Over the past decade, Africa's startup ecosystem has attracted $20b in investments, with 68% of this influx occurring in the last three years. This surge suggests Africa's emerging status as a promising destination for global tech investment, with venture capital financing rising from $2b in 2019 to $5b in 2022.

This stark imbalance highlights a significant Despite this growth, the funding remains disproportionately low, relative to the continent's vast potential. Africa, with 1.5 billion people and 18% of the global population, receives just 1% of global funding.

financing gap with profound implications for the continent's economic development. With Africa's population nearing 2 billion by 2050, addressing socio-economic challenges is urgent. The tech startup ecosystem, if harnessed, can help bridge the funding gap by attracting and benefiting from foreign direct investment (FDI).

Startups drive innovation, create jobs, and enhance. investment climates, attracting foreign investors. The synergy between startups and FDI, as seen in Kenya, South Africa, Egypt, and Nigeria, highlights the transformative potential of this relationship.

These "big four" markets collectively account for 92%

of Africa's tech investments, providing valuable insights into harnessing the startup-FDI relationship for substantial economic growth. Kenya secured $800m in startup funding last year, driven by high mobile penetration, widespread internet access, numerous tech hubs, favorable policies, and a strong entrepreneurial culture. Success stories like M-Pesa and its strategic regional location further cement Kenya's leadership in Africa's startup ecosystem.

South Africa follows with $600m in venture capital, benefiting from its robust financial infrastructure and favorable regulatory environment, which support a thriving tech ecosystem, according to the African

Development Bank last year. Despite a drop to $640m, Egypt remains an investment hub due to supportive policies and a growing tech sector. Similarly, Nigeria, with $400m in funding, continues to thrive as a key player in Africa's startup ecosystem, driven by its large consumer base and dynamic tech landscape, Last year, venture capital investments in African startups declined significantly after defying the 2022 global slowdown, dropping to $2.9b-$4.1b from $4.6b-$6.5b. This decline pushed many startups to seek alternative funding, like debt, highlighting the evolving nature of Africa's startup ecosystem and the critical role of FDI.

As equity funding dwindled,

startups adapted by scaling operations, downsizing teams, or seeking bridge rounds.

Tidjane Deme, a general partner of Partech Africa, said there was an increased focus on Francophone Africa, where local investors have identified untapped opportunities (Partech Africa, 2023).

Uganda's startup scene is emerging as a hub for foreign investment, particularly in fintech, which attracted $60m. Notable deals include Wave Mobile Money raising $20m, Chipper Cash securing $15m, Numida attracting $12.3m, and Ensibuuko receiving $7.5m. These investments underscore Uganda's growing reputation for startup success.

During a dialogue with President Yoweri Museveni at the Presidential Investor Conference in November last year, I emphasized, the crucial role of startups in attracting FDI to Uganda and highlighted the disparity between Africa's growing population and its low foreign investment.

With FDI making up just 6% of Africa's gross domestic product rate and 26% of African assets invested abroad, leveraging tech startups is key to attracting local investment. Targeted strategies could boost FDI and help close the investment gap.

The writer is the co-founder of iventure AFRICA business development and venture capital and a board member of the Startup Uganda Association

 

ALLAN ANANURA

iventure AFRICA