80% of Technology Investment Funding Going to Nigeria, Kenya, Egypt and South Africa – Proshare Nigeria Limited

Tuesday, June 01, 2021, 01:44 PM / by FBNQuest
Research / Header Image Credit: IFC

Africa technology is delivering growth

Africa’s
technology sector has thrived over the last decade, following funding by
venture capital firms. Technology firms turned the continent’s challenges
of weak infrastructure, low internet penetration and lack of financial access
into opportunities using technological and innovative solutions to address
challenges. In 2020, 347 African technology startups raised a total of
USD1.43bn in 359 equity rounds, representing a volume growth of +44% y/y
compared with just 55 equity rounds in 2015. Startups like Nigeria’s Paystack,
Ethiopia’s Ethswitch and Francophone Africa’s Bizao are also helping to migrate
Africa into the digital arena.

Technology hubs are accelerating the sector’s growth

Creating
technology hubs across the continent has accelerated the technology industry’s
growth over the last few years. According to the GSMA, in 2019, hubs on
the continent totalled 618, recording a 40% growth. These hubs provide crucial
input into the ecosystem for early-stage technology entrepreneurs and freelancers,
offering funding, innovation access, accelerators, incubators, and co-working
spaces. Across the continent, the highest hubs per country are Nigeria,
South Africa, Egypt and Kenya.

Nigeria, Kenya and Egypt lead in funding

Nigeria
is the most funded market, followed by Kenya and Egypt. Together the
three accounted for over 60% of total equity funding for African
startups. We note the six technology verticals, namely fintech, agritech,
enterprise, offgrid-technology (energy and resources), healthtech, and e-commerce.
The industry accounted for forms c. 76% of total equity funding in Africa, each
receiving over USD100m in investment flows. However, Fintech led other
sectors with an equity funding of USD356m (25% of total) in 93 deals last year.

Solid investment case

The
investment case for technological investment in Africa is compelling with the
following advantages: economic growth, supportive demographic trends, low
internet penetration (<40%), low bank penetration (<50%), and card
penetration of c. 15%. These factors highlight the investment opportunity and
the potential upside. Nigeria’s newest unicorn startup, Flutterwave,
announced that revenues doubled while active merchant growth increased 2x
y/y. Although Africa has not had many IPOs in the past, current events
suggest the continent holds a ready pipeline. Flutterwave indicated the
possibility for a future listing on the NYSE.

Banks’ digital payments business offering creates latent value

Nigerian
banks have utilised their digital banking platforms to enhance financial access
to previously excluded parts of the population. We believe Nigerian
banks’ digital payments and agency businesses offer latent value within banks’
corporate structures due to their dominant share of digital transaction volumes.
The digital payments business of a large Nigerian Bank could be worth NGN100bn
(USD244m), conservatively.

Expectations of strong double-digit growth

We
expect the sector to continue to post strong double-digit growth y/y. We
believe growth opportunities will continue to stem from the needs of consumers,
like the financially excluded and underserved segments of the population.
Fintech will likely dominate the emphasis on financial inclusion by governments
and regulators and activity (investments and revenue) in the tech
industry. We anticipate that Fintech will focus on smaller segments such
as consumer lending, insurance and asset management. We expect other sectors
(Agritech, Healthtech) to continue to rise.

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