African tech startups could unlock $90bn with reforms

Africa could secure tech startup funding of more than $90bn by 2030, if policymakers pursue significant reforms to drive growth, according to a new report from the Tony Blair Institute for Global Change.

Using data that covers the past six years, the former UK prime minister’s institute projected a business-as-usual scenario versus an improved policy-environment scenario. Projected until 2030, this scenario sees African startup funding reaching $93.9bn, based on the assumption that gains from the past few years are maintained.

To achieve the goal, governments need to enable more tech financing, cultivate the business environment and strengthen networks, says the institute. The improved policy-environment case is based on the compound annual growth rate of venture-capital funding to Africa between 2015 and 2020.

“Recognising the importance of these ecosystems for jobs and growth, governments are putting in place bold measures to support tech entrepreneurs. With the creation of the AfCFTA, the possibility of a continent-wide single digital market is now real.

“If current positive trends are sustained, and the transformative potential of technology is unlocked, Africa could secure tech-startup funding of more than $90bn by 2030,” the report says.

By contrast, based on Africa’s lowest positive year-on-year growth rate of 32% between 2015 and 2016, the business-as-usual case comprises a funding projection of $62bn by 2030. It assumes limited government and stakeholder intervention in fostering the tech ecosystem, a business environment that continues to stifle startup growth, no significant incentives to attract additional investment and underdeveloped networks.

Startup funding continues to grow

African tech-startup funding is now growing at a rate six times faster than the global average: in 2021, $4.9bn was raised, the amount more than tripling in one year. However, cumbersome regulations, the digital-skills gap, limited funding and fragmented markets mean that Africa currently accounts for just 0.2% of the value of global startups.

The report – which says that Africa’s tech sector is at an “extremely hopeful moment” – sets out ten recommendations for “supercharging” the tech startup ecosystem, including establishing a public data-sharing platform on tech startups, developing innovation funds and a fund of funds, developing a pan-African startup network, and enabling a supportive policy environment.

“Governments should provide a platform on which investors can access reliable information about tech startups to reduce information asymmetries (imbalance of knowledge between parties). The near absence of credible public databases on African startups increases the costs of transactions and due diligence while reducing investor confidence and diminishing financing inflows to tech innovators.”

“To connect tech stakeholders from across the ecosystem, and offer a forum for sharing best practice and problem solving, we propose the launch of a “Pan-African Startup Network”. The network would aggregate and magnify the views of startups and their stakeholders to directly influence policy as well as establish pan-African targets for the tech ecosystem.”