The AVCA, Promoting Private Investment in Africa, Enitan Obsanjon-Adeleye

With Enitan Obasanjon- Adeleye, AVCA Head of Research

What is AVCA’s background?

The African Private Equity and Venture Capital Association (AVCA) is the industry body for the private equity and venture capital in Africa. We have a diverse membership spanning fund managers, direct investors, fund investors such as development finance institutions and sovereign wealth funds, as well as other financial institutions and professional firms, all with a common goal of promoting private investment in Africa.

Venture capital in Africa has grown at an exponential rate over the last couple of years. What makes African technology-enabled start-ups so attractive to investors?

The search for high-growth opportunities is leading investors into the African VC space. The possibility of high returns on investments in entrepreneurship and innovation within young, fast-growing economies makes early-stage investments in Africa an attractive proposition for investors. Investors are also attracted to the opportunities for impact in Africa, with technological innovation increasingly focusing on boosting the access of underserved populations to services like finance, energy, healthcare and education.

What are the hotspots of VC in Africa?

AVCA’s data shows that between 2012 and 2018H1, South Africa, Nigeria and Kenya accounted for the largest share of early-stage transactions, collectively representing over two-thirds (65%) of the total deal volume.  East Africa is also showing strengthening early-stage investment activity, with Tanzania doubling its share of the total deal value (3% between 2012-2014 to 6% between 2015-2018H1) and Rwanda increasing its share from 0% between 2012 and 2014 to 3% between 2015 and 2018H1.

African venture capital in 2018 was dominated by payment solutions providers. What is the outlook for 2019 and beyond?

While tech innovation in retail and financial services (e.g. payment solutions providers) is a key theme, activity has also been increasing in Industrials (e.g. ride-hailing firms), and Utilities (cleantech & renewables), rising from 0% in 2012 to 26% and 12% respectively for 2018H1.  These sectors are likely to continue being important in the future.

Healthcare represents 4% of the early stage transactions that we recorded from 2012 to 2018H1, but this could rise going forward, with recent investments including the US$45mn Series A financing round completed by CarePay, a digital health platform. We are also noting an increase in the number of VC funds launched to focus specifically on African startups, such as Partech Africa, whose US$140mn fundraising closed earlier this year, and the US$168mn pan-Africa focused tech venture fund recently launched as a partnership between AfricInvest and Cathay Innovation (a subsidiary of the Paris-based PE firm Cathay Capital).

What challenges does the VC sector face in Africa?

Despite the increased VC activity, the African VC space is still in its formative stages and there are yet to be many examples of successful VC investments seen through to exit, particularly outside of South Africa. This is required to demonstrate the success of the model in Africa and attract further investment. The investor pool, therefore, is still quite limited, and fundraising remains challenging.

In addition, the overall business environment in most African countries is still difficult, with sub-Saharan African countries achieving an average rank of 141 out of 190 in the World Bank’s 2019 Ease of Doing Business Report, with an average ranking of 122 for Starting a Business, 115 for Getting Credit, 145 for Getting Electricity and 126 for Resolving Insolvency. This makes it a particularly challenging environment for starting a business, but these challenges also present opportunities for innovation, as we see in start-ups focusing on providing access to credit and energy, for example.

What role do governments have in supporting innovation and tech ecosystem?

Governments can play a significant role by building the environments needed to nurture innovation and entrepreneurship. For example, in Nigeria, in line with its efforts to liberalise the foreign exchange market in the country, the Central Bank of Nigeria (CBN) recently licensed several FinTech firms, such as PagaTech, Interswitch and Flutterwave, to send and receive money internationally.

This is a key development for FinTech players in Africa’s most populous country, especially when considering its large diaspora population. If governments build supportive environments, they can attract capital from the private sector. Moreover, by providing greater homogeneity through streamlined and harmonised legal and regulatory frameworks, governments can strengthen economic and financial competitiveness, which can facilitate the expansion of start-up companies beyond their home borders.

You can find out more about the AVCA here.

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