Seeds of Opportunity: The African Growth Series

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

Artificial Intelligence in Africa: Levelling the Narrative

According to the World Economic Forum, artificial intelligence (AI) has the capacity to contribute up to USD 15.7 trillion to the global economy by 2030. However, in Africa, AI market growth has stagnated. Estimated at USD 870 million in 2021, with marginal growth forecasted until 2024. It has been argued that continents in the Global South will continue to benefit less from AI than those in the North. Oxford Insights highlights this because governments require the appropriate environment to support AI development - including adequate data infrastructure and an innovative vision to implement progress at the state level. Nonetheless, AI is of imperative value to multiple industries in Africa (such as fintech and agritech), and progress is being made in critical areas to harness the power of AI in the continent. Through the continued development of reliable and far-reaching internet infrastructure and progressive AI policies, Africa is well positioned to benefit significantly from AI economically and socio-environmentally.

AI involves a constellation of technologies that allow machines to function with high levels of intelligence to the extent that they may emulate human capabilities. In addition, the machine's capacity is sharpened through its ability to learn from experience and adapt over time. As such, AI application is widespread and flexible, requiring a strong internet connection to comprehend information and generate meaningful outputs. Historically, internet infrastructure in Africa has been underdeveloped, with only 16% of the population accessing the internet in 2013. In contrast, by 2022, Southern and Northern Africa boasted internet penetration rates above the global average of 62.5% (at 66% and 63% respectively). Another critical area of growth for AI in Africa is in the regulatory arena, where digital health is a key pillar in the African Union Digital Transformation Strategy. On a national level, state infrastructure is key for implementing a progressive policy, such as in Mauritius, which has been voted Africa’s most innovative country in 2022 by the World Intellectual Property Organization Index, which also has a strong national AI framework. In South Africa, various state bodies have been built for the governance of science and innovation, such as the Technology Innovation Agency and the National Intellectual Property Management Office (NIMPO), which assists in protecting and advancing the knowledge economy. AI spending has been forecasted to expect a record compound annual growth rate (CAGR) of 36.3%, increasing from USD 74.7 million in 2019 to USD 651.4 million in 2025.

As such, strong regulations and increasing internet infrastructure serve as the cornerstone for AI to thrive – both of which are recorded in the continent. While AI can benefit multiple industries in Africa, the key sectors which stand to gain from AI are financial services (specifically fintech) and agriculture. Fintech startups in Africa have shown significant growth in the past five years, from 301 startups in 2017 to 576 startups in 2021. As a corollary of the growth in this sector, funding has increased - indicated between 2019 - 2021, where annual fintech funding had expanded from USD 107 million in 2019 to over USD 1 billion in 2021. Venture capital funding has become so prolific in Africa that in 2022, KuCoin, a Seychelles-based crypto exchange startup, received international funding to the extent that it developed into the years sole Decacorn (a private, venture-backed company with a value exceeding USD 10 billion). It has been estimated that revenue generated by fintech startups in Africa is set to grow to USD 30 billion by 2025, with some fintech firms seeing revenue of USD 4 billion – USD 5 billion, in line with global market leaders. These startups have a socio-economic impact, assisting the unbanked (45% of the sub-Saharan African population) and creating larger financial inclusion.

AI is of key importance in the fintech sector for many reasons. On one level, AI may be used solely to write application codes. In 2022, 52% of people surveyed by the BBC between 18-24 ​ in Africa stipulated that they have concrete plans to leave the continent. This significant brain drain leaves industries, such as software development, vulnerable to underdevelopment and lack of innovation. To combat this, AI can contribute to app development and assist in creating low-code tech – a growing trend in the fintech sector, estimated to encompass 70% of app code by 2025. Moreover, it may assist in retaining talent within the workforce. Conversely, AI can be used within the app functionality to run programmes faster and more effectively. Some of the main applications of AI in the financial sector include fraud detection, assessing risk, and evaluating customer credit ratings. A key example is JuicyScore, a Nigerian fintech company that relies on AI to assist in credit decision-making with alternative and non – personalised data. An additional example is Nokwary (Ecobank Group winner of the 2020 fintech challenge). This Ghanaian firm uses AI to allow for payments to be made in a vast number of languages. Closer to home, there are currently 32 AI fintech startups in South Africa, such as Jumo, a smart financial services platform promoting accessible banking in Africa, which received USD 305 million in funding.

