Africa, often referred to as the “next frontier market,” is poised for a transformation that could reshape the global economic landscape. With its rapidly growing population, increased digital access, and immense economic growth potential, Africa presents a compelling investment case. The thriving startup ecosystem is especially interesting for corporations in developed markets like the US & Europe who want to innovate and reach beyond their saturated markets. Some would argue that it is a good time to invest in African tech startups, and here are a few reasons why:
Growing Consumer Market
Africa’s population growth drives its potential as a future economic powerhouse. Just over 1 billion people call Africa home, with an astonishing half of them under 20 years old. Unlike other regions where population growth has slowed, Africa’s population has been steadily increasing at a rate of 2.42% per year for the past three decades. By 2050, Africa’s population is projected to reach at least 2.4 billion, and it could soar to a staggering 4.2 billion within the next century.
This demographic profile positions Africa as a massive consumer market with a growing middle class and untapped potential. Market-leading corporations in mature markets seeking new growth opportunities are increasingly interested in Africa’s burgeoning population.
Economic Growth Potential
Africa’s GDP growth rate is promising, with several countries ranking among the world’s fastest-growing economies. This growth is driven by factors such as urbanization, industrialization, and increasing digital access.
One of the most promising initiatives is the groundbreaking trade agreement, the African Continental Free Trade Area (AfCFTA). Launched on January 1, 2021, AfCFTA is considered the world’s largest free trade area, covering 54 African nations. The World Bank estimates that AfCFTA will boost Africa’s income by $450 billion by 2035 and increase intra-African exports by over 81%. According to the UN Economic Commission for Africa, this single-market trade agreement could propel the African economy to reach the $29 trillion mark by 2050.
Increasing Digital and Mobile Access
Over the past two decades, Africa has experienced a digital revolution as more Africans gained access to the internet and mobile phones. Investments, particularly in mobile broadband, by companies like MTN, Orange, Vodacom/Vodafone, and Airtel have significantly improved internet access and mobile phone adoption. As of 2020, 30% of sub-Saharan Africans used the Internet, compared to only 6% in 2010 and a mere 1% in 2000, according to the World Bank.
Africa’s enhanced connectivity has given rise to a new wave of growth-oriented technology startups. These startups are developing digital technologies to solve local problems and create jobs, marking a significant shift in Africa’s economic landscape.
African Tech Startups Facing Challenges Head-On
While the opportunities are clear, it’s crucial to acknowledge the challenges in Africa. These challenges include infrastructure deficiencies, regulatory complexity, limited access to finance, market fragmentation, and supply chain disruptions, to name a few.
In the face of these challenges, innovative startups in Africa are finding creative solutions. Africa boasts one of the highest rates of entrepreneurship globally. These startups are at the forefront of innovation, tackling real economic challenges and demonstrating resilience despite global market fluctuations.
African tech startups are renowned for their ability to address local challenges creatively by leveraging technology and innovative business models for accelerated growth. These challenges often revolve around infrastructure deficiencies, access to healthcare, financial services, agriculture, e-commerce and supply chain management.
Startups on the continent have successfully leveraged digital technologies to bridge infrastructure gaps, enhance connectivity, and leapfrog traditional development paths. For example, they have bypassed landlines and embraced e-banking and mobile money. For investors, this represents an opportunity to support and benefit from solutions that have the potential to be scaled globally. Investing in African startups can support initiatives that positively impact local communities while reaping the rewards of disruptive innovation.
Supportive Ecosystem for African Tech Startups
In recent years, African governments and international organizations have recognized the importance of fostering startup ecosystems. Initiatives such as incubators, accelerators, and venture capital funds have emerged to provide critical support to startups. Africa’s startup ecosystem is snowballing, with over 600 active tech hubs, incubators, and accelerators, according to a GSM Association (GSMA) report. These hubs are spread across the continent, with the majority located in Nigeria, South Africa, Kenya, and Egypt.
Positive Investment Outcomes and Opportunities
African tech startups are strategically positioned to cater to the growing consumer markets. As the middle class expands and consumer behavior evolves, startups can capture significant market share, potentially resulting in substantial returns for investors.
The track record of investments in African tech startups is becoming increasingly positive. As more success stories emerge, investor confidence in the continent’s startup ecosystem grows. Some startups have achieved unicorn status, with valuations exceeding $1 billion, highlighting the potential for substantial returns on investment. This trend attracts venture capital firms, individual investors, and corporate investors looking to diversify their portfolios and capture high-growth opportunities.
According to a UN report, Africa has seen an impressive 11.4% return on foreign direct investment (FDI) from 2006-2011, compared to the global average of 7.1%. This demonstrates that higher risks in Africa can lead to higher returns, making it an attractive investment destination for the brave.
Explore Investment Opportunities in Africa
Africa is a potential growth market for forward-thinking organizations serious about disruptive innovation. Corporate venturing offers a unique opportunity for corporations in highly competitive developed countries looking for new growth markets to invest in early-stage tech startups in Africa.
However, entering the African market requires a knowledgeable partner with experience in the African investment landscape. A corporate VC partner can provide valuable insights and guidance based on a solid investment thesis, helping corporations understand specific verticals and service areas before fully entering an African market themselves. This ensures the alignment of carefully curated African investments with long-term innovation goals.
Additionally, a partner with established networks and connections within the African tech startup ecosystem can expedite collaborations and capital deployment. The right partner will have experience growing early-stage technology startups and can successfully manage all aspects of your investment portfolio.
For more information and to discuss your innovation goals, consider reaching out to Newtown Partners, a seasoned partner for corporates in navigating the African corporate VC investment landscape.
See how Newtown Partners works with companies such as DP World to grow a successful startup portfolio and deliver strategic and financial returns.