The technological and innovative landscape is fast changing on a global scale, and North America, Europe, and Asia are firmly establishing themselves as leaders in the startup ecosystem, especially in the area of early-stage investment.
However, a worrying disparity becomes apparent in Africa, particularly Sub-Saharan Africa according to a report by StartupGenome. The African startup ecosystem, despite having tremendous potential over the last years, lags in several critical measures, highlighting the urgent need for change.
Evaluating the strength of a startup ecosystem necessitates a broad examination, one of which is its economic impact. This is frequently measured by adding the values of exits and startup valuations.
A comparison of statistics from the second half of 2020 to 2022 reveals a stark reality: Sub-Saharan Africa lags well behind other regions. During this period, the region’s cumulative ecosystem value was $24 billion, a fraction of the over $5.3 trillion and over $2.6 trillion that regions like North America and Asia had attained.
Early-stage funding is the lifeblood of startups, providing the necessary resources for innovation, development, and growth. While North America ($139 billion) and Europe ($67 billion) lead in this category, with significant investment in seed and Series A rounds of tech businesses between H2 2020 and 2022, Sub-Saharan Africa lags far behind with a total of $2 billion.
A paucity of early-stage investments might have been exacerbated by a lack of accessible funding structures, risk-averse investor attitudes, and a lack of awareness of the possible returns from African markets.
Although African startup ecosystems are behind their counterparts, the continent has made major progress in recent times. In a report by Technext, Sub-Saharan Africa registered a 227% increase in early-stage funding.
The early-stage deal count also rose by 43.8% between 2018 and 2022. Lagos tops in terms of ecosystem value ($8 billion) followed closely by Nairobi ($7 billion). These stats resonate with the region’s steady growth amidst existing challenges.
Few large tech companies in Africa can acquire or go public, which makes it difficult for startups to raise capital and exit. Sub-Saharan Africa’s exit value from 2018 to 2022 according to the report, remains the lowest at $2 billion, underscoring a key impediment on the region’s road to growth and prosperity.
According to the Global Start-up Ecosystem Report 2021 (GSER 2021), the exit value in Africa totalled over $1.1 billion, with the top three in Cape Town, Johannesburg, and Durban. For Sub-Saharan Africa, this means identifying and addressing the obstacles that impede successful exits. One major issue is regulatory complexity.
Market fragmentation is another hurdle. When markets are divided into small segments, it becomes tough for startups to scale up and attract acquisition interest. Moreover, limited collaboration across borders also poses a problem.
What can be done?
The conclusions of the analysis underline the critical need for change if Africa is to realize its full potential as a startup ecosystem. Several things can be done to strengthen the African startup environment including:
Increasing financial access: Governments and investors must do more to help the African startup ecosystem. This could include establishing venture capital funds or offering tax benefits to angel investors. In exchange for equity, venture capitalists invest in early-stage enterprises with strong growth potential.
Governments can take the lead in establishing and funding VC funds dedicated to investing in African entrepreneurs. These funds offer not just financial support to businesses, but also mentorship, coaching, and networks to help them negotiate the complicated world of entrepreneurship.
Governments can establish a dynamic environment that promotes companies from inception through maturity by collaborating with private sector investors and industry experts.
Strengthening Financial Education: This is a holistic approach that requires collaboration between educational institutions, governments, industry experts, and investors.
By nurturing a culture of innovation, equipping individuals with the skills they need, and fostering an environment where entrepreneurial spirit thrives, Africa can pave the way for a vibrant tech ecosystem that attracts investments and propels startups to new heights.
Nurturing local innovation and fostering a culture of entrepreneurship will pave the way for sustainable and inclusive development. It is important to recognize that Sub-Saharan Africa is not only a consumption market but also a wellspring of groundbreaking ideas and solutions that can impact the world at large.
The startup ecosystem in Africa has a lot of potential, but before it can realize that potential, it must overcome several obstacles. Despite these obstacles, several startups in Africa are achieving notable success. This includes companies like Andela, Flutterwave, Paystack, etc.
These are just a few examples of the many African startups that are disrupting the status quo and creating new opportunities for economic growth. The future of the African startup ecosystem is bright. With the right support, African startups have the potential to change the world.
Get the best of Africa’s daily tech to your inbox – first thing every morning.
Join the community now!