Over the last decade, tech startups have mushroomed in Africa. The annual growth rate of tech firms that get any funding increased sevenfold to above 700 between 2015-2022 on the path to one of the largest growth rates in the world as provided by Pitchbook, a data provider. In Cairo, Nairobi, Lagos, Cape Town, and Johannesburg, there has been a great deal of activity, with new hotspots cropping up in Accra, Kigali, Addis Ababa, and Dakar, reflecting the momentum of Africa’s Rising Tech Startup Scene.
The start up boom in Africa may be unexpected, when 40 percent of the populace lacks stable power. But the emerging technology companies of the continent have a domestic market: they offer financial technology services like web payment, assist non-formal enterprises in joining supply networks, and enable farmers to rent equipment (Box). Such companies may stimulate African economies and turn them into productive ones. In order to achieve that.
What’s Behind the Boom?
They have to surmount the highs and lows of the global decline of venture capital funding in the last three years, the volatile macroeconomic climate. With this, already the count of the funded tech startups decreased to below 400 by 2024, based on Pitchbook statistics (Figure 1). Not all the financed startups are in the tech industry, but general post-2022 crashes patterns across the findings remain the same across multiple data sources. The increase in mobile telephones allowed the growth of startups. Mobile phones seemed to have covered Africa after only 20 years or so of their debut.
In the late 90s, which was an unusually wide and fast expansion in geographical and time range. This increase was contrary to the set trends. Most of the time, it is just a sequential cycle in which the businesses use the modern technology, starting with landline then to mobile telephones etc. The spread of mobile connections to sub-Saharan.
The Downturn
The fixed-line connection, in contrast, has reached the highest at 1.6 per 100 population in 2009 (Figure 2). Mobile money platforms came next in cell phones: it enabled an individual to perform simple transactions by phone even without requiring a bank account. They were fast, cost less and were convenient to utilize as compared to the commercial banks, which in most cases lacked sufficient branches to reach their customers effectively. In Kenya, where mobile money took off first, 68 per cent of adults held mobile.
Money accounts as of 2021, compared to 50 per cent of adults with an account at a formal financial institution.The newer wave of startups capitalises on those trends, aiming to apply cell phones to a wider array of services. Such innovations have been driven up by robust network effects in which the increment of users and businesses makes it more advantageous. The possibilities are not restricted to cell phone applications. The wave of tech startups that is currently occurring in Africa might facilitate further diffusion of technology and productivity in several industries across Africa including.
The Productivity Payoff
Agribusinesses, health, education and commerce. Up to 2022, the startup ecosystem in Africa flourished, but the increase in inflation, interest rates and broken economy resulted in a shortage of funding. The number of venture capital transactions that took place in Africa in 2022 to 2024 dropped by about 52 percent, the highest rate in Pitchbook analysis among the regions. Indeed, the VC failure was international. (Figure 3). However, in Africa the stakes are higher.
Because the startup ecosystem was in an infant state when funding reversed.That points to one of the greatest challenges facing Africa tech startups: the lack of a domestic equity financing base, and thus forced to depend on overseas investors. A continuing IFC research indicates that equity investments by investors who have experience locally are the preferred mode of investing by the entrepreneurs. However, about 80 percent of the finances of African companies are non-local (Figure 4)this is more than in other emerging markets with much of the non-local funds originating in Europe and North America.
Conclusion
The problem with that is that foreign investors will tend to withdraw funds when the economy goes down. Investors can also consider African startups to be risky compared to the ones in other locations, thereby inhibiting the growth of firms. The same report by IFC reveals that only a third of capital-backed startups in sub-Saharan Africa made their initial VC deal in the first five years. Compared to it, over 50 percent of other comparable companies in Latin America had crossed that mark during the same interval. Other foreign investors also tend to deal with companies.
In the country that they have a colonial relation or share language, thus losing out on opportunities in other countries.It has also become very selective, focusing nearly exclusively on the four countries with the best-developed startup scenes Egypt, South Africa, Kenya, and Nigeria. That is speeding up merger, capital concentration and repositioning towards areas that seem to have the reduced risk. The recession is catching up more on female-owned businesses. Africa The Big Deal, a database The lowest percentage of investment ever to be obtained by companies with female founders.