H I G H L I G H T S
• SPECIAL FOCUS: AFRICA TECH
Covid lockdowns pushed many Africans to use digital platforms for payments and shopping. Many continue to do so even as the pandemic recedes. This is leading to a frenzy of new products and investments in Africa’s digital economy. African startups have raised $3.1 billion in the first half of this calendar year, ensuring they will surpass the $ 4.4 billion raised in all of 2021. In 2019, they raised only $1.4 billion.
Three of the first four African unicorns — new technology firms which earn a valuation of $ 1 billion plus — have been in fintech and are a reminder of how widespread digital payments have become across Africa. Flutterwave, Interswitch and Fawry are in the fintech space. The fourth, Jumia, is an e-commerce firm. Other than Fawry, which is Egyptian, they are all Nigerian in origin. “For those [fintech] companies that can succeed in drawing business away from informal providers, the opportunity is huge. This is where the next fintech unicorns will emerge,” said an analyst in an interview with Quartz. The firms are now rapidly diversifying their bouquet of financial products with digital loans, cards, remittance transfer systems being created. Two other unicorns, Chipper Cash and OPay, are based or largely function in Africa but have non-African founders or owners.
Funding to female-led startups in Africa has increased 700% in the last three years, from $ 52 million in 2019 to $ 288 million by close of 2021. The blog Africa: The Big Deal reminds that the growth is from a low level: the share of funding going to female-led startups is still only 6.5% of the total 2021 flow. East Africa has been the leader in such funding, with Kenyan female tech entrepreneurs taking the lion’s share with Nigeria and South Africa following some distance behind. Female-led startups tend to be in health, education and sustainability which attract less funding than ones in finance and communications. They also tend to prefer to finance themselves through bank loans and retained earnings rather than equity investments which means they are less likely to aggressively pitch their startups.
While much of the media attention on Africa’s startup ecosystem is on the big valuations and investments, like Stripe’s $ 200 million purchase of Nigeria’s Paystack, the greatest ferment is to be found among early stage investors. Many of the most active investors in this space are local angel investors and often founders and executives of earlier African startups. This has proven a boon for African startups as it provides them a pool of investors who have deeper knowledge of personnel and local conditions than external investors and therefore close their deals much quicker. Anecdotally, the investment figures are often small — as low as $ 5000 — but still useful given the scarcity of angel investors. The African Business Angels Network, Cairo Angels and similar groups use easy contractual norms like the Simple Agreement for Future Equity (an Indian version is known as iSAFE) to allow investors to fast track the due diligence process. Early stage funds like Launch Africa, Kepple Africa and Y Combinator have also adjusted their practices to benefit from the rise of micro-investment ecosystems in different parts of Africa. The founders of unicorns like Flutterwave, Paystack and Andela are among the better-known players in this space. While there are risks, such investments can be profitable. Several members of the Afropreneur Angels Group who put money into Paystack during its creation were able to exit with returns of 30 to 116 times their original investment.
Nigeria’s $ 3-billion Flutterwave recently hired two senior officers, ex-Goldman Sachs executive Gurbhej Dhillon at chief technology officer and ex-American Express executive Oneal Bhambani as chief financial officer, to help it clear up its image following two major scandals. The first was the freezing of its accounts by a Kenyan high court following accusations of money-laundering. Flutterwave was one of seven firms suspected to have served as conduits for money-laundering and had 56 bank accounts holding $ 59 million frozen by the courts. Kenya’s Asset Recovery Agency accused Flutterwave of providing a payment service platform without due authorisation by the Central Bank of Kenya with the purpose of concealing the nature of its business. “If indeed the Flutterwave was providing merchant services, there was no evidence of retail transactions from customers paying for goods and services. Further, there is no evidence of settlements to the alleged merchants,” said the agency. The Nigerian payments firm strongly denied the charges, saying its transactions were fully audited by international firms. In April, one of the firm’s former female employees publicly described a toxic work culture of bullying and harassment by the company’s CEO, Olugbenga Abgoola, one of the most prominent names in Nigeria’s startup ecosystem.
Nigerian serial entrepreneur and investor Akintoye Akindele expounded on his belief that Africa’s next big thing will be its tech sector in a CNN profile. A “man on a mission” to build a new Africa, who is not afraid to fail to get there. Akindele recently won African Business Leader of the Year Award 2022 at the UK’s House of Lords. Besides using tech to solve its traditional problems, he has argued that Africa can use technology to cash in on its cultural exports. The Afrobeats music industry, for example, dominates the charts in many parts of the world. “Afrobeats was a deliberate export by the people in the business who genuinely believe that they could compete with the best in the world. The same way Afrobeats became mainstream, gradually, our tech ecosystem is also becoming mainstream,” he said. Akindele is also chairman of $ 2 billion Platform Capital, a venture capital outfit that invests in tech companies across the world, but mostly in Africa. In May 2022, Platform Capital announced an investment in Zuri Health, a company that connects patients with affordable healthcare services via SMS, WhatsApp and a dedicated app. Akindele believes tech can be a means for Africa to catch up with and overtake the rest of the world.
