Africa’s startup ecosystem – driven by the younger generations that are heralding a new digital age full of opportunities and attracting foreign investors – is primarily driven by entrepreneurial activity that, in turn, is spurred on because of socioeconomic challenges such as high unemployment and poverty.

As a result, small, medium-sized and microenterprises (SMMEs) are one of Africa’s largest employers, with 75% of the sub-Saharan Africa population being self-employed as of 2019, says research and consulting firm Frost & Sullivan consultant Patrick Prestele.

“Digital and technological innovation in the African market is driving the growth of opportunity-driven startups, enabling African technology startups to flourish and attract international investment.”

Nigeria, South Africa, Egypt and Kenya are Africa’s leading startup hubs, owing to their established startup ecosystems, higher educational levels and supportive platforms aimed at helping entrepreneurs access capital more easily, he adds.

Moreover, Africa experienced significant growth in 2020 during the Covid-19 pandemic and continued to grow in 2021, with a 128% year-on-year (y-on-y) increase in the number of startup deals from 2019 to 2020, and 104% y-o-y growth from 2020 to 2021.

Prestele describes this as a “maturing of Africa’s startup ecosystem”.

He notes that the number of startup deals recorded in 2021 corresponds to 70% of the total volume of deals recorded in Africa from 2014 to 2020.

Prestele says startups in Africa raised more capital in 2021 than the preceding seven years combined.

Moreover, the cumulative value of such deals in Africa reached $5.2-billion in 2021, reflecting 373% y-o-y growth.

“The growth in volume andvalue of deals in Africa paints an optimistic picture for the startup ecosystem's future and growth opportunities in the entrepreneurial space,” he enthuses.

Key Trends

While global startup ecosystems address lifestyle opportunities, the African startup ecosystem addresses fundamental areas in the market, such as introducing digital banking.

Prestele says the youth in Africa are using innovation to change the basis of several sectors, including banking and finance, health, education and agriculture.

Hence, the financial technology (fintech), educational and health technology spaces are seeing “unprecedented levels of innovation aimed at helping Africa leapfrog expensive legacy infrastructure using innovative digital technology”.

Africa remains one of the fastest-growing startup ecosystems globally, shaped by key trends that are showing no signs of future abatement, with the fintech industry being Africa’s fastest-growing startup sector aimed at providing digital financial services for a largely unbanked population.

Further, Africa hosts seven unicorns, of which three were founded in Nigeria, with others founded in Egypt, Kenya and Senegal, which Prestele says speaks to local and international investors’ resounding confidence in Africa-based startups.

Unicorns refer to startup companies valued at over $1-billion.

Moreover, emerging startup hubs, such as Nigeria and Kenya, are witnessing greater success in the early funding stages.

While the growing number of successful startups is encouraging for young aspiring entrepreneurs, Prestele says preseed funding mainly sourced from private investors – commonly referred to as angel investors – continues to be a limiting factor.

Global venture capital funding started to fall below $40-billion in May 2022, down 20% compared to May 2021, and below the global peak of $70-billion in November 2021.

Africa, however, has maintained its positive growth, reaching $1.8-billion in the first quarter of this year, up 150% from the previous year, with Kenya attracting more funding in the first quarter of 2022 – $482-million – than it did in 2021, with $412-million.

“While Africa’s venture capital deal accounts for a mere 1% of the global venture funding, the growth is expected to be sustained, at least in the short term, owing to the nature of the African startups,” says Prestele.

Historically, there has been more venture capital funding for African startups in the second half of the year, compared to the first half of the year. The funding funnelled to startups in Africa more than doubled in the second half of 2021, compared to the first six months.

Hence, the African startup ecosystem is on track to continue its sustained growth, and while fintech will likely remain venture capital’s main focal point, the number of startups in other sectors, especially education, logistics, blockchain and sustainable energy, are rising, at least doubling the venture capital raised from 2021 to 2022.

He adds that startups and SMMEs are vital drivers of the South African economy, as they are expected to create about 90% of all new jobs by 2030.

“Startups play a dominant role in economic growth as key drivers of innovation that are needed to exploit new opportunities, promote productivity and create employment. Startups and SMMEs generate competition, stirring new creations and innovation and, eventually, producing new industries over time which, in turn, generates income for the owners, employees and the country,” Prestele concludes.