The Africa Risk-Reward Index 2020: Reshaping Realities
Africa is using new digital solutions to revitalise old industries, says specialist risk consultancy Control Risks and independent global advisory NKC African Economics, the Africa-focused subsidiary of Oxford Economics in their fifth education of the Africa Risk-Reward Index, published have today launched the fifth edition of the Africa Risk-Reward Index: Reshaping Realities
The index, which was launched on 15th of September, offers a comparative snapshot of market opportunities and risks across the continent.
“It also provides a grounded, longer-term outlook of key trends shaping the investment landscape in major African economies, which should inform the strategies of organisations looking to invest in or grow their business in Africa,” the media statement says.
The state of investment in African tech
The authors note that investment into African tech has reached record levels in recent years. The past few years have seen a surge of excitement in African tech, they say. “Investors seeking to minimise risks and maximise rewards are cautioned not to focus on headlines, but rather on specific country, sector and project contexts.”
In 2019, equity funding in the sector reached a record USD 2.02bn, split across 250 deals involving 234 tech and digital start-ups, the report says. This was a 74% growth from 2018, which was itself a 108% increase from 2017.
They highlight an October 2019 study by Briter Bridges and AfriLabs, which found that there were 643 tech hubs across the African continent, where Egypt, Kenya, Nigeria and South Africa were particular hotspots. “Tech and digital have been the fastest-growing sector in Africa, driven by investments in infrastructure, from undersea cables to local hosting solutions.
Driven by simple need
The most successful tech start-ups are those that have recognised that the industry in Africa is driven not by the Silicon Valley creed of “disruption” but by simple need, they say. “They have not attempted to succeed despite the challenges in the business environment, but by directly addressing those challenges.
African tech’s world-leading development of mobile money, for example, was successful because it addressed an existing problem (a lack of financial inclusion) and did so in a way that was cognisant of restrictions (it does not require a smartphone).”
The authors note that much of the funding for African tech to date has been from foreign sources into foreign-led companies searching for novel ideas, but investors may be better-served looking for more mundane solutions developed by those with a local knowledge of boring but pervasive problems.
However, the sector is likely to lose some of those gains in 2020, a consequence of both recent high-profile sector struggles and the impact of COVID-19 on external finance. “However, any such decline should be viewed as an opportunity to reset expectations and approaches, not as an indication that the affected sectors are becoming less attractive.”
The authors contend that the pandemic has served to emphasise the need for tech and digital solutions across the continent. It has sparked the development of healthcare apps to help fight the pandemic, e-commerce platforms to facilitate life under lockdown and new payment and micro-insurance systems, they authors say.
Contact tracing apps, health advice and self-assessment tools are also being developed to work through apps or platforms such as WhatsApp in countries from South Africa to Nigeria.
Additionally, central banks in countries such as Mozambique and Ghana have taken steps to encourage digital payments as a means of maintaining social distancing. “E-commerce platforms have become more popular as lockdowns limit access to physical retail.”
“The wave of informal workers and companies entering the formal economy will need access to basic financial and legal services, which are likely to be provided through online or mobile platforms. Digital solutions may also help facilitate the growing push to build regional supply chains.”
Governments searching for solutions are also less susceptible to the lobbying efforts of incumbent players seeking to restrict disruptive competition.
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