African Startups Are on the Rise. Here's Why

When it comes to startup ecosystems, certain hotspots leap to mind, such as Silicon Valley, New York, London, Beijing, and Tel Aviv. A recent survey by CEOWORLD magazine of the most startup-friendly countries ranked the top five as the United States, United Kingdom, Canada, Israel, and India.

As a digital marketer for tech startups, these rankings come as no surprise. Where things get considerably more complicated is trying to identify new emerging markets and rising innovation ecosystems.

However, there are a few metrics that can help identify these new tech-friendly regions, such as the amount deals being made, the number of unicorns, and most importantly – the level of funding.

North America, Europe and Asia make all the headlines. But for the last five years or so, nearly all indicators are noting the emergence of a new and upcoming regional technology hotspot - Africa.

The rise of Africa’s tech capabilities makes a lot of sense when you consider the continent’s relatively youthful and growing population, coupled with rising living standards and internet penetration.

Large institutions are starting to notice, with the World Economic Forum (WEF) recently including seven African startups in its 2021 list of 100 Technology Pioneers.

There are currently four African unicorns, all in the e-commerce or fintech sectors: Jumia, Flutterwave, Interswitch and Fawry. Several others are looking likely to pass the $1 billion valuation in the near future.

The potential in the continent is vast, as shown by the primary indicator of an increasingly thriving tech scene – a huge rise in international investment.

The continent has seen a surge in VC funding

Since 2015, there has been an influx of funding from global investors. The World Economic Forum reported: “Between 2015 and 2020, growth of African tech startups receiving financial backing was nearly six times faster than the global average.”

To provide some perspective, African startups raised around $400 million in 2015. According to a report by Partech Africa, in 2019, that figure was $2 billion.

Jumia, the first company to achieve Unicorn status, did so in 2016 with backing from investors that included Goldman Sachs and Mastercard.

Investment and growth understandably took a hit in the first half of 2020. But the recovery began in July with increased VC investment and several significant acquisitions.

For example, international organisations purchased Sendwave ($500 million), the DPO Group ($288 million), and Paystack ($200 million).

One or two countries dominate each region

The growth of the tech startup scene is happening across the continent, with just one or two countries receiving the majority of investment in each region. These largely correlate to GDP, but not in all cases.

According to Partech’s 2020 Africa report, the West African country Nigeria was top of the VC list with investments worth $307 million. As the continent’s most prosperous nation by GDP, this is not surprising.

In the north, the second wealthiest country, Egypt, came third for VC funding, with startups raising $269 million. Close behind in fourth place is South Africa, with $259 million.

East Africa is where it gets more interesting. Kenya is sixth on the IMF GDP ranking, yet when it comes to VC funding, it is in second place close behind Nigeria, with investments of $304 million.

Also on the rise in the east is Ethiopia, which is close to Kenya in terms of wealth but has yet to attract much venture capital. However, that is beginning to change.

Venture Capital is starting to invest in up-and-coming hotspots like Ethiopia

For one of Africa’s more affluent countries, it is surprising that Ethiopia has so far been below the radar of many venture capitalists. With a young and growing population, high unemployment, and poor tech infrastructure, it was only a matter of time before it caught someone’s attention.

Hiruy Amanuel is a well-known African venture capitalist and entrepreneur who saw the vast potential of Africa. Amanuel is the managing director of Gullít, a fund that focuses on early-stage tech startups in East Africa.

He is particularly keen on East Africa and has invested in developing the technology ecosystem in the country and in training programs to expand the sector in the near future.

“As we emerge from the Cloud cast by the pandemic, I see Ethiopia becoming a huge success story. The country has been largely ignored by investors, but thanks to a consistent rise in GDP over the last few years, there is a lot of scope to develop a thriving technology sector there, fueled by a young skilled workforce. East Africa generally is already seeing a rapid growth thanks to tech startups, and I think that it will continue to accelerate,” Amanuel said.

As both a philanthropist and tech investor, the East African region (and the continent as a whole) are ideal for someone like Hiruy Amanuel. “I want to provide opportunities in Africa for young entrepreneurs and startups. There is so much potential here that is only beginning to be realized.”

Amanuel has already taken significant steps in establishing a more friendly and supportive tech environment, and Ethiopia was the logical place to start. “Given how positive we felt toward Ethiopia as a future tech hub, it made sense to develop a training programme there.

“So, we established Gebeya to develop courses and curricula, to train young talent. The aim is to create a workforce of highly skilled programmers, software developers and other related positions. These talents will then create a foundation for a thriving tech ecosystem,” Amanuel explains. “These programs began in Ethiopia but are already being implemented in numerous countries across Africa. Gebeya also helps to match freelance talents to organizations that want on-demand skilled staff.”

“I think Ethiopia is a prime location for a tech hub, but I am also bullish on the continent as a whole. One of the major issues I saw repeatedly is the funding gap between early stage startups and series A. These are some of the reasons why Gullít was established. Gullít is more of a coalition of entrepreneurs and investors, with a wider African focus. However, the aim of the fund is similar - to assist the emergence of talent and encourage technology development.”

Gullít focuses on talents across the tech sector, advising and helping the development of technology-related areas, including an animation studio, gaming, and media companies. It also helps startups with fundamentals such as providing mentorship, coaching, capital deployment, and advisory services. Its reach, like that of Gebeya Inc, is growing. “My focus and ventures started in East Africa, but there is so much investment flooding into the region, we are expanding rapidly,” Amanuel says.

The influx of funding is also spreading to other countries with similar potential. In the west, Ghana is receiving a lot of attention. Even nations with smaller economies like Mauritius are starting to benefit.

Factors such as the pandemic and numerous conflicts confuse the situation, but their impact has only been a minor setback for the continent.

Venture capitalists have already taken note of the flourishing tech industry and are helping to develop robust startup ecosystems. It has a lot of catching up to do, but Africa is definitely on the rise.