A continent made of up 54 different and diverse countries comprising over 1 billion people.
The mere mention of that name elicits images of pot-bellied children with houseflies swirling around their mouths.
Wars. Poverty. Corruption. Hopelessness. Rooted at the bottom of every possible statistic.
Even though Africa boasts around 25% of the world’s population, it only accounts for between 3-5% of direct Foreign Direct Investment (FDI) and carries 24% of its disease burden.
On 13th May 2000, The Economist, one of the world’s premier news magazines had a telling headline:
Africa: The hopeless Continent.
There were a lot of outcries on that headline, but few could doubt that the article rang true.
But no one could have predicted what would have happened just 10 years later.
Between 2000 and 2012, what happened in Africa was nothing short of revolutionary. More wealth was created in that decade than at any point in the continent’s history. For arguably the first time since the ’60s, that transformation was both bottoms up – new businesses and even whole new sectors sprung up spurning new unicorns such as in fintech (Cellulant) and telecommunications (the MTN Group and Econet Global) sprung up and engulfed the continent.
Governments finally began to get their act together and created the macro-conditions for this growth to take off- low debt, low inflation, and stronger democratic institutions.
GDP growth began to double, exports quadrupled, and public debt plunged to the lowest of any continent.
The change was so profound that it triggered an opposite headline from the same magazine.
This growth was also boosted by enthusiasm for technology (over 700 million mobile users – more than in the US or Europe), a boom in commodities – discovery of new swathes of oil, gas, and rare elements, as well as the arrival of new partners: China, India, Turkey, Indonesia and Brazil, and a fast-growing middle class.
However, post-2018, like almost every other continent in the world, the continent experienced significant economic hardships partly due to the widespread impact of the COVID-19 pandemic, rising debt levels, and soaring inflation.
For instance, the inflation rate in Ghana, one of the continent’s rising stars is now 34%, triggering Fitch downgrading the country to CCC from B- on 10 August 2022. GDP growth across the continent slowed to 3.3% last quarter.
However, the real story in Africa is in its power of innovation and entrepreneurship. Africa is by far the most entrepreneurial continent in the world, and many of its companies have had to use the most ingenious and innovative ways to overcome serious challenges and problems. They have had to do more with less.
The key to investing in Africa successfully is to investigate what major problems the continent faces and come up with ingenious ways, in partnership with like-minded Africans, to solve them.
In this article, we will discuss 7 sector opportunities, challenges to investments, and practical ways to invest to yield good profits, with purpose.
The opportunities literally are endless.
Investment opportunities in Africa by sector
Fintech
The rise and growth of Fintech in Africa has been nothing short of extraordinary. It is currently the fastest-growing start-up industry in Africa.
According to a 2022 report by McKinsey, African fintech companies have already made significant inroads into the market, with around 2,500 companies, an average penetration of between 3-5% (excluding South Africa), and an estimated revenue of between $4-$6 billion in 2020.
Even though many analysts say the market in Africa is becoming saturated, over 90% of transactions in Africa still involve cash – suggesting that the scope for expansion, scalability, and profits is only just beginning. There are also significant areas for more investment into more advanced sub-sectors such as insurance, retail lending, transport, full banking services, and credit scoring.
Notwithstanding, the fintech sector has opened massive opportunities for the financial sector and delivered significant value to its customers. COVID-19 has only accelerated this trend.
For instance, Sendwave, a popular money-remittance company with origins in Dakar, Senegal does not charge for remittances to Africa whilst offering very competitive forex rates, and the unicorns Flutterwave (Nigeria) and Cellulant (Kenya) have enabled selling online, processing payments and account management to be possible at up to 80% less cost than traditional banking across the continent.
Telecommunications and E-payments
Closely related to fintech in the investment space is a more traditional investment base: The mobile/smartphone. Over 800 million Africans now own a mobile phone, and companies such as MTN, Glo, Safaricom, and Airtel have dominated the African smartphone market.
However, the real innovation in Africa is not with the traditional smartphone but in human commerce and the shift in e-payments using the mobile phone.
Here, Africa leads the world.
