From Fintech to AI: Exploring the Next Technological Frontier in Africa
1. Introduction
Brief overview of the global rise in AI and fintech investments
Africa, often referred to as the “Silicon Savannah,” is currently experiencing a profound technological revolution that will shape the future of the continent. With a population exceeding 1.3 billion people and a rapidly growing middle class, Africa has emerged as an attractive market for technology companies and start-ups (Source), In recent years, there has been a notable surge in fintech innovation, transforming the financial landscape for Africans. However, Fintech investment has been declining globally and AI investment has been on the rise like never before. A similar trend is seen in Africa in terms of decline in Fintech investments, in this article, we will delve into the potential of AI in Africa to compete with investments in Fintech, and explore the possibility of Africa trailing the current path of global AI investments.
To improve clarity and precision, the statement could be rephrased as follows:
The impact of technology in Africa transcends the boundaries of financial technology. Artificial intelligence (AI) is rapidly becoming a pivotal force, poised to transform multiple industries and spur economic advancement. It’s important to note that this article focuses on standalone AI applications rather than AI integrated into existing technologies, also known as embedded AI.
Author’s Perspective:
As an operator and two-time founder in the fields of E-commerce and AI, coupled with my unwavering interest in the African market, my curiosity about the future of AI in the region is boundless. It is an industry that has captivated my attention, much like a child mesmerised by a distant toy. However, I believe that I am not alone in this fascination. Millions of individuals worldwide are keenly aware of this intriguing trend, which is projected to increase global labour productivity by 1% (Source).
It comes as no surprise, then, that investments in AI are on the rise globally, with a projected growth rate of 20% CAGR, reaching over $200 billion by 2032 (Source) . This signifies a significant contribution of approximately 2.5% to 4% of the GDP, surpassing investments in electricity and personal computers, which currently stand at 2% of GDP, according to Goldman Sachs. In this deep dive, we will explore the impact of this global trend in an African context, and examine the potential of Africa to follow suit, ensuring that no stone is left unturned.
In recent times, the fintech sector, once regarded as a darling among global investors, has experienced a significant setback. Global investments in fintech have declined by approximately 46%, amounting to $75.2 billion from 2021 to 2023(Source). This decline is attributed to macroeconomic factors such as the rise in inflation and interest rates, which have impacted investor sentiment. However, it would be remiss to analyse this deceleration without considering the collapse of FTX and Silicon Valley Bank, events that have raised concerns about the risk tolerance of fintech companies worldwide (Source).
The significance of Africa in this global context.
Fintech has captured the most investment coming into Africa, However despite its dominant position, it has suffered a steep decline in recent times. Nevertheless, Fintech still holds immense potential for investments and lucrative exits, such as mergers and acquisitions (M&As) and potential initial public offerings (IPOs), within the region.
On the other hand, AI has emerged as a compelling force, attracting approximately $500 million in investments to the region thus far. Notably, this surpasses the $400 million that Fintech garnered during its nascent stages in 2017 (AI Media Group, 2022). Although, this disparity can be partially attributed to the region’s maturing investment market, which has paved the way for increased funding in the AI sector.
2. African Investment Landscape
AI in Africa
Artificial intelligence (AI) is poised to revolutionise various industries across Africa, including healthcare, agriculture, transportation, and education. By leveraging AI technologies, African countries can overcome unique challenges and propel themselves into a more technologically advanced future. For instance, AI-powered healthcare solutions can bridge the gap in rural areas where healthcare professionals are scarce, ensuring equitable access to quality healthcare. In agriculture, AI systems can provide farmers with crucial insights on weather patterns, pest control, and crop management, boosting productivity and food security. AI can optimise traffic flow and alleviate congestion in African cities, transforming transportation. Additionally, AI-powered education platforms can deliver personalised learning experiences, narrowing the education gap and empowering the youth.
Africa’s AI ecosystem is flourishing, with over 2,400 companies specialising in AI and attracting more than $500 million in investments for start-ups. This is the biggest acquisition in the region, followed closely by WorldRemit’s acquisition of Fintech Giant Sendwave in 2020 (Source).
