TLDR:
- Venture funding for African startups declined by 31% in 2023.
- Foreign investors are abandoning African economies due to high inflation.
Foreign investors have been leaving African economies that are struggling with high inflation, as revealed in a recent report by the African Private Capital Association. This exodus has led to a 31% decline in venture funding for African startups in 2023, with a significant decrease in the number of deals from the previous year. The report highlighted that economic challenges, such as high inflation and currency devaluation, were primary reasons for foreign investors to exit the region.
West Africa, particularly Nigeria, remained a hotspot for venture capital activity in Africa, capturing 26% of the continent’s total deal volume. However, the overall decline in investor numbers in 2023 was attributed to the reduction of active investors in the region, with North American investors accounting for a significant portion of the decline. This shift has forced African startups to make tough decisions like staff layoffs, changing business models, or even shutting down due to economic realities and internal factors that were hard to navigate.
The report emphasized the need for indigenous capital allocators with a long-term commitment to the continent, as many foreign investors who made opportunistic investments in Africa have exited in favor of more familiar markets. Despite the challenges, West Africa emerged as a leading region for venture capital activity, with Nigeria standing out as a vibrant market. The financial sector was the most prominent in terms of deals, followed by information technology and consumer discretionary sectors.
In conclusion, the report underscores the impact of high inflation and currency devaluation on foreign investment in African economies and the importance of long-term commitment from indigenous capital allocators to support the region’s entrepreneurial ecosystem.
