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Nigerian security operatives keep watch Thursday 14 August, 2003 at trucks with assorted items impounded at its end of Nigerian-Benin border. The Nigerian government had early in the week closed its border with Republic of Benin to protest the Beninese government indifference in combating criminal activities at its end of the border. (Photo credit should read PIUS UTOMI EKPEI/AFP via Getty Images)

Despite the slow funding for start- ups across Africa in Q1’23, Nigerian startups were able to seal some funding deals. The quarter was unusually silent for Nigerian fintechs, while an agritech sealed the biggest deal in the quarter. Funds raised by Nigerian startups in Q1 were mostly at the pre-seed and seed stages. The year 2023 began on a slow note for Nigerian startups in terms of fundraising. This is not surprising, given the many projections foresaw the negative impacts the global economic whirlwind would have on the global tech industry. That, notwithstanding, some Nigerian startups were able to seal some funding deals in the first quarter of the year, though not as heavy as last year. However, the digits have gone shorter for the startups in Q1’23, compared to 2022. The first quarter was a bit silent for the Nigerian fintechs, who had consistently topped funding rounds in the startup eco- system.

And surprisingly, for the first time in many quarters, an agritech topped the table in Q1’23. Also, the funds raised by Ni- gerian startups in Q1 were mostly at pre- seed and seed stages, which explains why the figures were a bit low. Over 30 Nigerian companies secured funding in the first quarter of 2023. Africa is known for establishing new businesses, where the average entrepre- neurial rate is one of the highest worldwide. While the lack of employment often drives startup activities in developing regions, market opportunities and the rising digitalization have increasingly motivated African entrepreneurs, leading to more startup creations in the technology sector.

By introducing innovative digital services, the continent’s tech startups have attracted the interest of both international and local investors, with the total funding value growing from less than $190 million in 2015 to over $2 billion in 2021. Africa’s largest economies present the most competitive startup environments. Considering several indicators, such as the number of startups, incubators, co-working spaces, and the overall economic ecosystem, South Africa, Nigeria, and Kenya were the most favorable African countries for startups in 2022.

Rise of fintech startups Mainly due to the lack of formal financial services, the fintech sector has boomed in Africa in recent years. Compensating for the low bank account penetration and credit card ownership on the continent, sev- eral startups launched new digital payment solutions, such as mobile money, which are more accessible than formal financial ser- vices. The capital secured by fintech startups grew substantially from $55 million in 2015 to over $1 billion in 2021, and the fintech sector accounted for most of the tech busi- nesses that received funding in Africa in 2021. In that year, the highest funding value went to the Nigerian OPay, the East African Chipper, and the Senegalese Wave – all providing digital financial services. e-commerce Startups in the e-commerce and retail tech industries secured the second- highest funding volume among Africa’s tech startups in 2021.

Similar to the fintech sector, the capital raised by e-commerce and retail tech businesses increased substantially in 2021 compared to the previous years. Accelerated by the COVID-19 outbreak, the growth of Africa’s e-commerce sector highlighted new market gaps, including the need for support and logistic services to the already-established online market- places. Home to Africa’s e-commerce giant Jumia, Nigeria has traditionally been the leading online shopping hub on the continent. However, Egypt recently emerged as a strong e-commerce market and secured the highest startup funding value in 2021. Although to a lesser extent, other tech sectors have expanded in Africa, including e-health, ed-tech, and agri-tech. Investors Obtaining early-stage funding is crucial for startups.

Entrepreneurs often seek external investment to raise the capital needed to develop the startup idea. In recent years, the number of venture capital (VC) deals in Africa has increased considerably, jumping from around 70 in 2014 to over 300 in 2020. Around a third of the participating investors were based in the United States as of 2020, while other leading origins of early-stage investment were South Africa, the United Kingdom, and Nigeria. Most investors were fund managers and investment firms, accounting for almost 60 per cent of the VC deals. The gradual growth in investments in recent years led to the rise of new unicorns, i.e. privately-held companies valued at over $1 billion. In 2021, four African startups reached unicorn status, a record on the continent. Shrinking funds However, with the present economic trend across the world, the fintech eco- system in Nigeria and Africa has been hit with stalemate.

The funding of the sector has reduced in 2022, signaling a doom which must be contained before hand. It is expected that the ecosystem in 2023 and beyond will thrive in Nigeria and Africa but current situation has jot- ted the stakeholders to rethink and find means to rescue the sector. Recently, African fintech stakehold- ers gathered to map out growth strate- gies and find alternatives to keep the ecosystem. Amid slowing funding for African fintech startups, stakeholders in the eco- system are strategising on how to sustain the growth recorded on the continent in recent years. The challenge was the main discussions at the 5th Africa Fintech Forum held in Abijan, the capital city of Ivory Coast.

