Venture capitalists pump more money into Africa
Thursday April 21 2022
Venture capitalists pumped more money into Africa's innovation ecosystem in 2021 than the preceding seven years combined, the 2021 Annual African Private Capital Activity Report shows.
According to the report, the total value of private capital deals reported in Africa reached a record high of $7.4 billion, representing a 118 percent increase compared to $3.4bn registered in 2020 – surpassing the annual average deal value of $4bn between 2016 and 2020.
The report says that in 2021, the total volume of private capital deals reported in Africa was 429, a 66 percent increase compared to 258 deals recorded in 2020 – exceeding the annual average deal volume of 215, experienced between 2016 and 2020.
The report attributes the gradual maturation of private investment in Africa to the success and visionary work of firms whose pioneering missions encourage the growth of African economies through digital transformation, innovation with finance as well as climate-smart agriculture.
The report also attributes growth in deal volume and value to progressive legislation in sectors such as financial technology that has attracted investors.
In East Africa for instance, Kenya’s Capital Markets Authority instituted a Regulatory Sandbox Platform in May 2021, admitting nine fintech start-ups to live test their products and services in a controlled environment free from the constraints of existing regulation.
In Uganda, The Uganda Capital Markets Authority, in partnership with the European Union and FSD Uganda, established the Deal Flow Facility in July 2021.
The technical assistance and match-making initiative aimed to address the persistent gap in accessing growth capital for emerging businesses in Uganda.
In 2021, West Africa attracted the largest share of deals at 33 percent, attributed to a tremendous surge in deal activity in Nigeria. The region was followed by Southern Africa (20 percent) and North Africa (17 percent).
The East African region received the least venture capital inflows. The value of funding raised by East African entrepreneurs decreased by more than half, from 18 percent between 2014 and 2020 to just 7 percent in 2021.
Country wise, Kenya managed to retain a place in the top five largest recipients of VC funding, however, increased competition in the East Africa region from neighbouring Rwanda and Uganda contributed to a decline in total deal value.
Meanwhile, Nigeria replaced South Africa to attract the bulk of Africa’s VC deal volume and value. South Africa (17 percent) had the second highest share of early-stage deal volume, followed by Egypt (15 percent).
Financials was the most active sector by volume (30 percent) and attracted the largest share of deal value (39 percent) in 2021, attributed to the rise of fintech.
“With several traditional banks closed during the pandemic, many people turned to mobile money, digital banking applications and remittances to help support their families’ livelihoods and financing needs,” notes the report.