Seeds of Opportunity: The African Growth Series

September 2022 | Issue 4

In this week's issue, you will learn more about:

  • AI Enabling Malaria Eradication
  • Population Growth in Africa - Education and Innovation
  • Africa’s Thriving Start-Up Economy

AI Enabling Malaria Eradication

In 2020, 627 thousand people died from malaria worldwide, with children under five accounting for nearly 80% of those deaths. Since 2000, malaria fatalities have slowly declined at an annual rate of 1.7% and unfortunately, Sub-Saharan Africa consistently accounted for more than 90% of cases and deaths over the decades. Malaria slows Africa's economic growth by 1.3% per year, with an estimated loss of US$12 billion to control the disease. A total of US$3.3 billion was invested globally in malaria control in 2020. The African Union Panel on Emerging Technologies (APET) encouraged countries on the continent to use emerging technologies and tools to upscale their malaria control strategies. Zzapp Malaria is a startup that creates malaria prevention strategies powered by artificial intelligence (AI). The company uses weather data, topography data, satellite imagery, population density and an AI algorithm to locate malaria transmission hotspots. Their dedicated desktop and map-based mobile app communicate these areas to field workers. The app helps workers identify, report and treat stagnant water bodies by spraying breeding sites with larva-specific insecticides (larviciding). The data collected by field workers feed back into the system to improve their algorithms and predictions. Zzapp's system has found success across Africa, an example being its use within a large-scale larviciding operation in the city of Obuasi, in Ghana. The project reduced the city's mosquito population by over 60% in as little as three and a half months compared to a control community. Zzapp is working with the Minister of Health in São Tomé and Príncipe to eliminate malaria in the country within two years. Zanzibar's Ministry of Health uses Zzap's system in a study using drones to locate malaria breeding sites in areas with limited access (such as wetlands). Investors are interested in these malaria eradication solutions; hence Zzap was awarded US$3 million in IBM Watson's AI XPRIZE competition and received US$250 thousand from the Cisco Global Problem Solver Challenge 2021.

AI Enabling Malaria Eradication
AI Enabling Malaria Eradication

Population Growth in Africa - Education and Innovation

While countries in the Global North may be experiencing a decline in fertility rates, the Global South, particularly Africa, has the opposite concern. In fact, by 2030, it has been estimated that young Africans will constitute 42% of the global youth. While many difficulties come along with a massive, arguably underserved population, there is space for growth and development within education to equip the population. This has been recognised by many African countries, particularly Kenya, the first country in the continent to introduce coding as a subject in primary and secondary schools. This is an example of how the implementation of modern education is a pathway to future employment creation, the enablement of scalable IT innovation, and the development of a robust ICT sector. As a result, Kenya is one of Africa’s hotbeds for digital innovation – indicated by Microsoft, Visa, and Google opening their first development centres in Nairobi in 2022. Africa also boasts a robust and burgeoning start-up economy. In 2021 alone, over USD 9,5 billion dollars in seed funding deals were secured by start-ups within Africa. Antler, an early-stage venture capital firm, estimates that out of the African unicorn, soonicorn (a recently launched start-up with the potential to be valued at over USD 1 billion), and growth-stage start-up founders, over 67% are from Africa, on average are 34 years old, and 25% are female. This is a significant indication of young Africans' talent, innovation, and space for growth and the correlation between education and future development.


Africa’s Thriving Start-Up Economy

Africa’s start-up ecosystem has taken off in recent years, driven by the emergence of a young African tech-savvy generation that is heralding a new digital age full of new opportunities. This appealing start-up ecosystem has not gone unnoticed by the international community, with Angel Investors, Venture Capital (VC) firms and, to some degree, Private Capital (PC) firms increasingly investing in the scene.

 Necessity-driven entrepreneurial activity is driving the African start-up economy. Africa’s struggle with high unemployment, lack of new developments, and poverty pushes the increasingly younger African population to entrepreneurship. Small-medium enterprises (SMEs) are one of Africa’s largest employers, and, while on a downward trend, 75% of the sub-Saharan African population is self-employed as of 2019. However, digital and technological innovation in the African market is driving the growth of opportunity-driven start-ups, enabling African tech start-ups to flourish and attract international investment. Nigeria, South Africa, Egypt and Kenya are Africa’s leading start-up hubs due to their established start-up ecosystems, higher educational levels and supportive platforms aimed at helping entrepreneurs access capital more accessible.

