The Inflection Point: Africa’s Digital Economy is Poised to Take Off
A new report from Endeavor Nigeria shows that Africa’s technology ecosystem is set for a period of exponential growth, accelerated by strong market fundamentals and the impact of the COVID-19 pandemic.
The report, titled “The Inflection Point: Africa’s Digital Economy Is Poised To Take Off”, reviewed key events in Africa’s technology ecosystem from the last few years, identified patterns (especially in the context of other technology ecosystems across the world), and offers a roadmap to successfully navigate the opportunities that are emerging. According to the report, which drew on multiple sources, including analysis from McKinsey & Company, Africa’s digital economy is approaching its S-curve, a period of rapid, significant growth that will positively impact the continent’s GDP, job creation, and overall economic outlook.
" Africa’s digital economy is large and growing, with estimated market size of $115 billion – expected to reach $712 billion by 2050. "
By 2050, Africa will be home to a third of the world’s young people and the continent is urbanizing faster than other regions. Additionally, 1 in 6 of the world’s internet users will be in Africa in 2025. The COVID-19 pandemic is also driving digitization on the continent, encouraging more Africans to engage in digital activity. As a result of these dynamics, more investors are paying attention to the potential of African technology. Between January 2020 and December 2021, funding for African digital startups grew 2x faster than global rates. Proven exit paths are also emerging for early investors with the increase in mega-rounds, liquidity events, and unicorns.
The combination of these events has primed Africa’s technology landscape for success. However, there remains a ‘white space’ for investors to consider. Due to the quantum of deals in the 1-5mn USD range in the last year (600), relative to the 5-50mn USD range (~150), it is unlikely there will be sufficient supply in the market as companies from the 1-5mn USD range graduate to larger ticket sizes. With the right financial support, the current excess of innovation can be more effectively leveraged to drive even more development and prosperity on the continent.
Commenting on the report, Tosin Faniro-Dada, CEO and Managing Director of Endeavor Nigeria, said, “The data gathered in this report is clear – Africa is the next digital growth frontier. The combination of our young and digitally savvy population, an emerging technology ecosystem, and the impact of the COVID-19 pandemic on behaviors is set to trigger an inflection point in our digitization journey. We have been excited by the increased levels of funding that our entrepreneurs are attracting but we want to make it even easier for more investors to catalyze the growth that we believe is pending”.
Topsy Kola-Oyeneyin, Partner at McKinsey and Company, said, “We’ve seen a few eye-catching funding rounds and acquisitions in Africa’s technology ecosystem in recent years but the findings of this report suggest that we barely scratched the surface. A number of sectors across the continent are still underpinned by informality and fragmentation, limiting the availability and affordability of products and services. These opportunities for disruption abound across the continent and this report will make it easier for interested investors to adjust their business models effectively to capitalize on these opportunities”.