Record investment in Africa despite coronavirus recession

Last year, private investment in Africa hit a record high of $7.4bn, representing a 118% jump from 2020, an annual report from the industry’s African Private Equity and Venture Capital Association (AVCA) found.

Despite the deep economic disruption caused by the Covid-19 pandemic, “Africa’s economies are leading as a region of resilience with vast potential,” the report says.

“Historically, the continent has maintained growth in adverse conditions: through the global financial crisis, periods of political instability, and outbreaks of communicable disease. It comes as no surprise, then, that Africa should maintain this strength and fortitude in its recovery from the Covid-19 pandemic,” the group, that promotes private investment on the continent, argues.

The impressive growth in Africa’s investment activity over the past year was mainly driven by a growing number of venture capital (VC) deals.

AVCA touted 2021 as a “record-breaking year” for VC investment, with a total of $5.2 billion raised from 604 unique companies, representing an 104% increase from to 2020.

“More money was put to work in Africa in 2021 than the preceding seven years combined,” the report states.

The latest figures confirm the trend of an industry that is poised for growth. During the first quarter of 2022, African start-ups raised $1.8bn, 2.5 times the amount raised in the same period last year.

The surge in deals was largely driven by the increasingly attractive financial sector, which continues to gain prominence in Africa’s venture landscape – claiming 60% of the total value of VC deals in 2021.

“With several traditional banks closed during the pandemic, many people turned to mobile money, digital banking applications and remittances to help support their families’ livelihoods and financing needs,” the report says. 

As fintech companies emerge to offer new solutions to unbanked Africans, private investments in Africa’sfintech sector soared to $3.12bn in 2021.

However investment is unevenly distributed across the continent’s geographies.

In 2021, 50% of the funds were raised by four countries: Nigeria, Kenya, South Africa, and Egypt.

Nigeria also succeeded in luring sizable investment with 145 deals in the country in 2021, worth a total of $1.1 billion.

Elsewhere on the continent investment lagged but fundraising performance proved robust.

Ghana, with its well defined legal and regulatory frameworks for venture capital funds, saw its share of VC deals in the country grow 84% during the pandemic, between 2019 and 2021.

This is within the context of a global trend of venture capital investment more than doubling worldwide in 2021, raising $621 billion and breaking the previous year’s record of $294 billion. The leading regions were North America (35%), Asia (36%), and Europe (20%) with Africa accounting for a marginal 0.117%.

The African Development Bank (AfDB) recently announced a €9.8 million equity investment to support venture capital for African start-ups, from seed to growth stages.

Such initiatives could boost confidence in African investors, who accounted for just 25% of the total number of investors that participated in VC deals on the continent in 2021.