The yearly physical and online Google4Africa event, where the company announces its goals for the continent for the following fiscal year, was held in 2022. The three bases of its sub-Saharan operations—Nigeria, South Africa, and Kenya—host the event concurrently. At the event in 2021, Google CEO Sundar Pichai made the company’s most ambitious commitment to Africa to date: a USD 1 billion investment to democratize access by ensuring affordability and relatable products, support nonprofits working to improve lives throughout Africa, assist businesses in digitising and investing in entrepreneurs to fuel next-generation technologies. The majority of this year’s edition consisted of feedback and progress reports.
But the company has done things on purpose for people following Google’s exploration of the continent, making for a better story before the announcement last year. Google’s operations in Africa follow a plan, as Nitin Gajra, the company’s managing director for sub-Saharan Africa said.
Gajra didn’t hide the fact that he liked Africa best. He didn’t hide that he liked Africa best because of access to affordable talent. According to Gajra, entry separates the West from developing nations like Nigeria and India, where he is from. Even after building the infrastructure, he continued, “we must figure out a method to make it accessible to everyone, and this requires a certain level of intentionality.” Google places a lot of emphasis on accessibility, evident in the level of inclusion it incorporates into all of its products—extensive language selections, accessibility features for the visually impaired, etc.
According to Gajra, there are many facets to Africa’s problems, and Google is prepared to address each separately. Even for a big company like Google, this is a big job. In the past, governments have failed in similar positions. The tasks are scary even while the discourse about why they fail centres on incompetence.
Despite these, Google has experienced its fair share of scandals on the continent. In the Mocality 2012 incident, for example, the company had to admit that it had “improperly” used data from a local startup called Mocality. At the time, Mocality had a list of nearly 100,000 local businesses that could be accessed from a cell phone. Stealing Mocality customers to pay for its website was seen as stealing customers from Mocality. When Google discovered this accusation, the head of operations in Kenya and all the engineers who worked there were fired. A year later, Mocality ceased operations.
Will Africa’s Challenging Funding Environment affect its tech boom?
However, having a challenging funding environment means that African start-ups will be under immense scrutiny from their financial backers, especially in the valuation arena.
“The thing is, our valuations were getting crazy in Africa, in terms of the work some of these startups had done to deserve them,” Stone Atwine, founder of Uganda-based fintech Eversend, told the “Rest of World.”
“Now investors will want to see numbers, it’s all about unit economics again, not just vibes,” she said, while adding that the effect of any global slowdown will not be as huge in Africa.
Will the ongoing global economic slowdown have an effect on Africa? If yes, then how severe it will be? Will it affect the tech sector investments?
Selam Kebede, director of the Nairobi office of Antler, a global early-stage VC, told the “Rest of World”, that it’s a question of “when and not if” the African tech ecosystem will start seeing a downturn.
“We are already witnessing valuations going down and investors becoming more critical of metrics like burn rate and margins. Startups with a high burn rate relative to their growth will find it hard to fundraise,” she said.
Kenya-based veteran investor and tech policy advocate Ali Hussein Kassim told the same publication that one advantage of an economic slowdown would be a more keen awareness that the ecosystem is over-reliant on foreign venture dollars.
“This is skewing the investment space to focus mostly on Western values from a VC perspective,” he said, referring to the Silicon Valley startup growth culture of “Move fast and break things.”
“Don’t get me wrong: I’m all for foreign capital. I’m just concerned that there is very little homegrown capital going into these startups,” Ali Hussein Kassim added.
The Endeavor report has highlighted the uneven spread of investment money across the various stages of growth. As in most markets, there are more venture deals in early-stage companies in Africa, but the study indicates a sort of inequality here. The fastest-growing bracket in the continent involves deals between USD 1 million and USD 5 million, which generally take place in a pre-seed or seed funding round.
Endeavor argues that the demand for further funding rounds in the USD 5 million to $50 million bracket will increase in future, as more of these early-stage companies are expected to take their next steps.
“Given the significant drop in deal activity from USD 5 million onwards, it is likely that there will be insufficient supply to meet demand,” the report stated.