Will this be another banner year for venture capital funding in Africa?

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Around the world, startups raised significantly less venture capital 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, an increase of 133% over the first half of last year.

Globally, venture capital funding fell 3% in the first half of this year compared to the same period last year, with the largest declines occurring in the second quarter, leading to what some have qualified for “silent crash.

Last year, Africa saw $5.2 billion in financing across 650 deals. However, a report by the African Private Equity and Venture Capital Association (AVCA) projects which are expected to reach $7 billion by the end of this year, if Africa maintains this momentum.

Notably, Africa raised just 1% of global venture capital funding this year, a reminder that Africa still receives the minimal share of global startup funding largesse.

However, funding momentum is slowing in Africa. According The big deal, a newsletter that tracks fundraising in Africa, venture capital funding for African startups was down 53% in the third quarter of this year compared to the same period last year. It marked the end of six quarters of quarterly year-on-year growth and the first quarter since the third quarter of 2021 in which Africa failed to raise $1 billion. This fact calls into question the high projection of AVCA. But whether or not we hit the $7 billion mark, will this be another banner year? The answer lies in Africa’s technological progress for the year.

Africa’s digital economy has seen impressive growth.

Africa has been showing provocative growth since the first quarter of the year. The narrative that Africa still has plenty of room for growth attracts investors and innovators to the continent.

The World Bank projects a growth rate of 3.7% for sub-Saharan Africa in the second half of this year. This is higher than the figures for Latin America, Europe and the global average (2.9%).

Everyone bets on internet growth in africa lead a digital revolution on the continent. This is why the arrival of 5G in countries like Nigeria created a lot of optimism for the digital economy.

Technology is now playing a more crucial role in Africa’s economic story. For example, from Nigeria, Africa’s largest economy, lost its status as an oil giant, the technology sector has become its largest contributor to GDP. In addition, foreign investors and creditors have become less interested in Nigeria this year. But despite this, most of Africa’s venture capital funds have gone to Nigeria.

Besides the perception that investment opportunities abound in Africa, growth is happening because governments are now paying more attention to technology. An example is Go, which is stepping up its cybersecurity efforts. Another example is Zanzibar, where the government is implementing “Silicon Zanzibar”, with less complex tax incentives and work visa requirements to attract tech companies. A similar tax reduction initiative is underway in Zambia, with the intention of making it the “Estonia or Singapore from Africa.”

So it’s no surprise that African startups have already raised $4 billion this year. More startups also pocketed their first million this year than any other year.

A storm to face

While there are many reasons to hope for another banner year, it won’t be easy. Again, the third quarter of this year was much slower for venture funding. The Big Deal attributes it to a decline in “mega deals” (over $100 million) alongside a global slowdown. These problems are reflected in the unicorn dry spell Africa has 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 has passed. And we’ll need to see, at least, nearly double the third quarter VC funding volume to have a banner year.

However, there is still hope that the fourth quarter will be different. And even though we don’t have a banner year, it is quite impressive that Africa has come close to last year’s euphoric peak despite an economic downturn.

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