Why these 4 countries keep attracting over 70% of VC funding in Africa!

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In 2022, tech startups in Africa brought in about 4.8bn in venture capital (disclosed deals), and just like the previous years before about 72% of that funding was distributed across 4 countries, namely Kenya, Nigeria, South Africa, Egypt.

According the world economic forum, the distribution of these 4 countries have taken a 79.4% share in 2018, to 87.5% in 2019 and then 89.2% in 2020 to 72% in 2022.

 

It has made me wonder about the relevant commonalities across these countries and how it helps to ensure that they are raking in the most venture capital for startups in their various jurisdictions?

 

What do the big 4 countries have in common

Larger economies and even larger populations:

The top 4 countries are in the top 7 most populated countries in Africa, Nigeria with a population 213.4 million (2021), Kenya at 53.01 million (2021), Egypt at 109.3 million (2021) and South Africa 59.39 million (2021). This leads to larger markets and quite frankly more people to sell to.

 

As enumerated to before the larger populations have invariably enabled these countries to have larger economies and as expected the top 4 are in the top 7 largest economies in Africa. Nigeria with a nominal GDP of 16.87%, Kenya at 3.84%, Egypt at 15.70% and South Africa 15.70%

The 2022 estimates are as follows (source: Wikipedia)

Rank

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Country

Nominal GDP
(Billion US$)[8][9]

Per Capita
(US$)[8][9]

1

 Nigeria

504.203

2,326.230

2

 Egypt

469.094

4,504.369

3

 South Africa

411.480

6,738.926

4

 Algeria

187.155

4,151.437

5

 Morocco

142.874

3,715.214

6

 Angola

124.794

3,790.704

7

 Kenya

114.858

2,255.480

 

 

BUT…

However, a large population and larger economies cannot solely be credited for creating a top 4 country otherwise we would have seen Ethiopia and Tanzania who have are both in the top 10 of larger economies and large populations doing better in the venture capital rankings.

 

Large Talent  base

To build an effective tech ecosystem, we would fundamentally need an adequate number of developer (coders, programmers).

The IFC states that there are over 690 thousand developers’ engineers across Africa. developers are the lifeline of building tech companies in any ecosystem. The distribution of these are as follows; South Africa holds 17% of tech development talent, Egypt 12%, Nigeria 12% and Kenya 9%, making these top 4 countries to the top 5 countries of tech developer countries in Africa.

Now..

This might be able to explain why Ethiopia and Tanzania even though they might have large economies and populations they only carry 3% and 2% of tech talent and hence that might bleed into quantity of startups in country and hence lower venture capital investments.

 

But this does not explain Morocco which is one of the top 7 largest economies in continent as well has 7% of the tech talent on the continent.

 

Foreign Direct Investment

An interesting bit of insight by Business Insider shows that that Nigeria, Egypt and South Africa were among the top three countries that attracted the highest foreign direct investment in the past 10 years. I am not sure if there is a correlation but that is also a huge commonality amongst the top 4 countries.

 

Infrastructure

According the GSMA, Nigeria, Egypt and South Africa collectively account for more than 33% of the incubators and accelerators in Africa. It is documented that even though incubators and accelerators might not be a full indicator of entrepreneurial growth, it has been very instrumental in the growth and development of entrepreneurs on the continent. The more entrepreneurs there are in the space the higher the likelihood of attracting investment.

 

Ease of doing business

The ease of doing business index by the world bank (discontinued in 2021) seems to have no direct correlation with attracting venture capital, only Kenya and South Africa seems to be doing well on that whilst Nigeria seems to flounder a bit, registering lower in the rankings.

 

Internet

According to Business Insider Africa, here are the internet users’ stats in Africa (top 10)

Top 5

  1. Nigeria
  • There were 109.2 million internet users in Nigeria in January 2022.
  • Nigeria’s internet penetration rate stood at 51.0 per cent of the total population at the start of 2022.
  1. Egypt
  • There were 75.66 million internet users in Egypt in January 2022.
  • Egypt’s internet penetration rate stood at 71.9 per cent of the total population at the start of 2022.
  1. South Africa
  • There were 41.19 million internet users in South Africa in January 2022.
  • South Africa’s internet penetration rate stood at 68.2 per cent of the total population at the start of 2022.
  1. Morocco
  • There were 31.59 million internet users in Morocco in January 2022.
  • Morocco’s internet penetration rate stood at 84.1 per cent of the total population at the start of 2022.
  1. Ethiopia
  • There were 29.83 million internet users in Ethiopia in January 2022.
  • Ethiopia’s internet penetration rate stood at 25.0 per cent of the total population at the start of 2022.

Next 5

  1. Algeria
  • There were 27.28 million internet users in Algeria in January 2022.
  • Algeria’s internet penetration rate stood at 60.6 per cent of the total population at the start of 2022.
  1. Kenya
  • There were 23.35 million internet users in Kenya in January 2022.
  • Kenya’s internet penetration rate stood at 42.0 per cent of the total population at the start of 2022.
  1. Ghana
  • There were 16.99 million internet users in Ghana in January 2022.
  • Ghana’s internet penetration rate stood at 53.0 per cent of the total population at the start of 2022.
  1. DR Congo
  • There were 16.50 million internet users in the DRC in January 2022.
  • The DRC’s internet penetration rate stood at 17.6 per cent of the total population at the start of 2022.
  1. Tanzania
  • There were 15.60 million internet users in Tanzania in January 2022.
  • Tanzania’s internet penetration rate stood at 25.0 per cent of the total population at the start of 2022.

Its obvious having good quality internet helps immensely

 

 

Why did I really write this?

As a Ghanaian in the tech industry, I have watched for years as the top 4 hoovered up almost all the funding available and so, I have been doing deep dives into what the commonalities amongst the top 4 mean and how they can be replicated in other countries.

I think Ghana is in really good space where it has a good combination of all these facts. However, what it lacks in population and economy size it can make up for by being a proxy (read more stable) jump off point for startup launches into its bigger neighbors like Nigeria and Cameroon.