Analysts predict that AI could contribute a staggering $1.5 trillion to Africa’s economy by 2030, accounting for 50% of its current GDP if the continent captures just 10% of the rapidly growing global AI market (Source). However, AI start-ups in Africa face challenges related to the availability of training data. Nevertheless, several African countries, including Mauritius, South Africa, Kenya, and Egypt, are leading the way in developing national data and AI policies, while Nigeria excels in AI education and data strategy (Source).
Current AI market map
According to the current AI market map, Africa is home to approximately 2,400 companies specialising in AI, with the majority (66%) located in four countries: South Africa, Nigeria, Egypt, and Kenya.
Among these companies, there are 226 that have received investments for their AI and deep learning start-ups (AI Media Group, 2022). This indicates a growing interest and support for AI innovation and development in the region. With a significant number of AI companies and investments, Africa’s AI ecosystem is poised to make a substantial impact on the continent’s economic and technological advancement.
Key Players and Initiatives
Africa is attracting the attention of tech giants like Google, Microsoft, and IBM, who are investing in AI research and development hubs across the continent. These hubs serve as incubators for local start-ups and provide training and resources to nurture AI talent (Source). African governments are also making efforts to promote AI growth. For example, Rwanda has launched the “Smart Africa” initiative, which aims to leverage technology, including AI, for socio-economic development (Source). Other countries like South Africa, Nigeria, and Kenya are also investing in AI capabilities and infrastructure, positioning themselves as AI hubs in Africa (Source). This collective effort from various players indicates a growing interest in and commitment to AI development in Africa.
Historical and current investments
Africa’s deep tech sector is experiencing a surge in start-ups and success stories, particularly in the field of AI and machine learning. The data presented reveals the distribution of funding across different countries in the region, with South Africa leading the pack.
Egypt stands out as a prime example of the growing presence of AI/ML driven companies in Africa. In recent years, numerous start-ups specialising in deep tech have emerged, each at varying stages of maturity. These companies are leveraging the power of AI and machine learning to develop innovative solutions that address pressing challenges across industries.
According to data from Crunchbase, the investment landscape in Africa’s AI/ML deep tech sector is promising. A total of $0.5 billion has been secured by 120 companies across 12 different countries in the region. It is important to note that this figure only represents publicly available information. The actual investment amount may be even higher, considering undisclosed deals.
Among the countries listed, South Africa has attracted the majority share of funding, capturing 63% of the total investment in Africa’s AI/ML deep tech sector. This highlights the country’s strong position as a hub for deep tech innovation and investment. Tunisia follows with 20% of the funding, indicating its growing prominence in the sector. Morocco and Nigeria secure 10% and 3% of the funding, respectively, showcasing their potential for further growth and investment (AI Media Group, 2022)
The significant investment secured by deep tech companies across Africa further underscores the confidence and interest of investors in the continent’s tech ecosystem.
Notable exits, mergers, and acquisitions
Let’s be honest, Africa AI exits started with a bang. The Instadeep ‘s $680m acquisition by BioNTech is the biggest acquisition on the continent (Source). This is After the company has raised a cumulative $107m in Seed and Series B rounds (Source). The prominent thing about this exit is the fact that it puts Africa on the global map when it comes to building global startups, and solves an age long problem of exits which Fintech has been finding difficult to emulate.
Fintech in Africa
Africa has leapfrogged traditional banking systems, embracing mobile money solutions and digital payment platforms. Companies like M-Pesa in Kenya have revolutionised the way Africans transact, enabling them to send and receive money easily through their mobile phones. This fintech revolution has brought financial services to the previously unbanked population, driving financial inclusion and economic growth. The success of fintech in Africa can be attributed to the lack of legacy infrastructure, which allowed innovative solutions to flourish. Moreover, the high mobile penetration rate across the continent has made it easier for fintech companies to reach a large customer base. As a result, Africa has become a hub for fintech innovation and a model for other emerging markets.
Fintech in Africa is projected to grow at 32% CAGR and reach a market size of $65billion, according to a new report by BCG (Source). However, this growth is subject to addressing some of the challenges the industry faces such as increasing financial inclusion and a more favourable regulatory environment (Source).
Fintech market map.
