African startups are poised for significant growth in 2023, driven by increased investment, the emergence of new industries, and the expansion of established sectors such as fintech and e-commerce.
According to data from Africa: The Big Deal, investment in African tech startups reached a record high of $4.8 billion in 2022. This trend is expected to continue in 2023, with more funding available for early-stage startups and scale-ups.
Agriculture, renewable energy, and healthcare are just some of the untapped industries in Africa that are expected to gain more traction in 2023. For example, Kenya-based start-up, Wefarm, is using technology to connect small-scale farmers to marketplaces, improving their access to information, resources and buyers. This is expected to drive innovation and growth in the agriculture sector, contributing about 20% to the continent's GDP.
Fintech startups are already making a big impact in Africa, and this trend is expected to continue in 2023. With more people gaining access to digital financial services, fintech startups are expected to play a major role in improving financial inclusion. For example, a Nigerian-based start-up, Paystack (acquired by Stripe), has processed over $2 billion in transactions since it was founded in 2015, helping small and medium businesses to easily receive and make payments.
E-commerce is another sector expected to grow significantly in 2023, driven by increased internet penetration and a growing middle class. For example, Kenyan start-up, Copia Global, has used technology to provide accessible and affordable goods to consumers in rural areas, breaking down traditional barriers to entry in the e-commerce market.
Finally, blockchain technology is expected to play a significant role in several sectors in Africa in 2023. Startups that specialize in blockchain solutions for the financial, healthcare, and supply chain sectors are expected to drive innovation and growth in these areas. For example, a South African start-up, Bankymoon, is using blockchain to provide electricity billing and payment solutions for underprivileged communities.
While 2023 holds great potential for African startups, there are several challenges that they may face, including inflation, currency devaluation, and economic downturns. These factors can significantly impact startups, affecting their ability to grow, scale, and succeed in a highly competitive market.
Inflation is a major concern for African startups, as it erodes the purchasing power of consumers and makes it more difficult for businesses to maintain profitability. In 2022, the average inflation rate in Africa was 14.5%, according to the Economist Unit Intelligence. This trend is expected to continue in 2023, affecting consumer spending and investment in startups. For example, a start-up in Ghana, which had an inflation rate of 54.1% in December 2022, may face difficulties in attracting investment due to the high inflation rate, which erodes the value of returns on investment.
Currency devaluation is another challenge that African startups face, as it makes imports more expensive and exports less competitive. For example, in Nigeria, the devaluation of the naira in 2016 had a significant impact on local businesses, making it more difficult for startups to access capital and raw materials. This can also lead to a decline in consumer spending, as people are forced to cut back on non-essential purchases.
Finally, the economic downturn, driven by factors such as low oil prices and a decline in foreign investment, can also affect African startups. The economic downturn caused a sharp decline in global funding. Even though Africa was the only region to have positive year-over-year growth, funding for big-ticket deals like mega rounds declined significantly.