Outside the fintech sector, AI has a positive role to play in the agricultural sector, such as by detecting plant diseases, pests, and nutritional deficiencies on farms. Utilising internet of things (IoT) solutions in agritech stimulates outputs in the agrarian sector and boosts food security and economic gains. The effective analysis of current and historical data by AI allows farmers to be more informed and protects against crop damage. The incorporation of AI into this sector is widely accepted by farmers, with Digital for Agriculture (D4Ag) boasting over 33 million farmer registrations and is forecasted to reach 200 million by 2030. Food security in Africa is vital in a population that is forecasted to reach 2.4 billion by 2050. With the increased impact of climate change and the supply chain shock from the war in Ukraine, time is of the essence for ringfencing food security in Africa. While AI solutions can be costly, multiple options are affordable and effective – such as AI market price predictor apps, AI translators and data processors, which are all geared towards increasing food production in Africa. ​ A great example is the Sowing App, which indicates the optimum time to plant each crop according to weather patterns.

In a joint report by Google and the International Finance Corporation (IFC), it has been estimated that Africa’s digital economy has the potential to contribute USD 180 billion to the broader economy by 2025. The ramifications of an AI Divide will be the continued marginalisation of continents in the Global South, reaffirming their position on the global periphery. Africa continues to build and develop infrastructure to enhance innovation and incorporate the furnishings of the fourth industrial revolution (4iR), including AI. Continued acknowledgement of the growth potential in Africa through funding is a vital component of ensuring that the North/South divide does not permeate the 4iR and beyond.

AI Powering the Future of Energy Sustainability in Africa

Artificial intelligence (AI) holds significant potential for improving energy sustainability in Africa. The increasing demand for energy in the region, combined with the limited availability of traditional sources, has led to an increased focus on renewable energy solutions. AI plays an increasingly pivotal role in this transition by optimising renewable energy sources and improving energy efficiency.

According to the International Energy Agency, Africa has seen a significant increase in investment in renewable energy in recent years, with investment values surpassing USD 15 billion in 2020. This market is expected to reach USD 45 billion by 2030, according to a report by the International Renewable Energy Agency (IRENA). AI is a critical market component, providing advanced technologies to monitor, predict and control energy usage. For example, AI-powered energy management systems can optimise energy consumption in homes and businesses, reducing waste and improving energy efficiency.

AI is also being applied to improve the performance of renewable energy sources such as wind and solar power. By using AI algorithms to analyse real-time data, energy providers can make more informed decisions about when to generate and distribute energy, improving the system’s overall efficiency. Furthermore, AI can also be used to predict weather patterns and optimise energy generation from wind and solar sources, reducing the need for traditional, non-renewable sources.

The use of AI in the energy sector thus has the potential to play a crucial role in improving energy sustainability in Africa. With continued investment in renewable energy and the development of AI technology, Africa can look forward to a future of more efficient, sustainable, and renewable energy sources, contributing to a more sustainable future for all.

African start-ups set a new record in 2022, with a total of USD 5.3 billion raised in funding. Several of these start-ups leverage AI to promote energy sustainability, including Azuri Technologies, BRCK, M-KOPA, Mirova SunFunder, PEG Africa, PowerGen Renewable Energy, and SolarNow.

Nuclear Power in Africa

Africa is a gigantic landmass, much bigger than any geographic map can display accurately, approximately 2.97 times as big as Europe. South Africa alone is the size of Western Europe. One of the biggest challenges for Africa includes electrification, not only because of limited investment but simply the sheer unimaginable distances between demand centres and areas of generation. For example, South Africa has built long-distance transmission networks of lengths exceeding a thousand kilometres. The world is currently on a path of an energy transition. While the term “transition” can’t be applied to Africa due to its chronic energy insufficiency, we can expect changes in the type of electricity source. Africa relies heavily on fossil fuels such as coal and gas and hydropower as its primary source of electricity. One option that has been a hot topic of debate is nuclear power. South Africa is the only African nation producing electricity from atomic power commissioned back in 1984. Several African countries have signed agreements with the Russian atomic company Rosatom to develop nuclear capabilities. It will be interesting to see how they pan out, given Russia’s reputation following its invasion of Ukraine. Nuclear power often is considered a sustainable electricity source, given its low emissions and high regulations. Still, large-scale nuclear power plants (2,000-3,000 MW) are expensive and usually not feasible for the average African nation. An emerging popular solution is small modular reactors (SMRs) (100 MW) that are currently being developed, with application uses in virtually any location. SMRs can complement other renewable sources, such as wind and solar, which are heavily dependent on weather, as they can be deployed well in combination with microgrids in remote locations. SMRs can be ramped up in an instance should the generated electricity from other REs fall short. Long-distance transmission systems, which is the main issue in electrifying rural and even parts of urban Africa, shouldn’t be in the energy development plants in the short-term but instead be replaced with localised microgrids powered by primarily traditional REs (solar PV, wind, run-of-river hydropower) and supplemented with a base source such as natural gas, hydrogen and SMRs. While Africa should definitely “leapfrog” heavy energy investments in polluting fossil fuel technologies (Coal and Oil), the continent should avoid following Europe’s electricity development but should instead leapfrog directly to microgrids until the national grids can service remote areas, if at all necessary.

