Gavin Reardon
Africa’s growth story is an attractive one. Cumulative consumer and business spending is expected to grow nearly threefold to 6.7 trillion dollars by 2030, just over half the size of China. At the same time, the middle class is expected to grow by 43 percent, and household consumption will increase from 1.1 to 2.5 trillion dollars. Fast forward, and the IMF predicts that while the rest of the world’s working-age population starts to decline, Africa’s growth accounts for 105 percent of net global growth. What does this all mean? It means the growing middle class has increased buying power and is spending this money. Increasingly connected to a fast-paced online world where data is everywhere and everything, there exists tremendous opportunity to bring tech to the African growth story and capture much of this early market share. From moving cash, goods, and people to transferring knowledge skills and creating businesses, Africa is growing and is looking for investors to be part of its investment story.
Another interesting way to look at it is to consider the average age of users across the world. Whilst there is an aging population across much of the advanced economies, it is the emerging markets with burgeoning young populations. Africa’s median age is 19 years, and nearly 60 percent of the population is under 20 years of age.
Many of the top minds (including some of the best global consultants) have acknowledged the opportunity and seen the shifts. Now, the approach to Africa is different. Previously made up of handouts and charity drives, the G7 countries last year pledged their largest investment amount ever to Africa: 80 billion dollars of investment into the private sector over the next five years. This added firepower to early investors who are already investing.
As U.S. inflation topples new heights, rising interest rates have been unavoidable, causing significant volatility in the public markets. Some of the tech stocks like Peloton, Netflix, and Zoom are down between 40 to 60 percent. In the venture capital (VC) markets, U.S. VC deals are trending down from Q2, even though many investors sit with significant dry powder. How does this impact the 1.2 billion people in Africa?
“From moving cash, goods, and people to transferring knowledge skills and creating businesses, Africa is growing and is looking for investors to be part of its investment story”
Funding to African startups is at the best levels it has ever been. Yes, it is coming off a low base, but while investors in the U.S. are pulling back, investment into Africa is doubling down. As per the Africa-focused database, The Big Deal, funding for the first half of 2022 has surpassed 3.1 billion dollars. It is the strongest ever Q2 that Africa’s startup industry has experienced, representing 140 percent growth in deal value in H1 2022 versus H1 2021.
The key question is: what will be the focus of investment? As we consider the macroeconomic trends, some of these key areas that will withstand pricing pressures and show continued growth and value appreciation include:
1. Fintech: much of the investment dollars currently go into fintech. Increasingly, the focus will continue to be on access to financial services and financial inclusion. The global credit gap is estimated at over 5.2 trillion dollars by the World Bank.
2. Future of work: tech skills and digitalisation in the workforce will not only add jobs to the market but improve decent work opportunities across the region as the skills base increases.
3. Food security: agri-technologies will be a key area, especially with climate change concerns and the potential on-going supply chain disruptions.
4. 4IR technologies focused on the manufacturing sector can bolster emerging economies’ ability to compete globally and help fast track intra-Africa trade.
From a developed economy point of view, we need to overcome our inherent barriers to investing outside of the U.S. Africa is growing: they have the market, they have talent, and it is up to us as investors to allocate capital.
