Africa's Tech Sector Powers Up This Year

Feb 16 , 2025
By Adesoji Solanke

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Africa's tech ecosystem is readying for a new chapter. This phase will be marked not by the pursuit of unicorn status, but by the rise of businesses solving real-world challenges with scalable and impactful solutions. What can be anticipated is the emergence of a batch of stronger, more resilient businesses armed with resources and strategic understanding. This will drive the sustained success of Africa's tech region, writes Adesoji Solanke, head of FinTech & Banks, Investment Banking Origination, Absa.

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Even in the harshest environments, growth can flourish in unexpected ways. While little could be deemed positive during the early days of the pandemic, this challenging period unexpectedly spurred extraordinary development for Africa's tech ecosystem. The sector reached its funding peak in 2020 and 2021, minting unicorns as companies secured hundreds of millions of dollars to propel innovation across industries.

It was, however, to be short-lived.

As global interest rates rose in response to mounting inflation, monetary tightening triggered a consequential pullback of capital. Large, predominantly U.S.-based funds that had begun venturing into Africa redirected their focus toward domestic markets wrestling with economic pressures.

The ecosystem, once buoyed by an influx of international capital, now faces a more selective and challenging investment landscape. According to Partech's 2024 Africa Tech Report, tech start-ups across the continent secured 3.2 billion dollars in gross funding in 2024, a seven percent drop year-on-year (YoY). The number of investors participating in deals within the African tech ecosystem was flattish YoY at 583 unique equity investors in 2024.

While this demonstrates a resilient base of support for the ecosystem, it pales compared to 2022, when over 1,100 investors participated. However, encouraging signs suggest a cautiously optimistic outlook for funding in 2025.

While a dramatic rebound may not be on the horizon, stabilisation — or even a modest recovery — appears within reach. This sentiment is buoyed by the gradual easing of global interest rates seen through 2024, enabling a renewed appetite for risk among investors. With capital increasingly drawn to high-growth opportunities, Africa's tech ecosystem is well-positioned to capture renewed interest, though this optimism is tempered by the potential for an uptick in inflation and interest rates, a stronger dollar and its resultant implications for emerging and frontier markets.

The merger and acquisition (M&A) landscape is also poised for greater dynamism. While many tech companies will remain focused on driving organic growth, the sharp decline in valuations across the broader tech ecosystem presents fertile ground for increased deal-making. Notably, much of this activity is expected to be driven by tech companies themselves, capitalising on favourable market conditions to consolidate and fortify their competitive positions.

Three key areas are set to command attention across the continent this year: the merchant acquiring space, instant payment systems (IPS), and mergers and acquisitions.

Several trends are aligning to bolster the growth of the merchant-acquiring sector on the continent. Digital penetration and usage are increasing steadily, driven by a young, tech-savvy population with rising demand for seamless payment solutions.

The fintech industry is rapidly evolving to meet these demands, introducing innovative tools and services that enhance payment accessibility in an omnichannel way. Additionally, collaborative efforts between regulators and financial institutions create an enabling environment that prioritises financial inclusion, further strengthening the ecosystem and unlocking new opportunities for merchants to integrate into the digital economy.

The evolution of IPS across key African markets is another critical area to watch.

According to AfricaNenda, in 2023, IPS platforms on the continent processed a record-breaking 49 billion transactions. The total value transacted surged to over one trillion dollars that year, marking an impressive average annual growth rate of 39pc since 2019.

Central banks are increasingly taking proactive measures to expand the reach and inclusivity of these payment systems. In South Africa, for example, the Reserve Bank has been working to integrate non-banks into the national clearing and settlement system, a move designed to enhance financial inclusion for the unbanked and underbanked. As trust in these systems grows, it sets the stage for transformative models, such as open banking, enabling non-traditional players to integrate financial services into their platforms seamlessly. This democratises access to financial tools and accelerates the pace of financial inclusion and economic participation across the continent.

The market will be closely watching for potential M&A activity led by tech firms. Stronger and well-funded players will evaluate strategic acquisitions to strengthen their positions and take advantage of the pullback in valuations. Others will be watching to see whether leading mobile money providers, banks, or card schemes will embark on acquisitions and, if so, in which markets and segments these deals might materialise.

Such activity could signal a push to consolidate fragmented markets, expand into underserved regions or product lines, or integrate complementary services like digital lending, remittances or insurance. The outcomes of these moves will have important implications, shaping competitive dynamics and influencing the trajectory of financial inclusion on the continent.

These shifts come as Africa's tech ecosystem enters a new phase. Unlike the previous era, this next chapter will not be defined by the pursuit of unicorn status. The ecosystem needs successful businesses that address real-world challenges and deliver scalable and impactful solutions. The size of these companies is secondary to the significance of the problems they solve and the tangible value they create.

In this environment, investors will likely gravitate toward businesses led by capable entrepreneurs tackling pressing issues with clarity and innovation. Capital will naturally follow these ventures, reflecting their potential for meaningful impact. The current challenging market climate has served as a stress test for many companies, leaving behind those better equipped to navigate Africa's unique complexities. What emerges is likely to be a cohort of stronger, more resilient businesses, armed not only with the resources to grow but also with a sharper understanding of the strategic imperatives for sustained success in the region.

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PUBLISHED ON Feb 16, 2025 [ VOL 25 , NO 1294]

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