Emerging and Growth Markets | April 27, 2022

Energy access and financial inclusion ride Africa’s swell of private capital

Jessica Pothering
ImpactAlpha Editor

Jessica Pothering

ImpactAlpha, April 27 – The bad news: The COVID-19 pandemic reversed progress in Africa toward Sustainable Development Goals. The good news: Much of the renewed surge of private capital flowing to the continent has an impact flavor, through investments in small-business finance, renewable energy infrastructure and women.

Impact investors have been behind the surge in funding for startups like Kenya’s Wasoko and Nigeria’s TradeDepot that are spurring the digitalization of informal businesses, which are overwhelmingly run by women. Overall, more than 600 African startups raised $5.2 billion in venture capital in 2021—as much as 2016-2020 combined – and impact investors were behind more than 40% of the deals.

It will take trillions, not billions, to achieve the SDGs, and that means private capital, says the African Venture Capital Association, which is convening at “Private Capital in Africa at a Crossroads,” this week in Dakar, Senegal.

Bounce back

AVCA’s private capital activity report rounds up the regional trends. Fundraising for Africa’s private capital funds jumped four-fold in 2021, after pandemic shutdowns meant raises totaled just $1.1 billion in 2020. Fund targeting specific sectors like renewable energy, agribusiness, the food value chain and technology claimed 60% of the total capital.

Where fundraising was tough: local venture capital funds (which raised only $100 million), private debt funds and generalist funds. Impact fund of funds Oryx Impact dug into the data around 200 funds measuring their progress around specific impact goals. More than 40% were first-time fund managers, “pointing to a young and vibrant ecosystem,” writes Oryx’s Ewa Abel in a guest post on ImpactAlpha

Energy infrastructure

The Covid pandemic reversed years of steady progress in reaching universal access to electricity and clean cooking. Coming out of the pandemic, infrastructure investment funds that primarily target renewables raised $2 billion, or 45% of the $4.4 billion raised by private capital funds in Africa.

“This upward trend in infrastructure investing is a positive sign for the continent,” the AVCA authors report.

Renewable energy projects also accounted for roughly 14% of the $7.4 billion in private capital invested in Africa last year, as deal activity bounced back from the pandemic.

It’s only a start: Africa’s infrastructure deficit is about $100 billion per year. 

Hot for fintech

Financial services ventures raised almost 40% of Africa-bound private capital in 2021. Most fintech investment capital is going to companies supporting financial inclusion.

The biggest deals of 2021 included $400 million for Nigerian mobile money service OPay and $250 million for cross-border payments company Chipper Cash.

More progress could be made in backing female founders. Women-led or co-led startups raised just $150 million of all African VC funding last year.