A number of African governments have announced ambitious national digital strategies. Most of these are about using digital technologies for development, especially in education and skilling, and the provision of public services. Some include cybersecurity and e-business promotion strategies. Egypt has gone as far as to develop its own national strategy for artificial intelligence, an addition to an already existing national strategy for information technology, e-commerce and cybersecurity. Kenya is also a frontrunner with a Digital Economy Blueprint designed to promote what is already one of Africa’s main digital hubs. It seeks to provide all its citizens, firms and agencies digital access. Senegal has issued a Digital Senegal 2025 Strategy with the goal of using technology to become a middle-income country buy 2025. The policy gives a lot of attention to developing the right legal framework, investing in human capital and ensuring digital trust. A number of countries incorporate digital elements in their overall national development plans like Gabon and Namibia. Algeria has already converted its e-commerce policy into a law.
Bitcoin, the best-known cryptocurrency, has lost nearly half its value this year but Nigeria is one of six countries where nearly a third of adults continue to buy or sell such currencies at least once a month, says research firm Morning Consult. Nigerians vie with Turks for the most activity. Crypto currency owners are also the most likely to use alternative finance platforms like non-bank apps, more likely to send remittances and more likely to take payday loans.
In South Africa in June, two brothers vanished along with Bitcoin worth $3.6 billion from their cryptocurrency investment platform Africrypt. Police warned crypto exchanges across the world to watch for any attempt to convert the digital coins. The disappearance of about 69,000 coins — worth more than $4 billion at their April peak — represents the biggest-ever dollar loss in a cryptocurrency scam. The incident could spur regulators’ efforts to impose order on the market amid rising cases of fraud. An investigation found Africrypt’s pooled funds were transferred from its South African accounts and client wallets, the coins passed through tumblers and mixers — or to other large pools of bitcoin — to make them essentially untraceable.
Zambia the Hub
Two prominent Zambian businessmen, Perseus Mlambo, co-founder of Zambian fintech company Union54, and Mwiya Musokotwane, CEO of Thebe Investment Management, have set up a Zambia Technology Sector Working Group to work with the government and make the country a hub for African startups and technology investors. The working group has already roped in over 40 startup founders and organisations, including Kuda Bank, Flutterwave and Chipper Cash to join the group. The group has put forward proposals for business-friendly legislation to the country’s Ministry of Technology and Science in areas like immigration, tech education, internet infrastructure, taxes and equity market reforms. It is also proposing cryptocurrency friendly regulations.
The group is being strongly supported by the new Zambian president Hakainde Hichilema, a businessman who has said he wants to create a technology-driven economy. “It seemed like it was an opportunity here, where the state is willing to listen to the ecosystem,” said Musokotwane. Usefully, his father is the country’s present finance minister.
Zambia will be running against the grain in Africa where most governments have been introducing new taxes on digital business and regulators have moved against cryptocurrencies and cross-border payments by fintech firms. One consequence is that many African fintech firms like Flutterwave and Paystack are incorporated in low tax jurisdictions like Mauritius or even the US state of Delaware. Mauritius has become less favoured in recent times as its regulatory structure has become more expensive and difficult. “It’s very easy to get in [to Mauritius], but very hard to get out,” said Wiza Jalakasi, vice-president of developer relations at Chipper Cash.
Big Tech’s Play
Silicon Valley is not missing out on the African tech opportunity. Businesses and consumers across Africa depend heavily on Facebook because access to the app and site are free on most of the continent’s telecom networks. In 2015, Facebook launched Free Basics, a no-frills internet service that gives users credit-free access to the platform and is designed to work on low-cost mobile phones, in 32 African countries. It uses satellites to beam internet access into areas where telecom penetration is weak. India disallowed Free Basics because of concerns it would lead to overdependence on Facebook, but in Africa it has become ubiquitous.
Meta, the firm that owns Facebook, recently published a research paper detailing plans to use artificial intelligence algorithms to decode African languages, especially 55 marginalised tongues, and provide translations across various social media platforms. Chief executive Mark Zuckerberg says his company will be using a supercomputer to lead the translations through advanced natural language processing capabilities. Google, for its part, is investing in its first Africa product development centre in Nairobi, Kenya, to help it serve the 800 million internet users it foresees in the continent by decade-end and has begun recruiting for the centre. Google CEO Sundar Pichai had announced last October that his company would invest $1 billion in various projects on the continent over the next five years.
