Establishing a new business is relatively common in Africa, where the average entrepreneurial rate is one of the highest worldwide. While the lack of employment often drives startup activities in developing regions, market opportunities and the rising digitalization have increasingly motivated African entrepreneurs, leading to more startup creations in the technology sector. By introducing innovative digital services, the continent’s tech startups have attracted the interest of both international and local investors, with the total funding value growing from less than 190 million U.S. dollars in 2015 to over two billion U.S. dollars in 2021. Africa's largest economies present the most competitive startup environments. Considering several indicators, such as the number of startups, incubators, co-working spaces, and the overall economic ecosystem, South Africa, Nigeria, and Kenya were the most favorable African countries for startups in 2022.
The rise of fintech startups
Mainly due to the lack of formal financial services, the fintech sector has boomed in Africa in recent years. Compensating for the low bank account penetration and credit card ownership on the continent, several startups launched new digital payment solutions, such as mobile money, which are more accessible than formal financial services. The capital secured by fintech startups grew substantially from 55 million U.S. dollars in 2015 to over one billion U.S. dollars in 2021, and the fintech sector accounted for most of the tech businesses that received funding in Africa in 2021. In that year, the highest funding value went to the Nigerian OPay, the East African Chipper, and the Senegalese Wave – all providing digital financial services.
Startups in the e-commerce and retail tech industries secured the second-highest funding volume among Africa's tech startups in 2021. Similar to the fintech sector, the capital raised by e-commerce and retail tech businesses increased substantially in 2021 compared to the previous years. Accelerated by the COVID-19 outbreak, the growth of Africa’s e-commerce sector highlighted new market gaps, including the need for support and logistic services to the already-established online marketplaces. Home to Africa's e-commerce giant Jumia, Nigeria has traditionally been the leading online shopping hub on the continent. However, Egypt recently emerged as a strong e-commerce market and secured the highest startup funding value in 2021. Although to a lesser extent, other tech sectors have expanded in Africa, including e-health, ed-tech, and agri-tech.
An increasingly attractive continent for investors
Obtaining early-stage funding is crucial for startups. Entrepreneurs often seek external investment to raise the capital needed to develop the startup idea. In recent years, the number of venture capital (VC) deals in Africa has increased considerably, jumping from around 70 in 2014 to over 300 in 2020. Around a third of the participating investors were based in the United States as of 2020, while other leading origins of early-stage investment were South Africa, the United Kingdom, and Nigeria. Most investors were fund managers and investment firms, accounting for almost 60 percent of the VC deals. The gradual growth in investments in recent years led to the rise of new unicorns, i.e. privately-held companies valued at over one billion U.S. dollars. In 2021, four African startups reached unicorn status, a record on the continent.
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