- South Africa, Nigeria, Kenya, and Egypt – These 4 countries hold 92% of investments done in tech startups.
- Their sizable populations and large GDPs have made them attractive destinations for investment.
- Other countries are gearing up by introducing innovation-positive regulations and finding ways to reduce political and socio-economic restraints.
- They also want to capitalize on the African Continental Free Trade Area agreement.
COVID-19 pandemic has not made international investors shy away from pouring money into the African continent’s start-up scene. However, the cash influx is not being distributed evenly. The vast majority of venture capital in Africa is scooped up by just four countries: Nigeria, Egypt, South Africa and Kenya, Africa’s “big four.”
According to the African Development Bank’s (AfDB) 2021 report, these four countries account for about a third of the continent’s start-up incubators and accelerators and receive 80% of foreign direct investment (FDI) into Africa.
How Africa’s “big four” took the lead?
According to the African Development Bank, the “big four” countries push ahead faster than other African countries when it comes to start-up investment and funding in large part as a result of their large economies and sizeable populations.
Nigeria, for example, with its GDP of roughly $440bn and population of 206 million, is projected to be the third largest country by population in the world by 2050. This makes Nigeria an attractive location for start-up investment inflows. Likewise, Egypt, Kenya and South Africa have some of the largest economies in Africa, with $404bn, $110bn and $420bn GDP respectively.
South Africa
Africa’s southernmost country has the most mature startup ecosystem today. South Africa’s tech hubs are spread between four different cities, Cape Town, Johannesburg, Pretoria, and Port Elizabeth.
The belief that technology can help tackle the challenges of sluggish economic growth and high rates of unemployment in the country, tech startups have flourished here.
Total startups: 490
Jobs created: 11,000
Top sector: Fintech
Kenya
Kenya leads the innovation game in eastern Africa. It is ranked as the number one country for startups in the region. The capital city Nairobi hosts the majority of startups where the local government introduced a StartUp Bill in 2020 to encourage entrepreneurial growth and champion innovation.
While fintech is the leading sector in Kenya, the second largest is Artificial Intelligence, with many startups using AI on topics like waste management, agriculture, consultancy, and more.
Total startups: 380
Jobs created: 11,000
Top sector: Fintech
Nigeria
Nigeria could be named the unicorn capital of Africa. As of 2022, Africa has produced seven unicorns (a company valued at over $1 billion USD) and five of those have come from Nigeria. Sounds like the country has found a magic recipe for acceleration. Even disregarding unicorn status, almost 50 percent of Nigerian startups have undergone some form of acceleration or incubation.
Lagos, though not the capital city, is the country’s most populous city and its largest startup hub. In 2015, National Geographic declared Lagos to be Africa’s boom town and in 2021 it reached the sum of $1B in investments of its startups.
Total startups: 481
Jobs created: 19,000
Top sector: Fintech
Egypt
In the last five years, Egypt has jumped up the charts in terms of startup and tech development and investments, leading Egypt to rival the other 3 ecosystems. Even though it is a younger market, Egypt counts the most number of startups out of the four.
Yet quantity isn’t everything the Northern African country has. Egypt also named its first unicorn, Fawry, in 2020.
Unlike its fellow leading ecosystems whose top sector is fintech, Egypt’s most robust startup sector is e-commerce. Its popularity is being driven by the increased use of mobile phones and internet availability across the country.
Total startups: 562
Jobs created: 13,000
Top sector: E-commerce
How the rest of Africa can gear up for the change?
Other countries should initiate to provide fiscal and non-fiscal incentives for venture capitalists to invest in the financial and tech sectors. The legal and institutional environment also needs a boost so as to create a hospitable investment ecosystem for investors and start-ups. This would not only transform the investment landscape of non-big-four countries but would make them an attractive destination for start-up investments in Africa.
Countries can use the African Continental Free Trade Area (AfCFTA) as a tool to win investments. Through the AfCFTA, African governments in non-big-four African countries can attract increased start-up funding by reducing investment barriers and improving investment governance within their respective countries.
Moreover East to West and North to South, Africans are young, ambitious and smart. When given the right tools to dive into tech and the right regulations are introduced, the continent’s nascent tech scene will flourish.
If you have an idea or already have a startup and wish to scale up, then you have arrived at the right place. The Venture Studio invests in dreamers and we don’t give up on them as we believe in turning ideas to reality.
