Global Startup Uncertainty Drives Mega Investments in Africa’s Burgeoning Tech Scene

$4.6 billion.

That’s the record amount of venture capital (VC) funding African tech startups raised in 2021, a 150%+ year-on-year increase and larger than the funding amounts of the preceding three years (2018 to 2020) combined.

If the previous amounts hadn’t already shown the huge potential in the continent’s tech startup scene, Zekarias Amsalu, founder and CEO at investment advisory firm IBEX Frontier, said that 2021 was further proof that African tech firms are beyond mature for big-ticket funding deals, considering the several “mega rounds” — $100 million or more — recorded by privately held FinTech unicorns like Flutterwave, Andela, Chipper Cash and OPay.

Read more: Nigeria’s Flutterwave Raises $170M on $1B Valuation

Also read: African FinTech Chipper Cash Raises $150M at $2B+ Valuation

Amsalu attributed Africa’s growing attractiveness as a global tech hub to an awakening in the international investor community as to the significant return on investment doing business on the continent has to offer.

“The misconception about risk that is being demystified as successful international investors show [others] the record-breaking return on investments [they’ve made so far],” explained Amsalu, who is also co-founder of the Africa Fintech Summit.

See also: Nigerian Payments Giant OPay In Talks To Raise $400 Million At $1.5 Billion Valuation

Unsurprisingly, the African FinTech market was the largest beneficiary of VC funding in 2021, which has been critical to accelerating financial inclusion in the region, accounting for 41% of all mega deals inked last year.

In a region where 43% of its 1.4 billion people remain unbanked and where increasing mobile phone penetration — nearly 500 million people have access to a mobile device — Amsalu pointed to the key drivers that will continue to fuel FinTech growth moving forward.

Learn more: Africa FinTech Sector Continues Upward Trend, Payment Firms Continue to Dominate

Overall, he said, startup growth and investor interest has been more widespread across the region and no longer confined to the “Big Four” countries that have been leading investment capital in emerging markets in previous years — Egypt, Nigeria, Kenya and South Africa.

“For example, we’ve seen 100 million-plus investments in Morocco, Tanzania as Uganda and Ghana are coming up so the opportunity in Africa is [more widespread now]. And with Africa being a mobile-first continent, any Fintech startup that can tap into and take advantage of this mobile phone access will have a significant growth opportunity,” he said.

Next Frontier: Logistics and Supply Chain

It’s not just Africa’s FinTech sector that is witnessing unprecedented growth.

According to Amsalu, a new emerging sector, logistics and supply chain, came in second to FinTech with 14% of funding raised in 2021, as an increasing number of startups look to solve the historical challenges the continent has faced around fragmentation within its borders and high tariffs impeding regional trade integration.

Read more: Afreximbank’s Payment System (PAPSS) Goes Live With 12 African Banks

Initiatives like the African Continental Free Trade Area (AfCFTA) agreement and the recently launched Pan-African Payment and Settlement System (PAPSS) are aiming to tackle these hurdles, and for Amsalu, startups in the sector can capitalize on these projects to help improve transport infrastructure in Africa and create a disruption-proof supply chain landscape across the region.

Read interview with PAPSS Deputy CEO: Instant Payments Set to Boost Intra-African Trade by $5B Annually

“Intra-Africa trade is only 18% now but with AfCFTA and PAPSS the goal is to increase that to 50% by 2030. That presents a huge investment opportunity for any supply chain, trade tech or freight startup that is expanding across Africa in the next eight years,” he noted.

Cryptocurrencies and CBDCs

Despite the record-setting peaks of 2021, Amsalu said these are “some of the hardest times” in the global VC funding landscape, as the pandemic, inflation and geopolitical issues have not only forced investors to take a more cautious approach but led to a dip in the valuations of startups like PayPal and Klarna and a drop in new unicorns.

But there remains great expectation for Africa’s blossoming tech startup scene, he said, predicting that at least $10 billion in funds will be injected into the space by the end of this year. “In the last four months alone [January to April 2022], African startups have already raised $2.3 billion so that target is not beyond reach.”

There will likely be another startup going public either through an IPO or Special Purpose Acquisition Company (SPAC) arrangement this year, he further predicted, following closely behind Egypt-born and UAE-based transportation company Swvl that went public via a SPAC deal in the US in April.

Finally, he pointed to cryptocurrency and central bank digital currencies (CBDCs) as key enablers that will accelerate cross-border trade across the region and facilitate decentralized peer-to-peer (P2P) remittance flows by helping users bypass inefficient traditional banking services.

And while virtual currencies have received mixed reception on the continent so far, – countries like Egypt and Morocco have banned the use of cryptocurrencies altogether, — more governments will eventually follow Kenya, South Africa and Nigeria’s example in embracing the opportunities tied to digital assets and digital currencies.

“I think Africa will be a place where the success of cryptocurrency will be exemplified, and also defined in the years to come,” Amsalu said.

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