A new report from Endeavor Nigeria shows that Africa’s digital economy and technology ecosystem is set to experience a period of exponential growth. The report is called “The Tipping Point: Africa’s Digital Economy on the Verge of Taking Off”.
It highlights key events in the continent’s technology ecosystem to date, compares its journey with that of other emerging markets, and provides guidance on opportunities in each sector. The report includes analysis from McKinsey & Company, which says its assertions are supported by strong market fundamentals accelerating and the impact of the pandemic.
The market for Africa’s digital economy is enormous, and if projections go as planned, it will exceed $712 billion by 2050. In addition to the impact of COVID, this forecast is driven by a young population (the youngest in the world), rising smartphone penetration and Internet penetration leading to an emerging technology ecosystem backed by local and international venture capital.
While many publications and reports do an excellent job of describing the vast opportunities on the continent, some stakeholders like Endeavor believe a more accurate picture needs to be drawn.
New York-based Endeavor is a global community of “high-impact” founders in nearly 40 underserved markets across Africa, Asia, Europe, Latin America and the Middle East. The company also has a fund called Endeavor Catalyst, which supports many unicorn companies outside the U.S. and China.
“From my conversations with many entrepreneurs, we keep hearing the same thing: while we talk about the African story and opportunity, not everyone has an African background,” Tosin Faniro-Dada, managing director and CEO of Endeavor Nigeria, told TechCrunch said on the call.
“Entrepreneurs will say to me, when we had to go out of our local markets and meet with investors in San Francisco, New York and London, most of them didn’t even know what we were talking about, they didn’t understand the opportunities in Africa.”
Here are some interesting insights from the newly released report
Africa’s Digital Opportunity
The continent’s $115 billion digital economy is in its early stages. For example, 33 percent of the population uses the Internet, compared to a global average of 63 percent. The report also points to other indicators, such as fixed and mobile broadband connections and mobile cellular network coverage.
Most of the growth to date has been concentrated in four key markets: Nigeria, South Africa, Kenya and Egypt. These markets account for 32 percent of Africa’s population, 51 percent of the continent’s mobile network connections, 50 percent of professional developers and 51 percent of GDP.
Africa’s GDP has tripled since 1990; it will grow at a compound annual growth rate of 4 percent from 2010 to 2019, compared to 1.7 percent in Europe and Latin America. The report also notes that consumer spending in Africa is also growing faster than in most other regions: 9.4 percent CAGR from 2018 to 2023, compared to 6.9 percent CAGR in Eastern Europe, 6.8 percent in Asia-Pacific, 4 percent in Western Europe, 3.5 percent in North America and 2.8 percent in Latin America.
According to the report, “By 2030, Africa is expected to have more than 1.7 billion consumers spending a total of $2.5 trillion.”
In terms of talent, Endeavor reports that two of the five fastest-growing markets for GitHub contributions are in Africa: Nigeria and Egypt. According to the report, the number of open source repositories created by African developers in the software engineering marketplace increased by 40 percent in 2019 compared to 2018, a higher growth rate than any other continent in the world.
Other statistics include employment projections from various sources: 44 million jobs if Internet penetration reaches 75%, 3 million jobs from online marketplaces by 2025, and 1.7 million jobs thanks to Google’s $1 billion investment in the continent.
The African continent’s investment story
The report begins by highlighting the growth of venture capital investment on the continent over the past six years; during that time, investment in African startups has increased 18-fold. It states that it is growing at twice the rate of global start-up funding from 2020 to 2021.
Endeavor also highlights a commonly held theory that Africa lags other emerging markets such as Latin America and Southeast Asia by five years. According to the firm, the continent’s funding trajectory from 2015 to 2020 is similar to that of Southeast Asia and Latin America for the 2010 to 2015 period. “Looking ahead, Africa’s trajectory looks consistent with Southeast Asia and faster than Latin America,” it said.
But as more global investors focus on Africa’s technology sector and local investors ramp up their investments, the shortage of capital in the early growth stages is becoming increasingly apparent, particularly in Series A investments.
There are five key sectors in Africa’s startup scene: financial services, commerce, transportation, healthcare and education, and Endeavor’s report describes why these sectors are critical to Africa’s growth, the various pain points startups are trying to address and how they can help by providing a “wedge” – such as an entry point to the market – and building around that wedge to provide additional services to address other consumer and business needs. Some examples highlighted in the report include M-Pesa in fintech, Yoco in commerce, Kobo360 in transportation, Helium Health in healthcare, and uLesson in education.
At the end of the report, Endeavor calls Nigeria the largest Internet economy in Africa and South Africa the most inclusive Internet country on the continent, describes Egypt as having one of the most diverse digital businesses, and praises Kenya’s Internet economy as the largest contributor to Africa’s GDP.