Why Big Tech is investing in Africa's start-up scene

While the global start-up scene has been grappling with declining investments for the past two and a half years, some countries in Africa are bucking the trend. According to the "African Startup Funding Report" by industry service Disrupt Africa, in 2023, Kenya, South Africa, Morocco, Senegal, the Democratic Republic of Congo, Rwanda, Ethiopia, and Zambia raised more funds than the previous year. Particularly notable is the newfound interest from some major tech corporations from the US. Mobility specialist Uber, for instance, emerged as the lead investor in a $100 million (Sh13 billion) financing round for Nigerian start-up Moove in the spring. Moove finances car purchases through installment payments. This marked Uber's first investment in any African company. Additionally, Netflix co-founder Reed Hastings and former Alphabet CEO Eric Schmidt participated this year in Kenya's SunCulture, which distributes solar-powered water pumps. Venture fund Payment giants Visa and Mastercard have also injected several hundred million dollars into African innovations and investments over the past two years. Amazon founder Jeff Bezos has been investing through his personal venture fund, Bezos Expeditions, in Ghanaian fintech Chipper Cash for the past four years. Africa's start-up scene is growing. "When US firms invest hundreds of millions in deals in Africa, it signals economic potential and confidence in market growth," says Max Cuvellier Giacomelli, co-founder of market analysis platform The Big Deal. The company specialises in the African start-up scene. Because of the challenging global economic conditions affecting young companies, investments on the continent plummeted by over 60 per cent in the first half of 2024. Giacomelli, however, sees a burgeoning industry. "More than a third of the investments in 2024 are loans. Three years ago, this figure was below ten percent," explains the French native. This clearly indicates the maturity of the start-up ecosystem, demonstrating confidence "that African start-ups can handle a broader range of investment instruments." Despite the downturn, significantly more money continues to flow into African start-ups than in 2019. Africa's scene may be relatively nascent in scale. In 2023, start-ups raised funds equivalent to the entire state budget of Miami. According to the Global Startup Ecosystem Index, just 3.7 per cent of global start-up funding goes to African countries. Nearly half goes to the USA, a quarter to Asia, and just under 20 per cent to Europe. However, the rising interest reflects an important trend: according to the United Nations, Africa is projected to be the continent with the fastest population growth by 2050, potentially accounting for over 25 per cent of the world's population. The potential is immense. The "Big Four" countries-Kenya, Nigeria, South Africa, and Egypt-are particularly active. These four alone account for over 85 per cent of all investments. Just a year ago, Nairobi, Kenya's capital, surpassed Lagos, Nigeria's capital, as the epicenter of Africa's start-up scene. According to founder Calvin Kebati, this shift is largely due to improved conditions for start-ups in Kenya: "In recent years, investments have focused on infrastructure, fiber optics, and digitizing government agencies," he says. Through his tech start-up Nakili, Kebati provides a digital management platform for small shops, hairdressers, and spas, and his idea was recently selected as one out of 10 start-ups for Google's Africa Accelerator. Business models This three-month project supports African start-ups with international experts and workshops to scale their business models. Most investors come from the USA, followed by Europe, with African countries themselves trailing. "However, there's a trend of investors from other regions increasingly collaborating with local venture funds," reports analyst Oke Ekpagha from early-stage investment fund Oui Capital in Nigeria. The fund specialises particularly in fintech investments, the most successful industry on the continent, raising the most funds. Even though mobility solutions attracted more funding in the first half of 2024, six out of Africa's seven unicorns are from the financial industry. Unicorns refer to start-ups valued at over one billion dollars. In February, Mastercard secured nearly four per cent of South African telecommunications giant MTN for $200 million (Sh26 billion), specifically its fintech arm, Momo. Momo, a mobile payment system, now serves over 60 million customers across multiple countries. Unlike Paypal, Klarna, and others, customers can easily transfer money from phone to phone without needing credit cards or bank accounts. Mobile payments are trending in many African countries. In Kenya, for example, 51 out of 54 million residents use M-Pesa, the domestic leader owned by Vodafone subsidiary Safaricom. According to Giacomelli, the success stems from millions in African countries gradually gaining access to the financial ecosystem, particularly through mobile payment systems. US giant Visa has also recognised this trend: "We've steadily increased our investments in Africa and aim to invest one billion dollars over the next five years to expand operations, implement innovations, and deepen collaboration," explains a company spokesperson about their Africa strategy. Currently, however, expert Ekpagha notes caution among Western investors due to politically unstable situations in some countries compounded by the strained economic conditions. "Investors are definitely more cautious, and the requirements for investment have significantly increased," says Ekpagha. Nakili CEO Kebati also feels this challenge. Recently, the start-up has primarily received funding from local investors. "The situation is challenging, but we are slowly seeing improvement," he says. According to "The Big Deal," July was actually the most successful month for African start-ups in over a year. Founders from various countries secured $420 million (Sh54.6 billion). Among them, Egypt's fintech unicorn MNT-Halan raised over $157 million (Sh20.4 billion). Not included in this figure is the acquisition of South African start-up Quicket by US event giant Ticketmaster. "Together, we will usher in a new era of unprecedented growth for African entertainment," explained Ticketmaster CEO Mark Yovich about the acquisition.

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