Investment flows into Africa

In the last two years, investment flows into Africa have grown, with the number of renewable projects doubling since 2011 and South Africa seeing a significant rise in FDI in 2021, reaching 45% of intrafirm financial transactions. However, most African countries recorded moderate growth throughout the region, with subregions in Southern Africa, East Africa and West Africa seeing their investment flows rise. At the same time, those in Central Africa remained flat, and North Africa registered a decline. Nonetheless, the Fintech industry recorded the most investment deals in 2022, totalling 354 deals (a 6% increase from 2021). Other technology-based sectors such as Mobile (251 deals), Technology, Media, Telecommunications (224 deals), SaaS (222 deals) and E-commerce (159 deals) were among the top 5 industries with the highest number of investment deals in 2022.

With speakers from Frost & Sullivan, Hendrik Malan and Craig Parker and Africa Investor CEO and Chairman, Dr. Hubert Danso, Frost & Sullivan will be hosting a Think Tank on the 16th of February 2023, that expands on the investment trends in Africa and how the region is well poised to benefit from increased investment flows.

To find out more, please click here to secure your spot: https://www.brighttalk.com/webcast/5562/573395.

Africa: A Burgeoning Biofuel Powerhouse

Rising greenhouse gas emissions are a strong impetus toward the growing global need for sustainable energy resources. Africa has the potential to be a green energy powerhouse through the production of biofuels, forecasted to grow to 4.7 million metric tonnes equivalent by 2035. While the development of the biofuel industry in Africa is predominantly the result of necessity (as of 2022, 600 million people in Africa do not have access to electricity), countries across the continent are capitalising on their natural resources to produce alternative energy. Five countries have been recognised as high-potential biofuel hubs: South Africa, Tanzania, Mozambique, Ethiopia and Kenya. In 2022, Mozambique entered into an agreement with Eni to develop projects geared towards producing biofuel using agro-feedstock. The country’s natural land resources and socio-environmental conditions have made it possible to develop biofuel infrastructure, creating employment and generating foreign export income. In South Africa, over 300 biodigesters have been developed to dispose of organic matter and simultaneously provide energy (in the form of biogas) to rural communities. This waste-to-energy system is increasing in popularity, with companies such as Bio2Watt and New Horizons servicing the biofuel market in South Africa. This industry has an enormous growth opportunity, with the global biofuel market forecasted to reach USD 201 billion by 2030. Africa is well-positioned to harness its natural resources and engage the market.

Improving Mental Health Through 'Fika'

An estimated 25% of South Africans suffer from depression. The Annual Mental State of the World Report of 2021 found that, out of 34 countries, South Africa has the lowest average score on the mental health well-being scale. For many people, the workplace is often a source of stress and anxiety. The average person will spend approximately 90,000 hours at work over a lifetime, so ensuring that work-induced stress is minimised is essential to address overall mental health. Further, the World Bank estimates that poor mental health is one of the largest disruptors of the economy and costs Africa between USD 2.5 to 8.5 trillion every year – a figure that is forecasted to double by 2030.

fikaTime, a startup founded by African entrepreneurs, aims to improve mental health in the workplace. fikaTime is a Microsoft Teams application randomly pairs up co-workers for a coffee break, either virtual or in person. The concept is based on the Swedish tradition of ‘fika’ that involves taking a moment throughout the day to pause and socialise while enjoying a beverage (often coffee) and a snack. The app facilitates a greater connection between people by encouraging one-on-one or group coffee breaks. It enables co-workers to form deeper relationships, with the hope that this would lead to improved team cohesion. Digital health startups such as fikaTime also offer an opportunity to connect people across teams, company hierarchies or even across the world who might not otherwise interact. fikaTime has already been used in six different continents and is considering fundraising to promote its global expansion. As of 2022, an estimated 20,000 mental health applications exist around the globe, and the market is expected to grow at a compound annual growth rate of about 16% between 2023 and 2030.

Startups: Southern Africa

Southern Africa faced a challenging year in 2022, with a year-on-year (YoY) decline of -46% in start-up funding in the region, dropping from the second-ranked region in 2021 to fourth place in 2022. Compared to the continent, the share of funding in the region almost halved from 23% in 2021 to 12% in 2022, a decrease from nearly US$1.1 billion in 2021 to just under US$600 million raised a year later. Notably, Southern Africa is the only region to have recorded a -18% YoY decrease in US$100k+ deals, with 131 deals disclosed in 2022 compared to 160 in 2021. This underperformance is closely tied to South Africa's funding, which accounted for 95% of the regional total in 2022 and a decrease from 98% in 2021. The largest deals in South Africa in 2022 were MFS Africa’s US$100 million top-up to its Series C and Clickatell’s US$90 million Series C. The two runner-ups in the region are Zambia & Namibia, with Zambia’s Union54’s raising US$12 million in seed extension and Namibia’s JABU’s Series A raising US$15 million. 2021’s outstanding funding cycle may have influenced Southern Africa’s lacklustre performance in 2022, but there is no doubt that funding is increasing for startups in the region.

