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2021, the year when African startups took off

Image of a talk on the use of technology for environmental protection in the edition of this year from the Emerging Valley. Carlos Bajo Erro

The year has not yet closed, but investors and analysts already believe that it has marked the explosion of the African startup ecosystem. Samir Abdelkrim, a French journalist specializing in technology from the continent, describes 2021 as the year of “the emergence of African unicorns (technology companies that exceed 1,000 million dollars).”

The Emerging Valley meeting that has just been held in Marseille and which brought together entrepreneurs and investors from Africa and Europe, is a good example of the interest that the space of African emerging companies arouses in the circles of large investment funds, but also in different public or semi-public structures of economic promotion, international relations or cooperation.

Investment in these companies has not stopped growing, with a hiatus in 2020, at least for the last six years. However, this year has produced the definitive explosion: while waiting for the annual reports to be published, the figures of funds raised by African startups amount to between four and five billion dollars, according to the source that see.

This milestone assumes that, at a minimum, the amount attracted in 2020 has tripled and proves the rise of a new sector for economies that have traditionally been wounded by a lack of diversification. These are also activities that bring citizens closer to sometimes basic services that they have not been able to enjoy until now. Bamba Lo, a promising Senegalese entrepreneur expanding his delivery business across Senegal and Ivory Coast, highlights that many startups “they respond to needs that the State is not covering”. Paps, the company founded by Lo, allows any business with merchandise delivery needs to reach their customers, through the combination of an application and one of the largest delivery fleets in West Africa.

The effervescence of the exchanges promoted by Emerging Valley has to do with the growth of the funds that have turned their attention to the continent. Satoshi Shinada leads Kepple Africa Ventures, a Japanese investment fund, with headquarters in Tokyo, Lagos and Nairobi, which in the last three years has invested in a hundred African companies: “At this point we believe that we have to make ecosystems more solid and for that we invest in diverse startups that are being developed, instead of focusing on a single unicorn ”, he pointed out in Marseille.

Mareme Dieng, head of global innovation and strategy at 500 Global, another investment structure linked to Silicon Valley, it states bluntly: “Today investment in Africa is not charity, it is pure business, because today investing in Africa is profitable.” The large traditional investors, usually from the United States, have been joined by other global players, from Japan, such as the Shinada case, to large Chinese funds and European players, whom entrepreneurs reproach for a certain immobility. “Actually, European funds are more conservative, they are more used to conventional sectors, that is why their mechanisms are slower,” says Dieng.

Mareme Dieng's full X-ray portrays a region at a key moment: “First of all, we are in a phase where success stories are seen in the African startup ecosystem and that motivates investors. On the other hand, we have much more mature entrepreneurs who have already had various experiences and have developed skills to manage teams, which generates confidence to invest. And finally, money calls money. The fact that investments increase attracts more investment. There is an effect known as the FOMO (f ear of missing out ), the fear of staying outside, which encourages investment. ”

One of the explanations for this explosive growth is the maturity of the ecosystems. To the four countries that had become in recent years the cradle of the most successful companies and that received most of the investments, Nigeria, South Africa, Egypt and Kenya, was added, already in 2020, Ghana. However, the Francophone space of the continent, which has traditionally lagged far behind in this race, seems to be beginning to regain some space. Although the total figures are still a huge distance from that of the large markets in the English-speaking space, some countries in West Africa have managed to establish significant growth dynamics.

The diversification of the industries has also boosted the increase of the last year. Traditionally, the sector known as fintech , which offers services related to economic or financial solutions, has been the stronghold of investment in African startups . It is estimated that in recent years, this industry has brought together 25% of the funds destined for innovative and emerging companies. However, the arrival of the pandemic and the natural progression of other sectors has caused attention to multiply and also focus on the field of education, health or logistics. Even cultural industries are making headway, although still on a scale that can be considered anecdotal.

Basic services

From electricity provision to healthcare or internet connection, the fact that these companies offering basic services also encourages investors. For Lo, the attraction that African innovative ecosystems have aroused is based on several factors: “First, talent: there are extremely good people who have overcome many difficulties. In addition, the development of the internet must be taken into account. The operators have done a great job in Africa and it can be said that we have the Internet for practically everything, we are already talking about 5G and the cost of the connection is reducing as we move forward. And finally, there is money. More and more capital is arriving and allowing entrepreneurs to finance their ideas and grow. ”

Beyond the contradictions and the paradoxes that some African states present in their relationship with the digital space, many governments have decided to bet on boosting this economy. Although entrepreneurs still express significant grievances and shortcomings, the demand for a conducive administrative framework is repeated in all conversations. For now, the approval of startup laws, triggered by Tunisia and replicated in other countries, aims to shape a more flexible administrative environment more adapted to the reality of these new companies. On the other hand, there are initiatives to enhance the value of emerging companies, such as the recognition in Côte d'Ivoire of Ci20, a platform of startups Ivorians, as a government interlocutor on digital economy issues.

Last Tuesday, in the Emerging Valley meeting, the Senegalese government minister and delegate of rapid entrepreneurship for women and youth Papa Amadou Sarr declared that his country has proposed that by 2025 the digital economy will account for 10% of its GDP. At the moment, it contributes 5.7%, while the average in sub-Saharan Africa is 3.5%.

The consolidation of these ecosystems made up of many and very diverse pieces seems a solid line, although it is still a sector extremely dependent on foreign investment, with all the uncertainty that this entails. Beyond unicorns, the most modest startups offer services that help improve the quality of life of citizens and entrepreneurs are proud of their contribution.

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