Fintech continues to be the dominant industry within the ecosystem, with the top investment destinations on the continent being Nigeria, Egypt, South Africa, and Kenya.
The thriving African startup market is well-positioned to become a pillar of the continent’s digital economy, fostering local innovation through relevant solutions to societal challenges. According to research, funding for African startups more than doubled to $3.14 billion in the first half of 2022.
Nigeria, Egypt, South Africa, and Kenya are the continent’s top investment destinations, though funding is also increasing elsewhere, with Fintech remaining the dominant sector.
Investments in Africa’s startup ecosystem are increasing at a rapid pace. According to the OECD, more than 640 tech hubs are active across Africa, accelerating innovation and creating jobs, particularly among the youth.
However, while Africa has enormous potential to become a world leader, the African startup market currently accounts for less than one percent of global venture funding. So, what is preventing African startups from achieving global success? There are numerous factors at work, but systematic impediments in the startup innovation ecosystem have an impact on the likelihood of success.
The ecosystem must be inclusive and broad
To be sure, one company cannot have the necessary impact on its own; it takes a network of companies and organizations working together to develop market-appropriate consumer and customer solutions. The power of ecosystems is highlighted in an Accenture report, Tech Startups Will Support Africa’s Growth: “An ecosystem is defined by the depth and breadth of potential collaboration among a set of players: each can deliver a piece of the consumer solution or contribute a necessary capability.”
The African startups themselves, market makers, potential clients (corporate or individual), governments and regulators, and tech development partners are all part of the startup ecosystem. The startup must be at the centre of the ecosystem, and the right development, financial, and government partners must be involved from the start to make the journey inclusive and sustainable.
African startups require the right technology to succeed in the long run, operations, a blueprint for their people’s requirements, and the right type of business architecture. For startups to manage the growth phase of their business, the ecosystem must address these concerns holistically. Experienced mentors from large corporations and venture capital boards, as well as access to skilling resources, can play an important role here. Recognizing the need for comprehensive support, Microsoft launched the Founders Hub, a self-service hub that offers a wide range of resources to startups. Currently, the platform benefits over 1,000 startups.
Startups receive tangible benefits from the ecosystem approach
Artificial intelligence (AI) technology is one sector that has the potential to significantly contribute to the Middle East and North African economy by 2030. Synapse Analytics is an AI company based in Egypt that helps businesses develop, build, manage, and scale their AI solutions to optimize and expand their operations while maintaining sustainable growth (MaaS). Working with Microsoft ATO, Synapse was able to significantly accelerate development and launch its product earlier than expected. Microsoft’s support teams and access to technology accelerated the product timeline by nearly three months in an 18-month projected timeline.
Sector specificity is crucial
A narrow sector focus directs the attention of startups, companies, and potential investors who interact with them. Startups that align with the business priorities of potential partners, customers, or funders will be valuable to them.
Tech accelerators play an important role in creating an enabling environment that assists startups in identifying and being very clear on what sectors they are targeting, what problems they are attempting to solve, and the opportunities available within that sector. Recognizing the critical role that accelerators can play, Microsoft has signed partnership agreements with tech accelerators across the continent to collaborate on supporting startups through a combined business and technology curriculum.
Health tech has the potential to solve Africa’s problem of a lack of healthcare facilities and skills, particularly in remote areas. Deepecho, a Moroccan startup, uses AI and deep learning to mimic functions normally performed by a trained sonographer, assisting radiologists and clinicians with prenatal ultrasound video diagnosis. These diagnoses can then be used to help prevent birth defects, preterm birth, low birth weight, and the potentially dangerous outcomes that are associated with them. This is especially important in areas where hospitals are typically understaffed and under-resourced.
The story of the company emphasizes the critical role that startups continue to play in the African healthcare space, as well as the importance of providing local innovators with much-needed financial and technical support. Indeed, through its collaboration with the ATO, Deepecho has been able to progress its product through various stages of development to the point where it is now ready for deployment in hospitals.
Governments have a critical role to play
African startups with a viable product in one market may decide to expand to other countries after weighing the potential economic benefits. Governments and regulators can help by developing business-friendly policies and regulations that are not overly burdensome for startup compliance.
Governments can foster a supportive ecosystem by establishing and encouraging collaboration networks between large corporations and startups, such as private sector incubation programs and joint ecosystem innovation, such as that promoted by Microsoft through its Africa Transformation Office.
A supportive environment will reap rewards for the continent
When the ecosystem supports startups that serve SMEs, these micro-companies benefit from the startups that are developing novel solutions to their problems, whether in AgriTech, FinTech, or other sectors. Startups enable SMEs to follow their own growth trajectory by developing solutions for the SME market.
There is no one-size-fits-all solution for assisting startups and preparing more of them for success. However, with key players and drivers working together in a supportive ecosystem, there is the potential for significant growth in Africa’s startup sector, which will drive economic growth across the continent.
This article was written by Gerald Maithya, Startups Lead, Africa Transformation Office.