As of 2021, 576 fintech startups had headquarters in Africa. The number of companies increased from 491 in 2019, a growth of 17.3 per cent. Fintech is the most populated sector in Africa’s tech scene. It also receives the highest share of funding among other startups’ categories. In 2021, 154 fintech startups were located in South Africa. The country counted the highest number of such companies in the Africa region. Nigeria followed closely with 144 fintechs, while other 93 had headquarters in Kenya. Together, the three countries harboured over 65 percent of African fintechs, which in total amounted to 576 companies as of the same year. Leading cities in Africa In 2022, according to data provided by StartupBlink, the best city for startups in Africa is Lagos, in Nigeria, with a to- tal score of 8.38 points.

The largest city in Africa and an important financial hub for Nigeria and the whole continent, Lagos ranked 81st among 1,000 cities worldwide. Cape Town and Johannesburg, in South Af- rica, followed as leading cities for startups on the African continent. Collaboration As the situation becomes worrisome, the major concern of the stakeholders across Africa is what should be the next step for fintech in the region not to lose its glory. According to them, the continent’s fintech must now work together to achieve a common goal of improving payment across Africa.

They said the collaboration will also help them sustain the current growth even as external funding slows. Unequal growth Specifically, the CEO of HPS Business, Gary Ceaplen, noted that while fintech’s past lies in the U.S., and its present remains squarely in Asia, Africa must position it- self for what is to come to take advantage of the next fintech revolution. He, however, noted that growth in financial services across Africa’s 54 will not be uniform. He said: “While the lion’s share of value in the market (approximately 40% of revenues) is currently concentrated in South Africa, which has the most mature bank- ing system on the continent, Ghana and Francophone West Africa are expected to show the fastest growth at 15 per cent and 13 per cent per annum, respectively until 2025. Expected growth There were 144 fintech startups in Ni- geria. Compared to the previous years, the number of startups in this sector expe- rienced an increase. Nigeria has, in fact, some of the highest amounts of fintech startups in Africa. He added: “Nigeria and Egypt follow each other with an expected growth rate of 12 per cent per annum over the same period till 2025. Overall, we anticipate that the growth opportunity in fintech ecosystem is likely to be concentrated in 11 key countries – Cameroon, Ivory Coast, Egypt, Ghana, Kenya, Morocco, Nigeria Senegal, South Africa, Tanzania, and Uganda, which together accounted for 70 per cent of Africa’s GDP and half of its population.” Major players Digital banks first came to prominence by offering payment services, with most not requiring the high minimum deposit levels demanded by traditional banks. Customers looking for finance are able to turn to a huge number of loan apps, although lenders need to have robust loan recovery procedures in place where they offer finance without collateral.

Major players include Fairmoney, which offers loans within five minutes without col- lateral, using repayment history and smart- phone data to make decisions on sums up to N500,000 ($1,204). Palmcredit claims to be even quicker, providing loans within three minutes, again collateral free, although with a cap of N300,000 ($722). Branch appears to be the most popular lending app, with 10m downloads by June 2022, although of course not all of those who download financial apps actually make use of them.

App-based companies are advancing into ever more sectors, including equity investment, with fintechs Cowrywise and PiggyVest encouraging people to invest for the first time. Established banks and other financial services companies are going to have to respond to such products by cutting their investment fees, by making investment easier and above all by ensuring that people can invest even small sums.

Advocacy The President of Africa Fintech Network, Dr. Segun Aina, said the Network has been striving to unite fintech across Africa while engaging central banks across the country on the issue of regulation. He said: “Our mandate in Africa Fintech Network is to be the platform that unites Af- rican fintech and serves as the voice of Afri- can fintech in the world. We are advocating for everything fintech in Africa to address the challenges that fintech is facing, num- ber one of which is regulatory issues.

And to address this, we are partnering with the African central banks to ensure that we have one mind so that regulations by the central banks, which are the primary regulators for fintech, will be done in a way that will not stifle innovation, but promotes innovation.” On the next step for African fintech, Aina said the stakeholders would continue to provide solutions and look for the next op- portunity areas for fintech in the continent. “What’s next for African fintech is a very big question because funds are drying up today for African Fintechs. Fintechs in Africa in the last three to four years had witnessed an influx of funds, but this year has seen some slowing down. Today, we are witnessing a lot of layoffs even in fintech. So, what is next for African fintech, where is the next opportunity for them? We expect the answers to be provided by the experts,” he said. Last line For the fintech startups to grow to the expectation, there is need for collaboration among stakeholders across fintech ecosys- tem to re-strategise on winning methods.

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