Kenya, Nigeria, Egypt and South Africa are winning the day and establishing themselves as the main African hubs for start-ups, to the detriment in particular of French-speaking Africa, which is lagging behind
- About “80% of the funds raised in start-ups in Africa are destined for four countries: Nigeria, Kenya, Egypt and South Africa”, explains Fabrice Perez, venture capital manager at Proparco. A figure that sets the framework for a disparate reality in the African tech market.
- For the expert, this market presents very positive growth signals even if its size is tiny compared to the American, Chinese or European behemoths.
- However, start-ups in the African ecosystem show great promise and allow people to find solutions adapted to their lifestyles.
By celebrating the African continent’s entrepreneurial scene with its Africa Tech Awards, VivaTech is shining the spotlight on technological nuggets from a still very limited market. However, as Fabrice Perez, head of venture capital* investments on the African continent for Proparco, a French development finance institution operating in developing and emerging countries, points out, “it is therefore a very active market, which includes still a lot of disparities”.
He cites the example of Go My Code, a Tunisian start-up in the field of education in code and IT development, present at the 2022 edition of VivaTech. “It’s a kind of School 42”, narrates Fabrice Perez. Founded five years ago, Go My Code meets an essential need of the African tech market: recruiting local talent and above all keeping it. “There is a training deficit in Africa,” explains Fabrice Perez. And even when the training is there, it does not always correspond to the needs of the job market”. The venture capital investment expert provides some keys to understanding this tech market in Africa.
What are the most innovative sectors of African tech?
The reality is disparate. The African market presents major asymmetries in terms of countries and sectors. It is a very small market compared to the other giants: between 2013 and 2019, it is less than 4 billion dollars, while in the United States, we are talking about a market of more than 500 billion and in Europe , around 100 billion euros.
The disparities are flagrant at the geographical level since 80% of the funds raised in start-ups in Africa are destined for four countries: Nigeria, Kenya, Egypt and South Africa. This was the ratio in 2020 and it will be the same in 2021. In French-speaking Africa, there is a real deficit. There are four main sectoral verticals that recover 60% of the funds invested in start-ups in Africa: fintech, agritech, GreenTech and business services (also called BtoB).
Even if it means comparing the African continent, it is best to do so with India: roughly the same size of population, the same GDP and the same level of mobile Internet penetration. In Africa, there were 1.4 billion investments in venture capital in 2019 compared to 10 billion in India, almost eight times less. The deficit is clear, but in recent years, growth has been very strong. The investment rate increased by 155% between 2017 and 2020 and the number of companies financed over the same period was over 187%. The fintech sector remains the one where we see the most success stories .
A dozen African start-ups are participating in VivaTech this year. To export their solutions abroad?
The African market is very large. It depends on the sector: in the energy sector, some start-ups are exported to Asia, for example. A solar system to have access to energy, because the network works badly, does not seem to meet the needs of the European population.
The advantage of the few African start-ups present is to find investors because there are many on site, to put forward their solutions for inter-country development in Africa. The countries come to VivaTech with their nuggets to show a beautiful showcase. This is possibly the opportunity to meet partners, new customers, etc.
Where is the African tech market more than two years after the Covid-19 pandemic?
The Covid-19 crisis has put a stop to the growth of African start-ups because they regularly need to raise money, fundraisers which are organized every 12 to 18 months. With Covid-19, there was a halt in investments and some that needed to raise money had to cut costs and even others closed. At Proparco, in partnership with Digital Africa, we have offered cash bridge loans pending their fundraising. We funded 12 between 2020 and 2021.
Growth rates have picked up, trends have resumed their pre-crisis pace and finally, the pandemic has made it possible to develop digital activities, also in Africa.
*As a reminder, venture capital refers to the activity of financing start-ups by taking a stake in the capital of companies.