In a region where investors historically preferred established companies over riskier start-ups, data from GSMA show that tech ecosystems are flourishing throughout Africa and that’s luring private equity, which in simple terms is big capital.
The number of active tech hubs in Africa, or organisations with physical addresses providing support for tech entrepreneurs, rose by 40 per cent, from 442 in 2018 to 618 in 2019, according to data by African Private Equity and Venture Capital Association (AVCA).
Meanwhile, Nigeria (85) and Lagos (40+) led the continent in the number of active tech hubs by country and by city, respectively, in 2019.
Investment from major global technology companies bodes well for the sector’s continued growth on the continent.
Over the next five years, for example, Microsoft will invest US$100mn to open two technology development centres in Kenya and Nigeria, while companies such as Facebook have already developed partnerships with hubs across Nigeria, in cities like Abuja, Jos, and Kaduna.
“Many of Nigeria’s tech start-ups have the potential to become unicorns and we look forward to playing our role in supporting their growth,” said Abi Mustapha-Maduakor, Chief Operating Officer, AVCA.
A Unicorn is a tech firm with a $1 billion valuation.
One of the main attractions of Africa to these global companies is the rise of mobile technology.
GSMA has projected that smartphone connections in sub-Saharan Africa will more than double by 2025 and that Nigeria will emerge as a smartphone superpower, with an estimated 143mn smartphone connections by 2025.
With more Nigerians integrating into the mobile economy, and younger consumers using mobile technology for data-driven, non-core communications services, tech entrepreneurs can bolster efforts to achieve the Sustainable Development Goals (SDGs) by continuing to innovate in the development of products and services addressing unmet demand, disrupting sectors from payments and agriculture to healthcare and education. One of many examples is Kobo360, a Nigerian e-logistics start-up connecting truckers with cargo owners.
In 2018, the firm raised US$6mn in a seed investment round that included the IFC and PE firm TLcom Capital6, while in 2019 it raised US$20mn in a Series A round led by Goldman Sachs, with a further US$10mn in local currency working capital financing obtained from Nigerian commercial banks.
Theophilus Emuwa, Managing Partner, AELEX said “Nigerian start-ups secured the largest amount of funding in 2018 in Africa and Nigeria was also home to the highest number of start-ups that closed multi-million-dollar rounds on the continent. This shows the ecosystem is in full swing and has the potential to transform the lives of millions of people in Nigeria and further afield by providing innovative solutions to challenges.”
However, while African countries are evidently not being left behind in the global digital revolution, the technology gap on the continent (and in Nigeria) remains significant. According to the United Nations International Telecommunication Union’s 2017 ‘Measuring the Information Society’ report, Africa remains the region with the lowest ICT Development Index, while Nigeria ranks 143rd out of 176 countries globally, and 15th out of the 38 African countries in the index.
As noted by the World Economic Forum, information and communication technologies can boost economies through direct job creation, contributions to GDP growth, the emergence of new services and industries, workforce transformation, and business innovation.
Given this well-known link between technological adoption, innovation, and economic growth, the case for continued investment focused on technology and modernisation on the continent is clear.
Indeed, the necessity of tech-centred innovation across Africa will only grow over the coming decades.
With the number of people living in urban areas in Africa projected to double over the next 25 years, drastic improvements to physical and digital infrastructures in urban areas throughout the continent will be crucial.
For example, in Nigeria, MainOne, a PE portfolio company and leading provider of telecom services and network solutions in West Africa, will invest over N25bn (~US$70mn) over the next two to three years to develop the critical fibre optic infrastructure needed to expand broadband services across Lagos State.
With more and more funds targeting technology and digital innovation in Africa, such as AfricInvest’s Cathay Innovation Fund, which launched earlier this year, and the recently closed EUR125mn Partech Africa Fund, if investors, entrepreneurs, and regulators can continue to collaborate, the future for technology in Nigeria and Africa looks promising.
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