Seeds of Opportunity: The African Growth Series
August 2022 | Issue 4
In this week's issue, you will learn more about:
- Africa: An Investment Hub
- Africa's Potential to Leapfrog Energy Legacy Technology
- Equiano, Google Under Sea Cable connecting Africa with Europe
- Africa's Potential to Leapfrog Energy Legacy Technology
- Green Hydrogen Innovation in South Africa
- Energy Transition Plans in Nigeria
Africa: An Investment Hub
In May 2022, global venture capital funding (VC) fell below USD 40 billion due to falling start-up valuations and the selloffs of once-booming stocks in vibrant sectors. Both the Asian and North American markets recorded 1% declines in venture funding, while Europe and Latin America saw growth of 33% and 35%, respectively. Africa, however, was the only region in the world to record three-digit growth in the first quarter of 2022. During this period, African venture capital reached USD 1.8 billion, up 150% compared to USD 730 million in the same period in 2021.
Africa has witnessed steady and consistent growth in start-up funding amid global slowdowns. Africa benefits from underdeveloped markets that require innovative tools to promote development and has a relatively young population that can quickly grasp the technology offered by start-ups. African start-ups further look to solve consumers' primary needs while addressing the two most common challenges the region experiences, namely access to banking and energy. This is where existing businesses either do not exist or do not have the dynamism to make changes. For example, traditional banks have failed to broaden accessibility to financial services, while fintech has bridged that gap and enabled faster and cheaper access to these financial services. These attributes have all contributed to the resilience of the African ecosystem in the face of the global downturn as several start-ups raising funds have gained strong traction in terms of revenue.
Fintech is now the most popular sector for investments in Africa. In 2021, fintech funding broke the USD 1 billion funding barrier and continued to receive the largest amount of funding on the continent, representing 54% of all venture funding deals. In 2022, the fintech sector was responsible for the biggest deals securing two-thirds of the total funding for Africa’s technology firms
Four hubs namely, Nigeria, Kenya, Egypt and South Africa, drove these impressive figures throughout the continent. These hubs, known as the big four, dominate the African start-up funding ecosystem and are growing at different speeds. During the first half of 2022, Nigeria more than doubled its start-up capital raised and Kenya’s capital raised increased more than fourfold. Nigeria alone attracted 86% of all the funds raised in the region during the same period, making Nigeria the continent’s most vibrant venture capital market.
African business leaders are forecasting a surge in tech start-up spending as foreign direct investment and improved internet connectivity help establish the continent as a tech superpower. 54% of executives expect spending on tech start-ups to more than double to USD 10 billion or more by 2025 as the West and China continue to be significant sources of investment in the continent. In the next ten years, Africa is believed to become a tech superpower as development in the African tech ecosystem is forecasted to double in size. This will further expand the continent’s role in supplying technology to the rest of the world.
The potential for investment growth is considerable as Africa only accounts for 0.2% of global money invested in technology start-ups. As interest from the West and China increases, so will the capacity for growth.
Africa's Potential to Leapfrog Energy Legacy Technology
Africa is possibly the continent with the highest renewable energy potential in the world, with a high abundance of solar, wind, and hydro resources and massive potential for hybrid and embedded generation. The Saharan desert, for example, has the continent’s highest potential for solar power and a high potential for developing mini-grids and hybrid battery storage technology. Still, there are little to no solar farms in Africa because of the virtually non-existent grid infrastructure. Thus far, the installation of renewable technology has been abysmal in Africa, with a mere 1% of the total solar potential having been harnessed to date. Africa’s electricity distribution systems are in flux; with some countries such as South Africa and the North African countries enjoying relatively high energy access, the rest of sub-Saharan Africa still lacks access. However, given the increased development of energy storage solutions and decentralised distributed renewable energy systems, Africa can leapfrog hefty investments in the expensive grid expansion networks. These new distributed grids must be developed to operate on bidirectional, distributed and transaction-based energy flow. Significant barriers to energy access on the African continent include legislation, financing, ownership regulations and lack of confidence in governments, specifically in central, west and east African countries. As energy systems evolve, further changes to legislation may be required to allow the operation of independent mini-grids and the ability to “island” from the main grid. These will be essential for rural electrification and deeper penetration of renewable energy across sub-Saharan Africa. Africa is uniquely positioned to leapfrog traditional energy systems and establish itself as a leader in integrating decarbonised, decentralised and digitalised energy systems.
Equiano, Google Under Sea Cable connecting Africa with Europe
In June 2019, Google introduced its third private international subsea cable, Equiano. As of the 8th of August 2022, Equiano landed in Melkbosstrand, South Africa, at OpenServe’s landing Station. This comes after landing in Swakopmund, Namibia, a month prior and four months after making land in Nigeria.
