Africa’s startup rebound: growth on the horizon

This byline from Zandre Campos was originally published by Africa Briefing

Despite the slowdown in African startup investments, there is good reason to remain optimistic. Signs of economic stability and resilience suggest the prospect of investments increasing again in the nearer-term, while, looking further ahead, there is huge potential for entrepreneurial growth across Africa as more countries prioritize education and financial literacy.

Turning a corner

In the first half of 2024, Africa’s startup funding raked in just $780 million, plunging by nearly 60 percent when compared to the same period last year. The six-month period was described by one expert as ‘the quietest semester in terms of start-up funding in Africa since late 2020.’ Despite this sluggish start, there are four reasons to suggest this space is poised for a rebound soon.

1. A stable foundation: Macroeconomic stability, particularly in Nigeria, where the central bank has taken steps to address inflation, is likely to make access to funding easier. Lower U.S. interest rates will also help spur foreign investment.

1. Stronger startups: As funding ebbed, many startups had to hone their business models to become less reliant on external investment. To survive, these companies had to start generating real revenues from real users. As funding returns, this puts these nimble African startups in a stronger position to succeed. Last year, debt financing as a portion of funding for African tech startups comprised nearly 11 percent – more than double 2022’s figure. This suggests companies are being encouraged to focus their efforts on generating income and profitability, rather than purely prioritizing growth.
2. Privatisation is on the rise: Good news – across a continent plagued by rigid and loss-making state-owned enterprises, the governments steering six of Africa’s largest economies are considering whether to sell a range of state-owned firms. If they do, the resulting increased foreign direct investment and greater economic dynamism stands to give startups a major boost.
3. Location and language: Africa has impressive – and often overlooked – geographic and linguistic advantages for startups. Large amounts of arable land make the continent ideal for tourism and agriculture businesses, while the different languages spoken across the continent offer opportunities in different foreign markets. For example, the language of business and government in both Angola and Mozambique is Portuguese, opening these countries and their startups up to investment from European and Brazilian firms. (Africa is on the same or similar time zones with much of Europe, too, making synchronous cross-border business with European firms even easier.)

Building a bright future for generations to come

Several burgeoning industries across the African continent are likely to continue to attract investors and support the growth of startups.

Visitors welcome!

A cornerstone of Africa’s economy, tourism is responsible for over 24 million jobs and contributes to 8.5 percent of GDP. The sector is poised to expand at an average rate of nearly 7 percent annually from 2022 to 2032 – more than double the overall forecasted economic growth rate of 3.3 percent. This growth stands to create nearly 14 million new jobs in the coming decade. Innovative startups serving the industry have ample opportunities to capitalize on this growth. For example, Angola has more than 1,500 kilometres of coast where tourism can thrive.

Green shoots

Despite farming contributing over a third of GDP, the continent continues to import agricultural produce to the tune of billions of dollars, leaving ample opportunity for expansion and innovation on home soil. The new African Continental Free Trade Area (AfCFTA) agreement will likely reduce reliance on imports and be a strong driver of growth.

Golden opportunities

Global demand for Africa’s wealth of precious minerals (especially those required for the energy transition) is growing, making mining a lucrative sector for startups. Startups can develop innovative solutions for mineral exploration, extraction, processing, and transportation, improving efficiency and reducing costs.

Education: the foundation for future prosperity

As investment in education increases and standards improve, new generations of leaders will be better equipped to drive innovation and growth.

Research suggests that tertiary education boosts formal entrepreneurship, empowering graduates with the skills to detect, evaluate and exploit business opportunities more effectively, increase self-confidence and reduce perceived risk. The same study also, however, notes that even access to secondary (high school) education can boost levels of entrepreneurship.

The most important factor in strengthening entrepreneurial development over the long-term is therefore the continued growth of – and improvements to – education across Africa. Now is the time for Africa’s young people! Bolstered by a quality education, their resiliency, drive and intellect will usher in a new era of economic prosperity and societal wellbeing.