Investing in Africa: Why Venture Capitalists Should Look to Angola

While venture capital funding has cooled around the world, there’s one region that’s strongly bucking the trend: Africa. According to the African Private Equity and Venture Capital Association (AVCA), the first half of 2022 saw an unprecedented US$3.5 billion raised from 300 unique companies, and the continent’s startup scene experienced year on year growth of 133% compared to the first half of 2021. That’s significantly higher than the next two best performing regions (Europe and Asia, both at 4% YoY) and stands in sharp contrast to the global picture, where funding for 2022 H1 was actually 3% less than the corresponding period last year.

2022 built on a record-setting 2021, in which $5.2 billion was raised from 604 unique companies. As The Economist has pointed out, this exceeds the total sum invested over the previous seven years. Recognizing the potential for strong growth and superlative returns, the world’s tech titans – from billionaires Jeff Bezos and Jack Dorsey to Google and the Silicon Valley VC firm Andreessen Horowitz – have all invested in the continent’s thriving tech entrepreneur ecosystem over the last two years.

An enabling environment

The AVCA says this surge of dealmaking “demonstrates the depth of opportunity as well as the potential the continent has to offer” – an allusion, no doubt, to:

• The continent’s young and increasingly tech-savvy and urbanized population
• Rising disposable incomes (by 2025, McKinsey projects that household consumption will reach $2.1 trillion and business spending $3.5 trillion)
• Diverse economies enjoying a post-pandemic rebound in tourism and abundant natural resources benefiting from high commodity prices

The industry body also argues that VC fundraising growth can be attributed to certain African governments’ “commitment to creating enabling environments for African startups to thrive, remain competitive, and attract commercial capital” – exemplified, it says, by Tanzania’s launch of Silicon Zanzibar as well as the Zambian government’s efforts to transform the country into a regional startup hub – “the Singapore of Africa”.

While fintech continues to attract the lion’s share of funding, Max Cuvellier, co-author of the authoritative Africa: The Big Deal newsletter writes that, “in terms of amount raised, fintech remains in the lead in 2022 to date, but is the biggest loser, relatively speaking, with a -16% loss in share of funding between 2021 (58%) and 2022 to date (42%).” He adds, “Three sectors are consolidating their share of funding raised: Retail; Energy; and Telecom, Media & Entertainment (+6% each).” Pointing out that these sectors have already attracted more funding in absolute numbers by the end of Q3 than they had over the whole of last year, he says this indicates that “overall, the growth fuelled by investments in start-ups on the continent in 2022 is less polarized – some would say healthier” than 2021. This is an encouraging sign as it means that there are promising deals to be had across a diverse array of sectors.

Beyond the “Big Four”

From a fintech sandbox in Kenya to a proposed start-up visa in South Africa, each of Africa’s four major economies (which also include Egypt and Nigeria) have been developing start-up friendly regulation recently. This, as well as their size relative to other African economies, means it is no surprise that the majority of Africa’s  recent VC deals have been inked in those countries.

Africa is home to a whole lot more than the Big Four, however – and it’s time that venture capital started exploring other emerging markets, like Angola, which are full of untapped – and lucrative – potential.

Angola: Primed for growth

Since its decades-long civil war ended in 2002, Angola has risen phoenix-like from the ashes: GDP per capita has surged from $710 to $6581 (adjusted for purchasing power parity), and its economy is now Africa’s eight largest. While oil dominates (at 1.2million barrels a day, its output is second only to Nigeria’s in sub-Saharan Africa) there is growing momentum behind the diversification of its economy.

Here are the key reasons why venture capitalists should be taking a closer look:

• Location: Strategically positioned adjacent to both Southern and Central Africa, its ports and railway network makes it the gateway to landlocked countries such as Zambia, Zimbabwe and Botswana; its 1000 mile coastline offers great potential for both tourism and fisheries
• Reform: Government provided services are being digitized, with efforts underway to shrink waiting times and costs; since 2020, an online portal, now makes it easier to register a new business, while customs clearances have become smoother thanks to the ASYCUDA platform
• Governance: The fight against corruption has been boosted and a clear message has bean passed. Now its time to look at Education, Education and Education.
• Privatization: Nearly 200 state-owned entities are up for sale, offering ample opportunities for both foreign and domestic investors

While currently overlooked and undervalued, Angola’s exciting growth prospects means that venture capitalists with foresight and a long-term view will be optimally positioned to reap the rewards of the opportunities that lie ahead.