Even though cash still represents up to 90% of transactions on the continent, electronic payments are increasingly displacing cash, generating around $24 billion in 2020.
East Africa has led the continent in this regard, with the famed M-PESA from Telecom giant Safaricom enabling money to be sent digitally across Eastern Africa at no charge. Countries such as Ghana, Nigeria, and Tanzania are also accelerating digital payments: mobile money transactions in Nigeria totalled 800 million in 2020, doubling from just a year ago.
This has led to a plethora of possibilities – Uber, Bolt, and Yacmo for fast affordable transport, in Ghana and Nigeria; Glovo for mobile food deliveries in Ghana and many others. However, despite all this activity, only around 7-10% of all payments in Africa were electronic in 2021, thereby signifying a major growth opportunity especially when digital infrastructure by companies such as Econet Global and being built at a record pace across the continent.
This growth is being driven by Africa’s young population who have a vociferous appetite for adopting new technology, new payment infrastructure being built at an astonishing pace as well as disruptive innovations such as bitcoin making inroads.
Nigeria, Kenya, and South Africa are already in the top ten of Bitcoin trading globally, according to a Statista report in January 2021.
Healthcare
Africa carries a significant health burden. It only has 3% of the world’s qualified healthcare professionals but has 25% of its disease burden.
Furthermore, rising income levels and Western-style diets have meant that on top of infectious diseases such as malaria, tuberculosis, and AIDS, the continent is beginning to witness an alarming rise in non-communicable diseases such as diabetes, cancers, high blood pressure, and respiratory illnesses.
This has placed significant stress on Africa’s already strained health systems. Bad roads, lack of access to quality medicines, infrastructure, and treatment options as well as a lack of qualified personnel have also significantly added to the strain.
However, as is always the case in Africa, there is always a silver lining to this dark cloud – a string of innovations, resourcefulness, and creativity from African entrepreneurs sometimes bordering on the insane.
A huge opportunity, therefore, exists to bring these fascinating innovations from the fringes to the centre of African healthcare, which is worth $66 billion annually and could rise to $260 billion by 2030.
Massive opportunities exist in primary healthcare, access to medicines, diagnostic services, pharmacies, and many others.
Zipline is an African-based start-up founded in 2018 which bypasses Africa’s decrepit transport infrastructure to use unmanned drones to deliver vaccines, medicines, and other critical supplies to healthcare facilities throughout Ghana, Rwanda, and some parts of Nigeria.
It recently raised $ 190 million to expand its activities to Kenya, Nigeria, and more countries in Africa.
Mpharma was formed by award-winning Ghanaian entrepreneur Gregory Rockson in 2013. It is now a network of community pharmacies present in over 9 countries on the continent.
In 2019, MPharma interviewed across Africa and realised that 55% of patients preferred a community pharmacy as the first point of call to a clinic or hospital. Funders agree – the company has raised over $65 million, has close to 1000 pharmacies and drug stores across the continent, and has over 2 million patients.
In 2015, my company, BlueCloud Health, worked with 2 entrepreneurs who had just identified a problem – over half the medicines in Nigeria were counterfeit, made worse by Africa’s fragmented and poor pharmaceutical supply chains.
They founded an e-health drug procurement company called DrugStoc to tackle this problem. They recently secured a $ 5 million Series A funding to embark on an expansion drive to reach 100 million people within Nigeria, plan to expand outside Nigeria to West Africa in the next 2-3 years and are dispensing over 6 million prescriptions to Nigeria annually.
BlueCloud Health is also working with a Swiss-based investment firm, raising $30 million to bring to market a revolutionary diagnostic device birthed in Africa that can easily diagnose Tuberculosis.
Tourism
Tourism has long been one of the most important sectors in Africa – contributing an estimated 8.5% or $194.2 billion of the continent’s GDP in 2018, according to the World Travel & Tourism Council (WTTC).
It was also the second-fastest growing region with an estimated increase of 5.6% in 2018 compared to 3.9% of global average growth. The growth potential is enormous: Morocco and South Africa, for instance, average between 10-11 million visitors per annum.
