Across the globe, startups raised much less venture funding in the second quarter of this year than in the same period in 2021. Africa was the only exception to this trend. No other region came close to the continent’s funding growth between January and June. It closed the first half of 2022 at $3.5 billion, a 133% increase from the first half of last year.
Globally, VC funding fell by 3% in the first half of this year compared to the same period last year, with the heaviest drops occurring in the second quarter, resulting in what some have dubbed a “silent crash.“
Last year, Africa recorded $5.2 billion in funding across 650 deals. However, a report by the African Private Equity and Venture Capital Association (AVCA) projects that figure to reach $7 billion by the end of this year, should Africa maintain that momentum.
Notably, Africa raised only 1% of global VC funding this year, a reminder that Africa still gets the bare minimum share of the world’s startup funding largesse.
However, the funding momentum is slowing down in Africa. According to The Big Deal, a newsletter that tracks fundraising in Africa, VC funding for African startups decreased by 53% in the third quarter of this year compared to the same period last year. It marked the end of six quarters of year-on-year quarterly growth and the first quarter since Q3 2021 in which Africa failed to raise $1 billion. This fact brings AVCA’s lofty projection under question. But whether or not we reach the $7 billion mark, will this be another record year? The answer lies in Africa’s tech progress for the year.
Africa’s digital economy has shown impressive growth.
Africa has been showing defiant growth since the first quarter of the year. The narrative that Africa still has plenty of room to grow is pulling investors and innovators towards the continent.
The World Bank projects a 3.7% growth rate for Sub-Saharan Africa in the second half of this year. That’s higher than the figures for Latin America, Europe, and the global average (2.9%).
Everyone is betting on the growth of the internet in Africa to drive a digital revolution on the continent. That’s why the arrival of 5G in countries like Nigeria sparked a lot of optimism for the digital economy.
Technology is now playing a more crucial role in Africa’s economic story. For instance, Since Nigeria, Africa’s largest economy, lost its oil giant status, the tech sector has become its highest GDP contributor. Also, foreign investors and creditors have become less interested in Nigeria this year. But despite this, most of Africa’s venture funding went to Nigeria.
Besides the perception that investment opportunities abound in Africa, growth is happening because governments are now paying more attention to tech. One example is Togo, which is racking up its cybersecurity efforts. Another example is Zanzibar, where the government is establishing ‘Silicon Zanzibar,’ with tax incentives and less complex work visa requirements to attract tech companies. A similar low-tax initiative is underway in Zambia, intending to make it the “Estonia or Singapore of Africa.”
So it’s no surprise that African startups have already raised $4 billion this year. More startups also bagged their first million this year than any other year.
A storm to weather
While there are several reasons to be hopeful for another record year, it won’t be an easy ride. Again, the third quarter of this year was a lot slower for venture funding. The Big Deal attributes it to a decline in “mega deals” ($100m+) alongside a global slowdown. These issues reflect in the unicorn dry-spell Africa is having this year.
While investors are still bullish on Africa, there is more caution in the air than last year, so much so that a tech winter is happening. And we’ll have to see, at least, nearly twice the volume of Q3’s venture funding to have a record year.
However, there is still hope for the fourth quarter to be different. And even if we don’t have a record year, it’s impressive enough that Africa got close to last year’s euphoric high despite an economic downturn.