Is Africa the new Frontier of Fintech?

Africa has been experiencing unprecedented growth that has been driven by foreign investors that have recognized that it is an ecosystem ripe for change.

Despite Africa lagging when it comes to funding, the number and value of investments have accelerated in 2021. African startups managed to secure approximately $330,5 million in H1 2021. This is more than double for the entire 2020.

When it comes to investing in largely unchartered territories, territories that are associated with higher geopolitical and currency related risks, it has been a historically unappealing venture. But due to several reasons, namely, the mammoth scale of the market and a number African startups successfully reaching unicorn status, the African market has become more attractive.

The tipping point for success within the African startup ecosystem, is the success of other African startups. It creates an appetite for risk and reward amongst larger investors, which fosters newfound confidence in the ecosystem, unlocking more capital and ultimately fueling growth.

Another factor driving investments within Africa is the high valuation of startups within the US and Europe that is currently the trend, which makes it difficult for smaller investors to produce good returns. These poor returns force them to look further afield, fueling the increase of investments in our startups.

However, the lower valuation of our startups also hampers the ecosystem. Despite investors deploying capital within Africa, many of our startups are still undervalued, due to the risks associated with the region. Only a couple of African startups have reached unicorn status and only in the last couple of years. But it would be good for investors to remember that with high risk comes high rewards, and firms entering the market now stand the chance to make solid returns as the African ecosystem matures.

There is a wave of digital companies emerging across Africa, with several of them solving real pain points. And if the ecosystem continues to experience the upward trend it currently is, we could see a massive inflection of successful startups.