Boosting tourism investment in Africa requires a combination of ingenuity and an appreciation of its rich and varied culture – for instance, 2019 marked 400 years since the first enslaved Africans set foot in Hampton, Virginia in the US in 1619.
The government of Ghana, along with the US-based Adinkra Group, a tourism consultancy specialising in Africa launched The Year of Return, Ghana 2019, as a program for people of African descent in the diaspora to come to Africa and Ghana to reunite, invest and settle back on the continent. It was a huge success, with 1.9million tourists heeding the call, airport arrivals increasing by 45%, and $1.9billion added to the economy.
On a personal note, my family and I went to Ghana for a tourist holiday, and I was astounded at the quality of the top-end hotels and facilities we visited – local entrepreneur Samuel Afari-Dartey had spent $50 million to build two of Africa’s best holiday and tourism resorts Aqua Safari in Ada, Ghana, and West Africa’s biggest resort, Safari Valley “African Disneyland” in Akropong, Ghana.
The quality was second to none, as well as its occupancy – we struggled to get rooms, and both hotels were bustling.
The sector took a huge hit during the COVID pandemic, – $87 billion according to Statista – but with pent-up demand for leisure travelling, this could be the perfect time for investment in this sector.
There is huge potential for expansion – countries such as Rwanda, Angola, Gabon, Zambia, and Senegal have massive potential, and demand is set to increase in already established tourist hotspots such as Kenya, Botswana, Tunisia, Morocco, and Egypt (who’s Sharm El Sheikh resort is hosting the COP27 climate conference in November 2022).
Agribusiness
The agribusiness potential in Africa is well understood, but not fully realised. The paradox is that Africa spends about $25 billion each year importing food, according to the World Bank, but nearly half of all economic activity in Sub-Saharan Africa is related to the agribusiness sector.
Hunger is still a major problem in many African countries even though the World Bank forecasts that by 2030 agribusiness could grow to become a $1trillion industry.
Conglomerates like the Olam Group, operate in 25 African countries and are well established. However, the sector has not had the same disruptive entrepreneurial models that fintech or even healthcare has. The sector is still dominated by greenfield smallholder farmers, who are unable to scale to the point where the proposition becomes attractive to large-scale investment.
These problems are also compounded by a fragmented, inefficient, and broken supply chain – an ‘infrastructure-deficient environment’ as Peter Njogo, CEO of Twiga Foods says on the podcast Built Tough.
It is estimated that 50% of fresh produce never makes it from farm to fork, an estimated wastage of $4bn annually.
Entrepreneurs are cashing in on these problems such as Reel Fruit, a Nigerian snack food start-up that recently secured a $ 3 million series A funding, and Ghanaian start-up Melach Coconut which supplies coconut products worldwide.
Maphlix, another Ghana-based start-up supplies fresh produce as far afield as the Netherlands, the UAE, and the UK and companies such as KFC and Shoprite.
Women-owned businesses
For every dollar invested in women, $25 goes to men in the African start-up space – an estimated $42 billion shortfall. This is a travesty as women entrepreneurs in Africa are by far the highest on the planet, at 26%.
Women owned business are estimated to contribute around $250 billion to African economic growth, reckons Victor Basta, host of the podcast Built Tough.
My company, BlueCloud Health can testify to this, as we have worked with some of the most hardworking women entrepreneurs on the planet. Entrepreneurs like Mrs. Patience Tsegah, CEO of one of Ghana’s leading pharmacy chains, Unicom Chemists, who recently claimed the woman entrepreneur of the decade award in her home country of Ghana.
Or Nigerian Elizabeth Adeshina, CEO of Wazima Health an integrated telehealth platform start-up that links patients in Africa with healthcare professionals across the planet via video link.
Or Sierra-Leone- born entrepreneur Mariama Kamara whose company, Smiling Through Light focuses on clean energy access – working with women to provide clean, reliable and sustainable energy in Sierra Leone and throughout Africa through the distribution and sale of solar products.
It took Wazima a decade to finally secure funding for its award-winning healthcare innovation from two early-stage genderless investors – shEquity and Rising Tide Africa, who between them have invested in close to 30 start-ups led by women across the continent.