An Israeli investigative television show revealed that the Ghanaian government had purchased Pegasus spyware to listen in on the opposition in the run up to the country’s 2017 elections. Pegasus, an advanced spyware developed by an Israeli firm NSO and at the heart of a number of spying scandals in various countries including India, was purportedly bought by the Ghanaian telecommunications authority but was actually purchased by the country’s security council. The NSO admitted the deal, but said the surveillance system was never operational despite the firm training Ghanaian officials on how to use the system.
China has been moving resources to buttress its Digital Silk Road programme, an adjunct to its larger but more physical infrastructure-oriented Belt Road Initiative. The Digital Silk Road delivers digital infrastructure, including cellular networks, fibreoptic cables and data centres, to partner countries and has been particularly successful in Africa. Angola, Ethiopia, Nigeria, Zambia and Zimbabwe were among the early beneficiaries of these projects, with an estimated investment value of $8.43 billion. Chinese firms like Huawei have sponsored and built local data centres on behalf of governments like Senegal.
The Chinese State Council last year printed a white paper China and Africa in the New Era: A Partnership of Equals detailing what it had done for the continent in terms of digital infrastructure. “More than half of the continent’s wireless sites and high-speed mobile broadband networks,” laying “more than 200,000 km of optical fibre” and “giving broadband Internet access to 6 million households.” It said 29 African countries have picked smart government service solutions from Chinese firms. Shenzhen-based Transsion sold nearly half of all smartphones in Africa last year, while three-year-old Nigeria-based fintech startup OPay, owned by Chinese billionaire Zhou Yahui, was worth nearly $ 2 billion. China is also offering services to African governments through its Beidou satellite navigation system, the Chinese rival to the US GPS, and set up a China-Africa Beidou System Cooperation Forum last year.
Beijing has multiple motivations for pushing a digital presence in Africa. One is commercial. Huawei, increasingly driven out of Western and some Asian markets like India, has concentrated its energies on developing an African presence. Because of its price competitiveness and experience with developing country environments, the firm has few competitors. Even the French telecom firm Orange, the second largest network in Africa, uses Huawei equipment and cites Huawei’s excellent relationship building. Two, China is ensuring that in any future battle over global digital standards it will be able to count on the support of African governments and companies. “For China, there is a bigger political agenda at play, where they’re keen to use further expansion in Africa as part of their drive to set next-generation technology standards,” said Eric Olander of the China Africa Project. Three, by building data centres and allowing African governments to claim that this has helped their “digital sovereignty,” Chinese firms end up controlling the hardware, programmes and software that goes into running them. They are widely believed to carry out large-scale data theft from the countries concerned.
African governments say that they do not have much in the way of alternatives. European rivals to Huawei like Ericsson and Nokia are more expensive and have limited capacity. Digital infrastructure is part of the Group of Seven’s Build Back Better World programme and the European Union is planning a digital infrastructure fund, but these remain only on paper. The new US International Development Finance Corporation has begun spending, recently setting up a $ 300 million data centre in South Africa, but will struggle to catch up.
One US firm that has begun trying to take on Huawei in Africa is Parallel Wireless. The New Hampshire firm has offered low-cost means to deploy wireless broadband technology and has so far signed 18 contracts across Africa, including with the largest African mobile network, MTN Group. Parallel Wireless uses Open RAN technology which allows a user to turn to different vendors for various parts of the network and provides an alternative to the lock-in agreements that Huawei and other infrastructure providers require. Open RAN is also being promoted by the Quad in the Indo-Pacific area. Governments are wary of Parallel Wireless for fear that it will involve them in the growing rivalry US-China but also because some of its initial funding came from In-Q-Tel, the investment arm of the Central Intelligence Agency.
A number of television shows and articles have exposed the phenomenon of Chinese social media influencers who make short clips featuring Africans but catering to a mainland market desirous of evidence of Chinese cultural superiority over foreign cultures. A BBC investigation of a Chinese video maker Lu Ke led to a global outcry and a Chinese government crackdown on such racist accounts. For a while, Chinese search engines blocked users who used the word “Africa.” Kun Huang of Cornell University says such images feed a Chinese desire to see their own nation, as opposed to Western countries, wieslding influence over foreigners.
www.restofworld.org profiled one such influencer, Cheng Wei, who has 10 million followers for his social media programme called African Mr Hello. “This is not China but Africa,” Cheng says near the end of one such clip featuring Zambian beauty pageant queens whom he paid to dance with him. “Africans are inherently savage, barbaric, you know? They only have profits in their eyes.” Cheng sold $ 22,000 worth of products during the 4-5 hour livestream. The article tracks down at least two dozen such accounts largely in southern and eastern Africa and each with millions of followers.