African start-ups attract international investors, but also need local investors
If every iCloud has a silver lining, then with every pandemic there is an online business opportunity. In much of Africa, that opportunity has been fintech.
The need for virtual banking and online services during Covid-19, combined with faster connectivity and a few early successes, has attracted increasing amounts of international capital to African start-ups. While those investments remain relatively small – a total of $ 1.4 billion in 2020 – things have reached a tipping point.
This month, FairMoney, a Nigerian fintech, raised $ 42 million in a funding round led by Tiger Global Management, a New York-based hedge fund. FairMoney has received the green light from Nigeria’s central bank to accept deposits. Last year, he disbursed small loans with an average value of $ 65 and a total value of $ 93 million to about 1.3 million people and microenterprises.
There are now four loosely defined African start-ups that have achieved unicorn status with a valuation of over $ 1 billion. One is Fawry, an Egyptian payments platform that went public in 2019. The others are Flutterwave, Jumia, and Interswitch, all of which have operations in Nigeria. Jumia, an online retailer, is listed in New York.
Interswitch, a digital payments platform, proved its worth when Visa bought a 20% stake for $ 200 million in 2019. Flutterwave, which has offices in Lagos and San Francisco, broke the 1 mark. billion dollars in March when it raised $ 170 million. American investors.
Several factors explain this surge in activity. Africa is increasingly connected. Google and Facebook are building submarine cables that will link more than 20 countries to Europe and the Middle East. Liquid Intelligent Technologies, part of Econet Global of Zimbabwean entrepreneur Strive Masiyiwa, connects East Africa to West with a fiber-optic cable. The gaps will be filled by low-orbiting satellites like Elon Musk’s Starlink. Smartphone penetration is increasing rapidly.
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Africa, a region long defined by fragmentation, is ripe for innovation in finance, logistics, health and retail, which will lower the costs of doing business. With a median age of 19, there is raw entrepreneurial energy in cities like Cairo, Johannesburg, Lagos and Nairobi.
Young entrepreneurs are sinking into a vacuum left by unimaginative public policies and shoddy infrastructure. Typical is Samrawit Fikru, an Ethiopian woman who founded Ride, a taxi app. Young Africans have drawn on international networks. FairMoney was co-founded by Laurin Nabuko Hainy, a German-Nigerien. He started a business in India, as part of a trend for African start-ups to take on other emerging economies.
South Africa’s TymeBank has raised $ 110 million to expand in the Philippines. FlexClub, a South African company that allows Uber drivers to rent cars on subscription, operates in Mexico.
However, some elements are missing. Authorities and central banks are wary of trade proposals they do not understand. Some caution is needed, for example in the regulation of payday loans. But regulators need to familiarize themselves with new technologies so that they can help innovation, even if it means reversing vested interests.
There is also a dearth of African corporate venture capital beyond the early stages. African start-ups are attracting investment from the United States and, increasingly, from China. But most established African business leaders prefer traditional sectors such as agribusiness, import monopolies, mining and hydrocarbons.
The international support of African start-ups should be highlighted. But where is Aliko Dangote’s corporate venture capital fund, something the Nigerian salt-to-cement billionaire could fund with his petty cash? Makhtar Diop, managing director of the International Finance Corporation, predicts that the next Bill Gates will be African. Surely some big investors in the next Microsoft on the continent should also be African.