According to Eloho Omame, co-founder of First Check Africa, there is a persistent gap between the general acknowledgment that there is an excellent layer of female operational management in Africa in general, but unfortunately, that acknowledgment does not translate into trusting women with allocating capital – trust with ambition, scaling, building high growth companies and all the hubris that comes with starting and scaling a multi-million-dollar business.
The other persistent problem is that messages are being reinforced that women are not suited for the high growth, fintech ‘not enough impact’ and hence there are a lot fewer venture-backed, female-owned scalable high growth companies.
Financial models and Investment funds
Possibly, the easiest way to toe-dip into Africa is to invest in funds that are already deploying into the continent.
According to Vijay Mahajan, author of the best-selling book Africa Rising, How 900 million African consumers offer more than you think, he divides the consumer segments in Africa into three areas:
Most companies and funds in Africa concentrate on Africa One, which has the most disposable income and behaves like the elite segments in other global markets. This is the lowest-hanging fruit of the African market. However, they constitute only up to 10% of the entire market.
The real potential success is Africa Two or as is popularly termed, the ‘missing middle. This is the future of the market – upwardly mobile, educating their children, have some disposable income, can shop in Africa’s supermarkets, can rent a small high-rise apartment, or two-room apartment within a housing complex, can afford a mobile phone, buy medicines in a pharmacy, afford local produce and now and again, engage in local tourism.
Not many companies and start-ups in Africa can absorb large chunks of capital safely and sustainably.
Thankfully, a small, but increasing number of investment funds are recognising this segment and are backing companies and scaling start-ups which are serving these markets.
These funds are structured and set up in a way that supports the innovation that is needed to unlock the potential of Africa Two.
They specialise in identifying entrepreneurs and start-ups that need funding of up to $100,000 to around $2-3million and working with them to scale across the continent. A few examples:
Loftyinc Allied Partners call themselves an ‘innovation development company that supports start-up teams, innovation enterprises, and social impact projects in Africa. This involves not just investing in companies but providing the handholding, the tools, the support, and the technology that enables these innovative companies to scale to make a real impact on the continent.
They were an early investor in Flutterwave in 2016, which in 6 years, has now become one of Africa’s few unicorns. They recently launched their third fund, a $ 10 million start-up fund for tech start-ups in Africa.
The Afya Fund is a $25 million fund to be managed by BlueCloud Health and its partners in Switzerland, Dubai, and New York which is currently slated to begin operations in late 2023 to early 2024 to support, scale, and invest in innovative healthcare start-ups and SMEs on the African continent.
Injaro investments have recently closed a $10 million fundraise which enables it to ‘support and build sustainable African innovative companies that create value.
In their own words, “We work with partners to use business as a force for the good of the planet and its people. For entrepreneurs with a dream, we work alongside you to refine your vision and to grow your business profitably as a good corporate citizen. For investors who care as much for the planet as for profit, we combine international business acumen with deep-rooted local knowledge and hands-on entrepreneurial business experience to deliver profit with a purpose.”
Through the Investment Fund for Health in Africa ($170 million assets under management including 40 clinics and 3 private hospitals) and the Medical Credit Fund, PharmaAccess specialize in investing in SMEs in Africa’s health space – but also with the added benefit of SafeCare, an in-house system of in-built internationally recognized safety standards to protect the quality and build the capacity of healthcare delivery and sound business practices.
SHequity specialise in addressing the three key challenges facing African female entrepreneurs: access to seed capital, access to structured building venture support and high-value networks, and de-risking their start-ups and companies to increase their attractiveness to potential investors
FirstCheck Africa is an early-stage VC fund that specialises in investing in pre-seed and seed tech start-ups with at least one female founder or co-founder. Their success stories include Pivo, a digital bank that creates tailored credit products and banking services for SMEs serving Africa’s major supply chains, and Healthtracka, a home diagnostic testing platform that allows customers to order laboratory tests, get fast results and book personal reviews with healthcare professionals.
The great thing about funds like this is they offer a low risk, but high-return entry into African markets for the early, toe-dipping investor, which may go some way to offset the many challenges in investing in Africa.
