New report examines Africa’s growth in the digital economy and VC investment landscape – TechCrunch

A new report from Endeavor Nigeria shows that Africa’s digital economy and tech ecosystem will experience exponential periods of growth. The report is entitled “The Inflection Point: Africa’s Digital Economy is Poised to Take Off”.

It highlights key events in the continent’s tech ecosystem to date, compares its journey to other emerging markets and provides guidance on opportunities across sectors. The report, which included analysis from McKinsey & Company, says its claims are backed by an acceleration in strong market fundamentals and the impact of the pandemic.

The market size of Africa’s digital economy is enormous and, if forecasts go as planned, should surpass US$712 billion by 2050. The dynamics going into this forecast, aside from the impact of COVID, includes a growing young population (the youngest in the world). Smartphone adoption and internet penetration, which has resulted in a burgeoning tech ecosystem backed by local and international VC dollars.

While many publications and reports have done an excellent job of describing the opportunities that abound on the continent, some stakeholders such as Endeavor believe a more accurate picture needs to be painted.

Headquartered in New York, Endeavor is a global community of high-impact founders in nearly 40 underserved markets in Africa, Asia, Europe, Latin America and the Middle East. The company also has a fund, Endeavor Catalyst, which has supported many unicorns outside of the US and China.

“From my conversations with many entrepreneurs, we’ve heard the same thing over and over again: while we’re talking about African history and opportunities, not everyone has the African context,” Tosin Faniro-Dada, Endeavor Nigeria’s managing director and CEO, told TechCrunch at one Phone call.

“Entrepreneurs will tell me, ‘If we have to go beyond our local markets and step into rooms to meet investors in San Francisco, New York and London, most of them don’t even know what we’re talking about; they don’t understand the African opportunity.’”

The organization’s report intends to shed more light on Africa’s market dynamics. For investors, it hopes to help them build local market intelligence. And while they tend to follow the money, Endeavor wants them to look beyond the usual market opportunities and identify exit routes.

Here are some interesting points from the newly introduced report.

Africa’s digital opportunity

The continent’s $115 billion digital economy is still in its infancy. For example, 33% of people use the internet compared to a global average of 63%. The report also shows other metrics such as fixed and mobile broadband connections and cellular network coverage.

Much of the growth so far has been concentrated in four key markets: Nigeria, South Africa, Kenya and Egypt. These markets account for 32% of Africa’s population, 51% of the continent’s mobile connectivity, 50% of its professional developers and 51% of its GDP.

Africa’s GDP has tripled since 1990; it recorded a CAGR of 4% from 2010 to 2019 compared to 1.7% in Europe and Latin America. The report also found that Africa is also seeing faster growth in consumer spending than most other regions: 9.4% CAGR from 2018 to 2023 compared to Eastern Europe’s 6.9%, Asia Pacific 6.8%, Western Europe 4% , North America 3.5% and Latin America 2.8%.

“By 2030, Africa is projected to have a total of $2.5 trillion in consumer spending from over 1.7 billion consumers,” the report said.

In terms of talent, Endeavor’s report says that 2 of the 5 fastest growing markets for GitHub contributions are in Africa: Nigeria and Egypt. According to the report, African developers created 40% more open source repositories in the software development market in 2019 than in 2018 – a higher percentage growth than any other continent in the world.

Other statistics include job forecasts from different channels: 44 million jobs when Internet penetration reaches 75%, 3 million jobs from online marketplaces by 2025, and 1.7 million jobs due to Google’s $1 billion investment on the continent.

The investment history of the continent

The report first highlights the growth of venture capital on the continent over the past six years; During this period, African startups have grown 18-fold. From 2020 to 2021, it grew twice as fast as global startup funding, it said.

Endeavor also highlights the widely held theory that Africa is five years behind other emerging economies such as Latin America and Southeast Asia. According to the company, the continent’s 2015-2020 funding trajectory is similar to the 2010-2015 periods in Southeast Asia and Latin America. “Going forward, Africa’s trajectory looks consistent with SEA and faster than Latin America,” it said.

However, as more global investors pay attention to Africa’s tech scene and local investors step up their game, a shortage of capital in the early stages of growth is becoming apparent, particularly in Series A investments. According to the report, Africa is seeing a decline in Series A rounds the seed rounds by 84%. This compares to 37%, 70% and 66% in the US, Southeast Asia and Europe. Here there is an opportunity for local funds to invest beyond seed rounds, larger Africa-focused companies to double Series A, and global funds to go lower than Series B, C and D.

The report also highlights how the continent is taking less time to mint unicorns, the increase in mega rounds, liquidity events and exits (there are examples of local and international takeovers, traditional IPOs and SPACs).

Sectoral Transformation

There are five main sectors in Africa’s startup landscape: financial services, commerce, transport, healthcare and education. Endeavor’s report describes why these sectors are critical to Africa’s growth, the various vulnerabilities that startups are trying to address and how they are doing so by providing and around that wedge – like a gateway to the market around to offer more services to meet different consumer and business needs. Some examples highlighted in the report are M-Pesa in fintech, Yoco in commerce, Kobo360 in transportation, Helium Health in healthcare, and uLesson in education.

At the end of the account, Endeavor takes an individualistic perspective and delves deep into Africa‘s largest markets and highlights what sets each country apart. It calls Nigeria Africa‘s largest internet economy and South Africa the most inclusive internet country on the continent. It describes Egypt as one of the most diverse digital enterprise landscapes and praises Kenya‘s Internet economy because it is the largest contributor to Africa’s GDP.

“The data collected in this report is unequivocal – Africa is the next digital growth frontier,” said Faniro-Dada. “The combination of our young and digitally savvy population, a burgeoning technology ecosystem, and the behavioral impact of the COVID-19 pandemic will create a watershed moment in our digital journey. We’re excited about the increasing amounts of funding our entrepreneurs are attracting, but we want to make it even easier for more investors to pull out their checkbooks to catalyze the growth we believe is on the horizon.”