Despite unease in the global economy about the trajectory of economic growth this year, investment in African startups has been on an incredible trajectory over the last six months. Statistics reveal fascinating stories about what sectors and regions are attracting the most attention and capital. However, one of the most dramatic revelations is how South Africa has fallen off the pace and is losing out on investment now channeled to big emerging players like Nigeria, Egypt, and Kenya.
Consider this eye-opening paragraph from the influential continental Substack newsletter Africa: The Big Deal published on June 6. “January 2022 was the strongest January the [African] ecosystem had ever seen, likewise for February, March, April, and May. If you add November and December 2021, Africa is now on a 7-month record-breaking strike. And YoY growth is not marginal at all: except in May (+90%), we’re talking about at least a doubling in value compared to the same month a year before.”
Yet those gains are far from evenly distributed with some surprising revelations. Year on year, between January and May, Nigeria recorded growth of 154% and Kenya a staggering 436%, yet South Africa, once the tech darling of Africa, saw a 30% contraction from the same period a year before.
The reasons for this decline are complex and the picture is more nuanced than it seems at first glance. Macroeconomic and political factors are at the heart of the uneven spread, according to angel investor and early-stage fund manager Alexandra Fraser. She points to the fact that countries like Kenya and Nigeria have embraced legislation that incentivised early-stage entrepreneurs and the entire ecosystem thereby removing a lot of obstacles. Their lead has been followed in places like Senegal and Tunisia while South Africa has been slow to bed down any legislation.
While this is no doubt a huge factor, South Africa’s problems extend beyond simple legislation. Vuyisa Qabaka is a partner at pan-African innovation and start-up advisory firm Hybr Group. He explained that one of the principal challenges South Africa is facing is a skills exit. “A lot of talent is going away,” he says. “Many white founders are moving to the US, UK and Australia and building their ventures there. There’s no mechanism to support black founders in SA, who are forced to try and self-organise. Upliftment and capacity building is needed to support young black founders, not window dressing. We have to shape strong talent to make it structurally more competitive.”
Real but uneven growth
Like Fraser, Qabaka has witnessed first-hand the explosive growth in the rest of Africa. “To those of us who have been around a while, it’s not hidden,” he says. “Ecosystems that were moderately active for a long time are now suddenly supercharged. Clock back to 2018, Egypt was nowhere near where they are now. There’s been a great positive shift in their growth ecosystem. In countries like Ghana and Ethiopia you see the same thing. While it’s still complex to invest there, the market perception of the value of talent has changed.”
IT Skills, Startups
Read More from This Article: How continental challengers are seizing opportunities as South African VC investment loses ground
Source: News