Equiano, named after a Nigerian-born writer and abolitionist, is aimed at connecting Africa with Europe and is said to have 20 times more network capacity than the last cable built to serve the region. Equiano will be the first subsea cable to incorporate optical switching at the fibre-pair level. This greatly simplifies the allocation of cable capacity, giving Google the flexibility to add and reallocate it in different locations as needed. The landing of the Equiano undersea cable has marked a significant moment for South Africa’s telecommunications industry as it offers additional connectivity to Europe, providing the region with an additional route for diverse international communication. Furthermore, Equiano will directly impact the connectivity in Southern Africa once it comes online later this year.
According to Openserve, the arrival of Equiano will have a meaningful impact on the domestic economy by encouraging digital inclusion and making connectivity more accessible to more South Africans.
Africa’s Fibre-Optic Infrastructure
April 2022 saw a record of 5.7 billion internet users worldwide, but Africa, one of the most populous regions, only contributed 9%. The continent has struggled with internet connectivity for decades, but many countries are leapfrogging the desktop development phase by starting as mobile-first societies. Western Sahara's focus on mobile internet access has helped its online population grow by 364% annually. Declining smartphone prices and improvements in digital infrastructure across the continent have attracted investments into increasing the capacity and number of undersea and terrestrial fibre-optic cables. The Djibouti Africa Regional Express 1 (DARE-1) is an undersea cable which went live in February 2021 and connects Kenya with Somalia and Djibouti. Whilst the Melting Pot Indianoceanic Submarine System (METISS) cable, which links Madagascar, Reunion, and Mauritius with South Africa, went live in March 2021. EllaLink includes Morocco as it stretches from Latin America to Europe, whilst the Africa Coast to Europe (ACE) cable connects 24 countries across Europe, West and Southern Africa. Ongoing high-capacity undersea cable projects are the Equiano, 2Africa and the Pakistan & East Africa Connecting Europe (PEACE) are set to go live between 2022 and 2023. As an extension of undersea connectivity, investment in terrestrial fibre networks also grew in 2021 with more cross-border fibre announcements including Cameroon-Chad, Cameroon-Gabon, Tanzania-Mozambique and others. These cross-border cables will hopefully lower bandwidth costs, especially for land-locked countries. Regional fibre powerhouses such as Liquid Intelligent Technologies have terrestrial fibre reaching from Kenya to DRC and from South Africa to Egypt. Other providers such as Paratus Namibia, Bandwidth and Cloud Services Group (BCS), MTN and Orange are expanding their fibre infrastructure throughout Africa. Another notable trend is that energy companies partner with telcos to invest in fibre and offer services to the continent's growing digital market.
Green Hydrogen Innovation in South Africa
Green hydrogen is a hot topic within the energy field. Unlike other fuels, it functions to keep the natural ozone layer intact while maintaining a minimal carbon footprint. In South Africa, the Technology Innovation Agency (TIA), an offshoot of the Department of Science and Innovation (DSI), has generated a funding application process for developing the hydrogen economy in South Africa. This entails applications to be submitted that purport to create innovative energy technologies that produce green hydrogen. In addition, applications may be made to develop infrastructure for storing, distributing, and dispensing hydrogen. This comes at a time when South Africa has been placed at the forefront of the global green hydrogen sector, owing mainly to the country’s climate and available land. Moreover, there have been years of experience in grey hydrogen and unfolding regional projects. Currently, there are many projects geared toward facilitating the green hydrogen economy in South Africa, such as The Platinum Valley Initiative, which launched the Hydrogen Valley. This innovation was established to develop catalytic green hydrogen hubs and carve out a ‘hydrogen corridor’. This is a massive space for opportunity, especially considering the economic potential for producing green hydrogen in Sub-Saharan Africa, which (optimistically) has a production potential of 1,923 exajoules per year, just under 1,000 more than any other region in the world.
Energy Transition Plans in Nigeria
In a recent announcement, Nigeria, Africa's largest economy launched new energy transition plans, which will require about $1.9-trillion to reach net zero by 2060, including $ 410 billion above projected usual spending. In the recent address, the officials emphasised the need for solutions tailored for the African market where energy transition is concerned, deeming the one size fits all approach unjust and unacceptable. For Nigeria, which has 85 million people without access to electricity, two objectives are targeted; decarbonisation and lifting citizens from poverty. As such the country is exploring several approaches to achieve a fair transition. These include using gas for cleaner power generation and cooking, expanding solar power generation and establishing hydrogen and electric vehicle industries. However, officials highlighted several challenges with access to financing for supporting infrastructure development for gas and other transition resources. In a positive light, commitments by World Bank and Sun Africa, each valued at $1.5 billion, will enable the implementation of renewable energy projects in several localities and feed towards closing the electricity poverty gap between the country’s urban and rural areas.
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To find out more about opportunities in Africa, please contact Lynne Martin.
