In its 2023 report on startup financing, Partech Africa notes the departure of foreign investors from the continent. Based in Dakar, its co-general director, Tidjane Dème, answered questions from RFI.
3 mins
RFI: With 3.5 billion dollars obtained in 2023, the continent’s startups recorded a significant drop in their funding, – 46% compared to 2022. Does this phenomenon affect other regions of the world?
Tidjane Dème : In 2022, when the world experienced a significant withdrawal of venture capital investment, Africa did not see its investment volume decline. The crisis arrived a year late. This phenomenon is also seen in other emerging markets such as Latin America and Southeast Asia, at even greater levels. Africa is therefore doing better, in particular thanks to its adaptation to new technologies and its pro-entrepreneurial policies.
What explains the departures of investors?
In previous years, the African ecosystem received a lot of investments based in Europe, North America and Asia. However, Africa was not their main market, so in times of crisis (inflation, rising interest rates, etc.), these investors retreated to their base. At the same time, we have witnessed the rise of local investors who have taken over from global investors. Unlike the latter, they know African markets better, have dedicated teams on the ground and a greater capacity to support startups.
Have the destinations popular with investors also evolved?
As always, the “Big Four” concentrate nearly 80% of investments, but their situation has changed. Nigeria, which had relied on American investors, saw them abandon the market. If we add the devaluation of the naira, this explains why the country lost its number one position.
On the contrary, South Africa moved into second place because it has a large network of local investors. Kenya comes first, because it has managed to compensate for the weaker presence of capital investors by capturing investors who bet on debt. Debt, which represents 35% of overall investments in startups, has become the alternative to foreign financing. Finally, Egypt remains the fourth African market despite the devaluation of the Egyptian pound and the fact of having placed a lot of emphasis on companies which are still in the early stages of their development.
French-speaking Africa, traditionally less dynamic, has seen the number of financing operations increase. Is this a change that promises to be lasting?
What is happening in French-speaking Africa, too often decried as Africa’s poor relation, is very interesting. To have a good view of the situation, we must put aside the “Big Four” which are not powerful because they are English-speaking, but because they are the most important African economies. Of the 27 African countries that received investment in 2023, 14 are French-speaking, and eight are in the top 10. This is explained once again by the presence of local investors, while Americans, Europeans and Asians are less active.
Not surprisingly, the fintech (financial services) remains the favorite sector of investors, but the number 2 place this year goes to greentech. How can we explain the dynamics of these two sectors?
African startups respond to real needs. Financial services are a basic need, yet African banks only serve around 20% of the population. Hence the success of the fintech, which by digitalizing financial services makes them accessible to as many people as possible. This explanation can also be applied to the greentech, one of its pillars is energy. However, energy needs in Africa are much greater than elsewhere. It is the need that creates the opportunities.