Astute international investors are finding promise in the African digital renaissance, where a decade of rapid economic growth is cause for consumer spending to exceed an estimated $1 trillion annually by 2020, according to Forbes.
In Africa, the middle class is growing, populations are urbanizing, IT infrastructure is improving and cell phones and mobile payments are more widely used than in most of the world. All of this has combined into a recent technology startup boom that has international investors salivating for more.
The company I founded, 3G Direct Pay, is an online payment processor servicing the African market. And we have seen the result of the mobile payment technology boom firsthand. In a region where many consumers do not have debit or credit cards, mobile payment technology has undergone drastic development in recent years, and it is continuing to advance. With providers like 3G Direct Pay, along with M-Pesa, Airtel, MTN and Tigo, among others, it is clear that the mobile payment technology sector in Africa is growing, developing and becoming an integral part of society.
Not only mobile payment technology is on the rise. Technological developments in other sectors are also becoming stronger. There are eight main reasons why African technological innovation is a wise investment:
1. POPULATION GROWTH
While other countries, most notably Japan and Eastern Europe, are seeing a decline in population growth, Africa is home to 1.2 billion people and is growing at more than 2 percent a year.
Six of the 12 fastest-growing countries in the entire world are in sub-Saharan Africa.
2. ECONOMIES OF SCALE
Kenya, for example, has the third-fastest growing economy in the world, behind only China and the Philippines. Kenya accounts for 40 percent of the gross domestic product of the East African Communities (EAC), and its currency is the best performing one in the region. Its nascent economy is bolstered by a highly educated, English-speaking and youthful workforce. Some 60 percent of Kenyans are 25 years old or younger.
Another great example is Nigeria, Africa’s largest economy – even ahead of South Africa – boasting telecom companies and advanced banking options. The Economist reports that its economy has been growing at an average rate of around 7 percent a year over the past decade.
3. CONSUMER BASE
The number of middle-class families in countries like Nigeria, Angola, Ghana and Sudan is growing, meaning the number of viable consumers also is growing in the region. According to an Africa Pulse report in 2013, the World Bank claimed that consumer spending was responsible for more than 60 percent of sub-Saharan Africa’s impressive economic growth, and it was expected to rise more than 5 percent by 2016, which is much faster than the global average. The region has one of the fastest growing middle-class consumer markets in the world.
According to the African Development Bank, 123 million people are currently considered part of a stable middle class in the region, which is 13 percent of the population. They predict that by 2060, this number will rise to 1.1 billion (42 percent of the predicted population).
Over the past decade, investment in African infrastructure has risen sharply, with countries like Kenya, Uganda and Ethiopia spending significant resources on upgrading their infrastructure. As of this year, Kenya alone was expected to invest USD $55.6 billion on improvements to its infrastructure, mainly in telecommunications and power generation. The expected results of these fundamental advancements are decreased production costs, increased business competitiveness and a rise in foreign direct investment. The rate of economic and social development in Africa is directly affected by the improvements made to the infrastructure.
The level of education among the 43 percent of the population under age 25 is improving, and many people are getting secondary and tertiary education. This generation is tech-savvy, hungry for change, passionate about innovation and hard-working – key characteristics that investors look for in entrepreneurs.
According to The World Bank, more than half of Africa’s economies have at least one startup hub (with about 90 across the continent), giving venture capitalists the opportunity to enter many countries in the region. These hubs are additionally attractive for investors, as they offer startups fast Internet, affordable office space and reliable electricity, which are the basic needs to compete on a global level. This also gives investors the opportunity to allocate their resources across a number of investments, offering a low-risk, high-reward scenario. This model of “investing wide, not deep” is attractive for investors to get in on the ground level in the green and virtually unknown African market.
7. RISING TRENDS
African technology startups are scalable, make smart use of technology and aim for disruption in their application of a business model. Total invested capital more than doubled compared to last year’s research: from USD $12 million to USD $26.9 million. The average amount invested per venture increased from USD $130,000 last year to over USD $200,000 this year, according to vc4africa.
8. SOCIAL INNOVATION
In Durban, South Africa, SmartXchange enlists successful businesspeople to meet with startups on a monthly basis and offer advice. Cape Town’s RLabs offers a USD $20,000 investment for the development of social enterprises. In Ethiopia, Iceaddis supports projects led by young entrepreneurs and promotes social interaction. These initiatives are laying the groundwork for a continued acceleration of development and advancement in the business world in Africa, meaning that well into the future, there will be even more opportunities for investors in the region.
AN AFRICAN TECHNOLOGY INVESTMENT PORTFOLIO
Investors searching for sound opportunities need look no further than Africa for technological innovations like Dropifi, Able Wireless, Jumia, Obami and the many more of the “next best things” that are still flying under the radar. Investing in African companies makes sense for VCs wanting to get in on the ground level of a growing market that will change the face of technology, business and investment.