Nigeria takes the lead in Africa’s thriving start-up scene

The Covid pandemic has left a deep mark on the global economy, affecting businesses all across the world, but it appears that the African start-up scene has remained largely unaffected. If anything, investors’ interest in the region continued to grow over the past few years. However, not all countries benefit from this interest equally, as some areas are doing a lot better than others in terms of cash influx.

The African Development Bank’s (AfDB) 2021 report reveals that the largest part of these investments goes to only four countries: Nigeria, Egypt, South Africa and Kenya – also known as Africa’s big four. This is where a third of Africa’s foreign direct investment (FDI) ends up. And according to recent figures, it seems that Nigeria’s growing tech startup environment plays a very important role in the equation.

Africa’s big four are emerging as tech hotspots

As every entrepreneur knows, getting a start-up off the ground is anything but easy. From developing a viable business plan and hiring the right talent to intense competition, startup fundraising and cash flow management, there are numerous challenges businesses face in their early stages. That’s why startup failure rates are so high across all industries, with 10% of businesses closing shop within the first year.

However discouraging these figures might be, they don’t seem to stop entrepreneurs from taking the leap, and Africa’s tech scene serves as a good example in this respect. According to the seventh edition of Disrupt Africa’s African Tech Startups Funding Report, 2021 was a particularly auspicious year for African tech ventures, with startups in Nigeria, Egypt, South Africa and Kenya raising nearly 2 billion USD – accounting for almost 90% of the total investment amount. This comes as no surprise, considering that business investments in the big four have been increasing steadily over the past few years, going from 79% in 2018 to 89% in 2020. A big part of these investments is concentrated in the fintech sector.

Unfortunately, the same cannot be said about other countries on the African continent that have been lagging behind in terms of start-up funding. There’s quite a big gap between the big four and countries like Ethiopia, the Democratic Republic of Congo and Tanzania. The disparity is also highlighted in the report, revealing that the rest of the African countries barely make up 7.9% of the total investment sum.

This raises the question: how did the big four manage to take the lead on the start-up investment front and differentiate themselves from the rest? The African Development Bank Group points toward two major factors: the countries’ thriving economies and their population size, which are considerably larger than others’. In terms of gross domestic product (GDP), Nigeria reached 440 billion US dollars in 2021. Similarly, Egypt, South Africa and Kenya have some of the largest economies on the continent, with a reported GDP of 404, 420, 110 billion US dollars.

Population-wise, there are approximately 213 people currently living in Nigeria, and the country is expected to grow considerably in the years to come and become the third most populated nation in the world by 2050, after India and China. Egypt, South Africa and Kenya follow suit, with population sizes of 102 million, 59 million and 53 million inhabitants respectively. The large number of residents ensures high venture capital ROI, serving as an important incentive for investors.

But the economy and number of inhabitants are not the only factors at play. If these were the only aspects to matter, countries like Tanzania and Ethiopia with large populations or countries like Mauritius and the Seychelles with growing economies would also boast high levels of start-up funding, but that’s not the case. It appears that fintech solutions play an important part in this regard. More technologically advanced countries are more likely to catch investors’ interest, and that’s exactly what’s happening in the big four.

Nigeria is touted as Africa’s Silicon Valley

Out of all the countries that have managed to secure high start-up funding, Nigeria stands out the most. In the past few years, Nigeria has grown into one of the leading regions for high-tech innovation and development and the most prominent player in the tech start-up scene, so much so that people started calling it Africa’s Silicon Valley.

It’s generally difficult for newbie entrepreneurs to attract funding, which is why they often need to resort to all sorts of strategies and solutions like leveraging networks and referrals, focusing on equity management or showing investors proof of consumer interest in their products/services. Starting a business in a region that’s already swarming with investors can make your job as an entrepreneur a lot easier, and that’s exactly the case with Nigerian startups.

The Nigerian Startup Ecosystem Report 2022 revealed just how far ahead Nigeria is compared to other countries when it comes to start-up investments. The study was conducted by research company Disrupt Africa in partnership with a large number of business ventures, start-ups, and other organizations in the field in order to piece together a comprehensive picture of Nigeria’s start-up space and how it evolved over the past decade.

According to the report’s findings, Nigeria is the main investment hub on the continent, with over 383 tech startups raising nearly 2 billion US dollars in the period spanning from January 2015 to August 2022. Lagos seems to lead the rankings of Nigerian tech hotspots, boasting the largest number of start-ups in the country (approximately 88%). Also, the report reveals fintech to be the leading sub-sector, with 173 (36%) start-ups operating in this area.

Wrapping up

Judging by Nigeria’s growing startup ecosystem and the high-tech advances it has experienced in recent years, this is only the beginning for the continent’s thriving tech scene. If other countries follow Nigeria’s example and provide incentives for venture capitalists to invest in the financial and tech sectors, Africa has the potential to become the next global technology hub in the near future.