020 was a record-breaking year, mostly in negative terms. But alongside the unprecedented lockdowns, job losses, and political disarray, some great things happened in the African innovation sphere. In its new African Tech Startups Report released for the sixth consecutive year, Disrupt Africa paints an optimistic, somewhat surprising picture of the African tech sector, which, unlike most of the other global and local sectors, experienced growth.
New records were set in 2020, with 397 startups raising an impressive $701,460,565 in total funding, up substantially from previous years. The number of funded startups up 27.7 per cent from 2019, and the funding total 42.7 per cent. These numbers are outstanding when looking both at the local ecosystem, and on the global startup sphere. In the US, venture capital investments grew by only 14 per cent from 2019 numbers, in the EU investments only grew by 7 per cent, and investments in Indian startups fell from 2019’s $14.2bn to $9.3bn in 2020.
So what is it about the African tech sphere that made it a top candidate for global investments?
Investors are pouring into a growing number of ecosystems.
One figure that shows the growing interest is the numbers of active investors. 2020 had at least 370 active investors, a 42.8 (!!) per cent growth on the previous year. The types of investors vary, including institutional investors, VC firms, family offices and angels, showing an increasing confidence and interest in the local innovators. And the investment locations also spread, with newcomers diversifying the scene. A total of 307 startups from the "big four”, Nigeria, Kenya, South Africa and Egypt raised S$625,659,000. This accounted for 89.2 per cent of the overall African tally, a share that was up from 87.5 per cent in 2019.
Egypt tells an interesting story. With 82 companies raising $141,397,000, the country actually disrupted the entire geographical sector, as it entered the high-rollers and made the "big 3” a "big 4”. The country shows stellar growth, as the number of financed companies grew by 1540 per cent from 2015’s 5 startups. Looking at the sectors, Egypt stands apart as fintech being less of a focus than it is elsewhere. E-commerce and retail-tech reign supreme, and beyond that investment is much more spread out, demonstrated by the fact that 34.1 per cent of the startups do not operate in any of the primary sectors detailed in the report, but in more niche areas.
24 other countries secured funding in 2020, rising from 19 countries in 2019. Ghana was a strong presence and the fifth runner-up for the 4th time, with 15 startups raising $19,897,000. The most dominant sector in the country was by far e-health, which received 85.6 per cent of funds. The country’s National Ehealth Strategy launched in 2010, a decade before Covid assumed its destructive force, plays a meaningful role in catalysing the sector, as it positions the country as a prime location for health tech development.
Ethiopia was the biggest investment growth story in the continent, rising 9160 (!!!) per cent from 2019, with five startups raising US$2,315,000. Across the country, the second-most populous in the continent, active hubs and accelerators are creating a strong ecosystem for technological growth, while entrepreneurs have access to co-working spaces to develop skills, network, and access seed funding. The government’s investment in STEM (science, technology, engineering and mathematics) education is also inducing some energy into the sphere.
Rwanda saw 248 per cent growth in investment, and while it did not reach the top spots investment-wise, according to StartupBlink, a global startup ecosystem map and research centre, the country ranks at number 3 in Africa’s Startup Ecosystem Rank, based on the number of startups (quantity), their quality, and their business environment.
While a geographic focus displays an interesting story of growth, the top sectors for investment show what are the key development goals for local entrepreneurs.
Fintech reigns supreme
Fintech was the most attractive investment, with 99 startups (24.9 per cent of the overall total) raising a combined $160,319,065 in capital (a 22.9 per cent of the African total for 2020). There are currently more than 600 Fintech startups across the continent, focusing on various challenges experienced by hundreds of millions of Africans. By focusing on payments and lending, insurtech, investtech, and KYC, innovators are trying to establish an inclusive financial reality for over 350 million unbanked locals, and millions more who are financially underserved.
E-health was another sector that gained traction with 41 startups raising $102,994,000, accounting for 14.7 per cent of total funding. The sector demonstrated its third consecutive year of growth, dating back to pre-Covid times. The pandemic was definitely a contributor, as some founders told Disrupt Africa they feel the sector has progressed by five to 10 years in the space of these 12 months.
The African energy sector brought more investors, as it proved attractive due to the combination of potential returns, and positive impact. 22 African energy companies raised $70,306,000, showing a 44.5 per cent growth from 2019. As the electrification gap in the continent remains high, and some 600 million Africans still live without access, energy companies presenting scalable solutions, especially in the renewable sphere, are expected to continue growing and raising more global funds.
As the world continues to fight the pandemic, with entire sectors still bleeding cash or completely paralised, the African tech ecosystem and its innovating entrepreneurs continue to descend. Companies in various sectors showcase the continent’s great potential to generate global interest, while solving local problems for hundreds of millions in need. Let’s see what 2021 holds in store for this booming sphere.
The writer is an entrepreneur and investor, leading sustainability-driven companies in Africa and the Middle East.