Africa's Investment Overview - a booming landscape

Africa accounts for about 1% of global private equity and slightly higher venture capital funding. Yet in the last two years, the region recorded remarkable growth, with record highs of $5.2 billion in VCs alone in 2021, defying global trends. As the African investment landscape booms with opportunities, in various key markets, many eyes are fixed on how the region can remain on this trajectory. Among positive trends is the spike in early-stage funding (seed and angel) (growing from 129 deals in 2019 to ~ 250 deals in 2021) pointing to increased investor confidence in African start-ups. Both VCs and PE funds are critical for supporting small-medium and micro enterprises (SMME) growth in Africa which is essential for growing the region's economy. Additionally, changes are also present in infrastructure which is a critical cornerstone for the region's growth. However, as only 10% of projects reach a financial close, much still needs to be done to close the infrastructure investment gap (estimated as ~$100 billion). Currently, infrastructure funding is dominated by governments, but private sector funding is rising, which reached about 20% in 2020. The combination of growing activity in FDI, PE, VCs, and infrastructure investments are all helping Africa to strengthen its position as the key investment destination amongst emerging markets. To quantify the extent of current and future opportunities from each of these investment platforms join speakers Dr. Hubert Danso, CEO and chairman of the Africa investor (Ai) Group, Hendrik Malan, and Craig Parker on Thursday 16 February at 15h00 SAST, as they unpack the topic in the upcoming Frost & Sullivan Think Tank.
​​
​Direct Registration for the conversation is available at: https://lnkd.in/ddCFDtdK

Upcoming Think Tank: Investment Trends in Africa - the last growth frontier

About this talk:

The African investment landscape has undergone a significant positive change in recent years; this, combined with the economic slowdown of developed markets post-COVID, translates to global investors looking at Africa as a viable investment destination. Our Think Tank will focus on the four main platforms of investment into the region and their dynamics, namely venture capital (VC), private equity (PE), foreign direct investment (FDI), and infrastructure investment. This will provide a multi-faceted view of the investment landscape and associated trends for Africa's last growth frontier.

Presented by:

Hendrik Malan, Craig Parker, Frost & Sullivan, Dr. Hubert Danso, CEO and Chairman at Africa investor (Ai) Group

When:

Thursday 16 February 2023 - 15h00 SAST

Registration link:

Upcoming Webinar: Dispelling Myths about Enterprise Resource Planning Systems

Increasing geopolitical tensions and supply chain shocks push executives to adopt and implement digital solutions such as Enterprise Resource Planning (ERP) technology to minimise disruptions and continue running the business. However, adopting and implementing such systems can have various outcomes, leading to misconceptions (truths and myths) about this business software.

To truly maximise the benefits of any ERP system, it is crucial to have the right expectations, which is why SYSPRO and Frost & Sullivan Africa have developed the ERP Myths & Truths Dispelling Misconceptions About Enterprise Resource Planning Systems.

Join the webinar on Wednesday 22 February at 10h00 SAST as Frost & Sullivan Africa's CEO Hendrik Malan, and Sisonke Mgwebi address and discuss the myths surrounding ERP systems and uncover the truth about this software.

Register for free today: https://lnkd.in/d3XEupRX

Upcoming Event: Africa's Green Economy Summit 2023

Frost & Sullivan Africa is excited to announce that its CEO Hendrik Malan will be speaking on "Infrastructure Opportunities in Africa" at the first Africa's Green Economy Summit taking place in Cape Town from 22 – 24 February 2023. 

The summit will focus on connecting global capital and green economy projects across the continent and is an official event of E-FEST Cape Town. Join industry stakeholders for this important and pioneering event that will shape the future of our province and the African continent.

Book your ticket today: http://bit.ly/3tYCnMJ

Upcoming Event: Africa Energy Indaba 2023

Frost & Sullivan Africa's ​ Energy Expert, Patrick Prestele will participate in a panel discussion on “Hydrogen for Africa” on 8 March at the CTICC in Cape Town.

Join the Africa Energy Indaba from 7 – 8 March 2023 as it hosts a stellar line-up of speakers discussing and shaping solutions to Africa’s energy challenges.

Get your ticket today: https://lnkd.in/dRtVe_Mk

To find out more about opportunities in Africa, please get in touch with Lynne Martin.

Lynne Martin

Sales Contact, Frost & Sullivan Africa

• lynne.martin@frost.com
• +27 21 680 3260