According to StartUpBlink, which ranks and assesses start-up environments based on several different indicators (accelerators, supportive legislation, coworking spaces, infrastructure, etc.), South Africa, Nigeria and Kenya are the leading start-up hubs in Africa. ​ The continent, specifically those three countries, has displayed continuous growth since 2017 (CAGR of 45%), reaching new heights during the 2020 COVID-19 pandemic. This growth continued and exceeded precedented levels in the following year. The continent saw a 128% YoY increase in the number of deals from 2019 to 2020 and 104% YoY growth from 2020 to 2021, reflecting a maturing of Africa’s start-up ecosystem. The number of start-up deals recorded in 2021 alone corresponds to 70% of the total volume of deals recorded on the continent between 2014 and 2020. The cumulative value of start-up deals in Africa reached US$5.2 billion in 2021, reflecting a 373% YoY growth. African start-ups raised more in 2021 alone than combined in the preceding seven years. The growth in volume and value of deals in Africa paints an optimistic picture for the start-up ecosystem's future and growth opportunities in the entrepreneurial space.

Africa remains one of the fastest-growing start-up ecosystems globally, shaped by key trends showing no sign of future abatement.

The growing African digital industry is giving rise to new market opportunities, driving the establishment of entrepreneurial activities across the African continent. Countries such as Nigeria, South Africa, Egypt and Kenya are flourishing.

  • The continent’s steadily growing internet penetration rate is opening up new opportunities. The fintech industry is Africa’s fastest-growing start-up sector aimed at providing digital financial services to a largely unbanked population.
  • Africa is home to seven unicorns, of which five were founded in Nigeria and three in 2021 alone. This speaks to local and international investors' resounding potential in Africa-based start-ups.
  • Male-owned businesses continue to attract the most funding, despite the overwhelmingly greater presence of female entrepreneurs in Africa, who continue to face higher barriers than men.
  • Emerging start-up hubs such as Nigeria and Kenya are witnessing the greatest success in early funding stages, specifically seed and Series A. While the growing number of exits is encouraging for young aspiring entrepreneurs, pre-seed funding mainly sourced from Angel Investors continues to be a limiting factor. ​ ​

 Global VC funding has started to fall below US$ 40 billion in May 2022, down 20% compared to May 2021 and far below the global peak of US$ 70 billion in November 2021. Africa, however, has maintained its positive growth, continuing its growth trajectory, reaching US$ 1.8 billion in the first quarter of 2022, up 150% from the previous year. Kenya alone attracted more funding in Q1 of 2022 (US$ 482 million) than it did in 2021 (US$ 412 million).

And while Africa’s VC deal accounts for a mere 1% of the global venture funding, the growth is expected to sustain, at least in the short-term, due to the nature of the African start-ups. African start-ups are geared toward solving significant challenges, such as addressing the low banking and energy access rates, which is driving the adoption of Fintech and Energy Tech start-ups in the market. Historically, the year’s second half has seen more VC funding for African start-ups compared to the first half. In 2021, the year's second half saw more than double the funding funnelled to start-ups in Africa compared to the year's first half. The Africa start-up ecosystem is on track to continue its sustained growth. While Fintech will likely remain VC’s main focal point, start-ups in other sectors, especially education, logistics, blockchain and sustainable energy, are rising, at least doubling the VC raised from 2021 to 2022.


To find out more about opportunities in Africa, please contact Lynne Martin.

Lynne Martin

Lynne Martin

Sales Contact, Frost & Sullivan Africa

Rebecca Mabika

Media Contact, Frost & Sullivan Africa

 

 

 

Contact us

Lynne Martin

Lynne Martin

Sales Contact, Frost & Sullivan Africa

Kiana Steyn

Kiana Steyn

Author, Frost & Sullivan Africa

Craig Parker

Craig Parker

Author, Frost & Sullivan Africa

Rebecca Mabika

Media Contact, Frost & Sullivan Africa

Sandi Makhathini

Sandi Makhathini

Author, Frost & Sullivan Africa

Hendrik Malan

Hendrik Malan

Frost & Sullivan Africa

Sarah Slabbert

Sarah Slabbert

Author, Frost & Sullivan Africa

Hannro Steenekamp

Hannro Steenekamp

Author, Frost & Sullivan Africa

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About Frost & Sullivan Africa

Frost & Sullivan is a global strategy consulting and market intelligence firm with a long-standing presence in Africa.  Frost & Sullivan helps organisations advance by informing them of market dynamics, advising on how to respond to these dynamics, and connecting them to relevant stakeholders in Africa and beyond.

Our services span the broader policy and strategy cycle leveraging our proactive commercial and technical research relevant to our sectors of focus to develop actionable intelligence for organisations.  Given our combination focus on strategy and intelligence, Frost & Sullivan is ideally placed to support commercial and technically relevant market intelligence initiatives for a diverse set of institutions within our sectors of focus.  Frost & Sullivan’s range of process capabilities will ensure a pragmatic approach to developing practical and detailed initiatives with the strongest possible longer-term impact on the African continent.


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