Guest article by Damien Pieretti
From Cairo to Lagos, financial exclusion persists as a socio-economic hardship and a symptom of structural inefficiencies in African economies. Now more than ever, it also reflects opportunities for technology and telecommunications firms to catalyze innovations that expand market access to previously unserviceable customer segments while generating attractive returns for investors.
Recent American and Chinese venture capital transactions in payment solutions exemplify the magnitude of this dual socio-financial opportunity in both developed and emerging economies. In African countries like Egypt and Nigeria – two of the continent’s largest and most mature economies where financial exclusion rates remain orders of magnitude greater than in the US – hundreds of funded startups have already begun unlocking the long-term value in almost every sector, especially financial services.
By 2025, Google and the IFC project that Africa’s internet economy will add USD180 billion to – and account for 5.2% of – the continent’s annual GDP; by 2050, those figures will increase to USD712 billion and 8.5%, respectively. The Google/IFC report also noted a 2019 peak of ~USD2 billion in VC funding in Africa. However, “tech founders here still lack sufficient access to capital, even in financial technology” (FinTech), says Dr. Ayman Ismail, a Cairo-based angel investor and university professor.
In African countries like Egypt and Nigeria – where financial exclusion rates remain orders of magnitude greater than in the US – thousands of funded startups have already begun unlocking the long-term value in almost every sector, especially financial services.
Why Investors Should Pay More Attention
Recent anecdotal commentary by prominent VCs suggests valuations in the region are likely underpriced. Foreign capital allocators would be wise to examine the inherent opportunity landscape reflected in the digital transformations underway in African economies, starting with Egypt and Nigeria, two of Africa’s emerging technology hubs.
Even markets as geographically and culturally disparate as those of North and sub-Saharan Africa exhibit important converging success factors, including:
- Local ecosystems boosted by a) long-term improvements in telecommunications infrastructure, and b) an expanded pool of professional computer engineering talent.
- A massive consumer base highly penetrated by mobile phones and largely excluded from formal markets.
- Maturing local regulatory frameworks coinciding with intra-continental harmonization expanding regional markets for scaling digital product offerings.
- Diversification of local entry vehicles and exit ramps…
Read More: Why Investors Should Heed The African Tech Startups Devouring Consumer