As of 2021, there are almost 600 fintech companies in Africa, this is a growth of over 17% from the previous year (Source). The map below from Findexable takes live data of Fintech companies in Africa, Most of the companies are in South Africa and Nigeria.
Historical and current investments
In the realm of investments, Fintech reigns supreme in Africa, capturing a remarkable 62% of the total investment flowing into the continent (Source). However, despite this remarkable achievement, the region has witnessed a substantial decline of 43.3% in total Fintech investments, from $3.3 billion in 2021 to $1.45 billion in 2022 (Source). This decline mirrors the global trend of reduced Fintech investments.
Although Africa’s Fintech Accounted for almost 50% of the deals in Africa, it has not kept to the same ratio in terms of exits (Source). Despite the issue of exits not meeting up with investments, Fintech still accounts for the highest number of exits on the continent (Source). So far, the most notable Fintech exits are:
- Sendwave acquired by Worldremit ($500m)
- DPO Payments acquired by Network ($288m)
- Paystack acquired by Stripe ($200m)
Potential fintech exits
In addition to the above exits, 6 out of 7 potential exits/Unicorns on the continent are in Fintech (Source). However, this was still the case when Instadeep happened, it looked like we never saw it coming!
Comparative Table: AI vs. Fintech in terms of investment and exits in Africa.
The table below is compiled from various sources and compares Fintech and AI with focus on the growth potential and investments. Fintech still outweighs AI in terms of growth, although this might change as the AI revolution continues to unfold globally and Africa continues to build capacity in Artificial Intelligence.
3. Challenges and Opportunities of AI in Africa
While the potential of AI in Africa is immense, there are several challenges that need to be addressed for successful adoption. One of the main challenges is the lack of adequate infrastructure, including reliable internet connectivity and power supply, which are essential for AI technologies. Additionally, there is a shortage of AI talent and expertise in Africa, making it crucial to invest in AI education and training programs. Furthermore, ethical considerations and data privacy concerns need to be addressed to ensure responsible AI adoption. Despite these challenges, Africa presents numerous opportunities for AI. The continent’s youthful population and entrepreneurial spirit provide a fertile ground for innovation. Moreover, the abundance of data generated in various sectors can fuel AI applications and drive economic growth.
AI has the potential to drive economic development and social impact in Africa. By harnessing AI technologies, African countries can increase productivity, create new job opportunities, and attract investment.
The Role of Government and Policies in Fostering AI Growth in Africa
Governments play a crucial role in fostering AI growth in Africa. They need to create an enabling environment through supportive policies, regulations, and investments. Governments can collaborate with industry players to develop AI strategies and establish research and development centres. Furthermore, they can promote AI education and training programs to develop a skilled workforce. Governments should also prioritise data protection and privacy laws to ensure ethical AI adoption. By creating a conducive ecosystem, governments can attract investments and drive AI innovation in Africa
The future of AI in Africa is bright, with numerous opportunities for growth and innovation. As AI technologies become more accessible and affordable, we can expect to see an increase in AI adoption across various sectors in Africa. The continent’s entrepreneurial spirit and youthful population provide a fertile ground for AI startups and innovation hubs. Moreover, AI can empower African countries to leapfrog into a more technologically advanced future. As the African AI race heats up, we can expect to see increased investments, collaborations, and initiatives to harness the potential of AI in Africa.
4. Conclusion: Embracing the Next Technological Frontier in Africa
Africa is at the cusp of a technological revolution, with fintech and AI leading the way. The rise of fintech has transformed the financial landscape, bringing financial services to the previously unbanked population. However, the potential of technology in Africa goes beyond just fintech. AI has the power to revolutionize various sectors and drive economic growth. With the right investments, policies, and collaborations, Africa can become a global AI hub, leading the way in AI innovation and adoption. By embracing the next technological frontier, Africa can unlock its full potential and create a brighter future for its people. It is time for Africa to harness the power of AI and shape its own destiny.
CTA: Embrace the technological revolution and join the African AI race. Invest in AI education, collaborate with industry players, and create an enabling environment for AI innovation. Together, we can unlock Africa’s full potential and shape the continent’s future
