What’s driving investor appetite for African start-ups?

African startups have been defying the odds, thriving amidst the challenges posed by the global pandemic. With multi-million dollar mergers and acquisitions becoming increasingly common, the question arises: will this upward trend continue in the coming year? To delve deeper into this topic, CNBC Africa sat down with Victor Otieno, the Managing Director at Viffa Consult. Otieno highlighted the sectors that have shown resilience and growth, pointing to Fintech, AgriTech, EdTech, Health, and Transport and Logistics as key areas that continue to attract funding and investor interest. The Managing Director emphasized the importance of sector-specific trends, noting that while some industries have experienced a slowdown, others are rapidly gaining momentum. Reports from organizations like Africa Equity and Venture Capital Association indicate a sustained interest in Fintech, renewable energy, climate-focused startups, health innovations, and educational technology. These sectors not only demonstrate resilience to external shocks but also present promising opportunities for investors seeking high returns with minimal risks. When discussing the readiness of African startups for investment, Otieno acknowledged that the ecosystem is still in a nascent stage. Many startups are in the early phases of testing their business models, which can hinder rapid growth and scalability. However, he expressed optimism about the continent's potential to foster a critical mass of successful startups that can attract significant investments and drive socio-economic development. One of the key challenges facing African startups is the slow pace of expansion and scaling. Otieno attributed this issue to various factors, including low levels of intra-Africa trade, which currently stand at around 20%. The lack of seamless trade mechanisms, labour mobility restrictions, and suboptimal business environments across different countries act as barriers to rapid expansion for startups seeking to scale their operations beyond national borders. Regarding the trend of African startups looking outside the continent for expansion opportunities, particularly to regions like Canada, Otieno explained that this often stems from the complexities and barriers associated with intra-Africa trade. He noted that until trade and non-trade barriers are addressed, many startups may opt to explore markets outside Africa. However, he expressed optimism that the ongoing efforts to implement the African Continental Free Trade Area (AfCFTA) could pave the way for increased intra-Africa trade and smoother business interactions across the continent. Otieno highlighted the vast opportunities presented by AfCFTA for startups, SMEs, and entrepreneurs. By leveraging the trade agreement, African startups can access diverse markets, enhance their competitiveness, and participate in policy dialogues at a global level. He emphasized the importance of startup aggregation and advocacy through associations to influence policy decisions and address trade barriers that hinder cross-border business activities. As Africa continues to embrace its burgeoning startup ecosystem, the role of investors, policymakers, and entrepreneurs in fostering innovation, scalability, and sustainability remains crucial. With the right support systems in place, African startups have the potential to not only attract significant investments but also drive economic growth and promote intra-continental trade.