Seeds of Opportunity: The African Growth Series
August 2022 | Issue 1
In this week's issue, you will learn more about:
- Financing Africa’s Energy Access
- African Tech Ecosystems listed Morocco and Senegal as the continent’s next-biggest start-up markets
- Innovation in Africa’s Financial Sector
- Innovation in the South Africa Cannabis Market
- Africa’s Energy Transition & Industrialisation
Financing Africa’s Energy Access
The financing of Africa’s energy transition, or rather Africa’s path to universal energy access, has become increasingly more complex with an increased focus on renewables only. However, it is generally acknowledged that renewables alone won’t be able to provide sufficient power to Africa’s ever-faster-growing energy needs. Hendrik Malan, CEO of Frost & Sullivan Africa, recently led a discussion around Energy in Africa and pointed out that there is more than enough investment going into the renewable energy space but remarked that Africa needs investment into some baseload power to balance the grids. Hendrik further added that Africa’s industrialisation will rely on some carbon-based energy sources but indicated that finding funding for this will pose a considerable challenge to the countries. When asked how Africa can overcome the “carbon-phobia” of developed countries, Berrie de Jager from Standard Bank, highlighted that the support for natural gas in more advanced African economies such as South Africa does exist, with the countries power utility Eskom clearly showing indications and motivation to incorporate more natural gas in its power mix, primarily focused on installing gas-powered power plants in suitable localities along major gas networks. Continuing on, Berrie indicated potential private-public partnerships, arguing that equity clause investments exist with the private sector keen to invest because of the well-developed commercial model around natural gas in the country and the ability to leverage the debt around it. He further argued that carbon markets and the future investment models around this new financing market would certainly drive the development of the African energy sector and not just renewables. Berrie concluded that where there is a will, there is a way and that there exists undoubtedly sufficient demand by several stakeholders along the value chain.
The recording of the Think Tank can be accessed through the following link https://lnkd.in/dFnxHCRn
African Tech Ecosystems listed Morocco and Senegal as the continent’s next-biggest start-up markets
The African start-up ecosystem continues to grow as more investment pours into the region. Traditionally, English-speaking countries such as South Africa, Nigeria, Kenya, and Egypt (known as the big 4) have dominated as the biggest start-up markets. However, growth in other markets, particularly in francophone nations, has spurred the emergence of new seed ecosystems in these countries. African Tech Ecosystems listed Morocco and Senegal as the continent’s next-biggest start-up markets. Both these countries have topped the Global Start-up Ecosystem ranking and are some of Africa’s biggest movers. This trend has significantly boosted visibility for start-ups in those countries, enabling start-ups to gain access to investor growth funds.
Since 2019, Senegal has continued to welcome sizeable start-up investments posting USD 243 million. In 2021, this was bolstered by Wave, a Senegal-based mobile money start-up, which raised the biggest-ever Series A round of an African start-up, pushing its valuation to USD 1.7 billion. This made Wave Africa’s first Francophone unicorn. Senegal has now become an attractive Venture Capital (VC) market, buoyed by the Digital Senegal 2025 Strategy Act and Wave boosting Senegal’s investment attractiveness.
Senegal has now become increasingly popular for entrepreneurs and investors wanting to do business in West Africa. This is due to its favourable business climate and robust institutions. As investment continues to grow, Senegal is likely to become an attractive investment destination.
Innovation in Africa’s Financial Sector
Africa's population could double from 1.36 billion in 2020 to around 2.5 billion by 2050 and innovation is necessary to improve the region's underdeveloped financial services ecosystem as 190 million adults in Sub-Saharan Africa (SSA) had no access to financial services. Innovation through challenging traditional business models and adopting technology in Africa's financial services industry is crucial to reducing extreme poverty and boosting shared prosperity in the region. Artificial Intelligence (AI) can help established financial institutions, digital banks that challenge existing institutions and third-party payment providers to handle big data, streamline traditional financial processes and improve customer experience. In Nigeria, FairMoney and Sparkle are examples of digital banks that create nuanced AI-powered credit scores to give underserviced and underbanked customers access to funds. The development of Machine Learning (ML) and Natural Language Processing (NPL) could improve the customer experience of non-English speakers. Whereas real-time messaging through USSD technology can improve access to financial services for the remote, underbanked and informal population. We at Frost & Sullivan have identified that the SSA’s mobile money market is ripe for growth as it held 70% of the global share at USD 701 billion in 2021, with only 20% of the region’s 621 million registered accounts active that year. Meaning that further developments in technologies such as AI and USSD can help service the demands of the 80% of existing inactive accounts.
Innovation in the South Africa Cannabis Market
The Tshwane University of Technology (TUT) has formed a partnership with the Council of Scientific Industrial Research (CSIR) to establish a cannabis research hub aimed at supporting the medical cannabis industry in South Africa through innovation and research and development (R&D). This recent alliance will work in tandem with the National Cannabis Master Plan, which is geared towards the development of the South African cannabis industry through the amendment of legislation to remove barriers to commercialisation and developing export markets. Such changes will be of major benefit as, according to Interpol, South Africa is the fourth largest legal producer of cannabis in the world. The partnership is intended to: create an extraction and product development hub for entrepreneurs to use in early phase research, development, and subsequent commercialisation, indicating a strong economic focus. In addition, TUT and the CSIR aim to create a research and education facility to provide training and technical work-integrated learning for future workers in the cannabis industry with a focus on chemistry and pharmaceuticals. TUT hopes that the partnership will be a positive start to breaking down barriers to entry in the cannabis value chain and allow for the leverage of expertise in pharmaceuticals and biotechnology. This is an exciting step toward cannabis healthcare and generating a potentially flourishing sector. This is amplified when one is cognisant of the projected worldwide sales of legal cannabis and pharmaceutical products worldwide, making South Africa one of the major exporters and pioneers in these fields. Between 2021 – 2025, the spending on legal cannabis sales worldwide is projected to treble in growth, from US$13 billion to US$34 billion, highlighting a massive opportunity for South Africa.
Africa’s Energy Transition & Industrialisation
Where are weakening holes to plug and opportunities to explore during the transition period to effectively support Africa’s industrialisation?
To speak on renewable energy and its role in industrialising the African landscape, Berrie de Jager, a speaker at the recent Frost & Sullivan Energy Think Tank highlights the need to approach the topic from a holistic view of the energy landscape. “There is a direct correlation between availability and affordability and economic growth on the other side." With the latter impacting industrialisation Barrie pointed out. Evidently when looking at renewable energy insolation key challenges surface around intermittency (dependent on technology type) which is a concern for certain industries. Offering an alternative view, Berrie argues that the region which as of 2022 has ~600 million people with no access to electricity, with a total of ~950 million still dependent on biomass and fossil fuels can benefit from gradually adding renewables into the mix. “Through supplementing the existing supply with renewables the region can get to an environment where industrialisation is accelerated,” he highlighted. Moreover, this will help bring costs down and attract further investments.
Support for the clean energy transition was present across the room but as the region does not have the luxury of simply turning off the taps for oil and gas, Derek Boulware, explained how the region can leverage opportunities around rebates and policy to help promote carbon footprint reduction during production. As it stands Africa still has carbon-intensive oil and gas production technology, which is linked to the region’s lack of instraturcture. However, through investments geared at a phased transition period and enabling policy, the region can effectively achieve its 2030 goals but can also explore cleaner transition resources like natural gas in the meantime.
To find out more about opportunities in Africa, please contact Lynne Martin.
