Africa’s technology sector has remained a bright spot across the continent’s private investment landscape even as the coronavirus pandemic dampened overall investment volume along with many of the region’s economies.
“The bright spot of opportunity has been around e-commerce, fintech and related sectors,” said Cate Ambrose, a board member and chief executive for the Emerging Markets Private Equity Association, a trade organisation for private investors in emerging markets. “Another really big trend has been tech infrastructure, including data centers and cell towers. Increasing internet access through greater infrastructure has been a big theme across emerging markets, and it’s accelerating in Africa.”
Overall, venture deal activity in Africa fell to $544m in 2020 from $925m in 2019, according to data provider PitchBook. Africa’s economies have been hit hard by the coronavirus pandemic and the global economic contraction associated with it while the pandemic’s death toll on its population hasn’t been as severe as that of other regions, investment professionals say.
Economic growth across much of the continent has contracted, although not as steeply as it did around many other parts of the globe. Sub-Saharan Africa experienced a 2.6% decline in gross domestic product in 2020, a lower drop than that of the US and many European countries, including the UK, Germany, France, Italy and Spain, according to January data published by the International Monetary Fund.
In the technology sector, however, particularly financial technology and digital infrastructure, private equity and venture capital firms continued to find attractive investment opportunities.
Fintech accounted for 31% of all African funding in 2020, according to a recent report from Briter Bridges, a London-based data-driven research firm focused on underserved markets, including Africa. The total amount of capital deployed across investment and acquisition activity that Briter tracked in the region hit $2.4bn last year, down from a little more than $2.5bn in 2019, according to the report. Briter’s data includes equity, debt, grants, mezzanine financing and certain convertible securities.
Financial technology companies had been attracting increased attention and dollars from private investors in Africa even before Covid, driven partly by steady economic growth and an expanding middle class across many African nations. As the pandemic hit some sectors hard, particularly ones tied to hospitality, tourism or commodities, the fintech sector remained buoyant, according to Cyrille Nkontchou, co-founder of Enko Capital, an asset-management firm focused on Africa. Some fintech companies benefited from the pandemic, which forced many businesses to shift their operations online. But the sector’s strong performance world-wide also prompted many global venture capital investors to look for opportunities in emerging markets, Nkontchou added.
Africa Capital Alliance, an Africa-focused private equity firm, in late November, for example, agreed to invest $20m in the parent company of electronic payments provider Global Accelerex. The company said it plans to use the capital to further expand beyond Nigeria into other African countries, including Côte d’Ivoire, Kenya, Tanzania and South Africa.
Meanwhile, Chipper Cash, an African cross-border fintech startup, raised $30m in a Series B round in late 2020. The round was led by Ribbit Capital but also garnered the attention—and capital—of Bezos Expeditions, the personal venture capital fund of former Amazon chief executive officer Jeff Bezos.
Fintech’s popularity may also stem from the healthy investment multiples fintech companies have been able to attract. Nina Triantis, who heads telecoms, media and technology at Standard Bank Group, said multiples for fintech companies held up well despite the pandemic.
“Now, we’re seeing some pretty hefty valuations being considered for some of these assets,” Triantis said during a panel as part of the African Private Equity and Venture Capital Association’s 2020 Focus podcast series.
Additionally, digital infrastructure assets thrived during the pandemic. Toward the end of 2020, Actis acquired Octotel Pty, a fiber network operator in South Africa, for $140m. The emerging-markets-focused firm also announced a $250m Pan-African data-center platform in March 2020. Actis has completed at least one investment out of the vehicle, taking a controlling interest in Rack Centre, a Nigerian data-center operator.
Meanwhile, the International Development Finance, the US government’s development finance institution, allocated $300m to support Africa Data Centres’ acquisition and expansion of existing data center assets in South Africa and Kenya.
Investors expect technology deals to continue to thrive into 2021 despite what some predict will be a slow recovery for overall deal activity. Professionals believe a recovery for the region in 2021 will depend on the speed at which other nations around the world can bring the pandemic under control and bolster their own economic recoveries.
Early signs suggest that “this will not happen significantly before Q3 2021,” Enko Capital’s Nkontchou said. “On that basis, the recovery in 2021 is likely to be slow, and more of an L shape than a V shape.”
Other sectors in Africa didn’t experience the same degree of resilience as fintech. Investment professionals generally agree that the biggest economic consequences of the pandemic are still yet to come for the region.
Many businesses that are directly impacted by the pandemic simply will not survive, unlike in developed countries, Nkontchou said. He added that African countries cannot afford large fiscal stimulus or support plans for private companies that have helped shore up businesses in other regions.
Investors, however, said they believe that Africa will benefit indirectly from the massive fiscal stimulus programs initiated in other countries.
“As the world goes, so will Africa,” said Tope Lawani, a managing partner at Helios Investment Partners, an Africa-focused investment firm. “The massive stimulus that’s being invested in other parts of the world will ultimately trickle down to our benefit.”
Write to Isaac Taylor at Isaac.Taylor@wsj.com
From The Wall Street Journal