From regulatory ripples to cyberattacks: A reflection on Africa’s tech ecosystem in Q2 2023

Image source: Telecom Review Africa

In Q1 2023, Artificial Intelligence took centre stage globally and particularly in Africa, as the sector yielded Africa’s biggest acquisition of all time in a mega deal worth $682 million. However, the second quarter of 2023 took a different turn, according to research findings by TechCabal Insights. Venture funding grew a little higher than the previous quarter with energy startups dislodging fintechs. Several African governments also began to pay attention to regulatory activities that dominate the tech space, with Nigeria and Kenya at the forefront.

In Q2 2023, venture funding increased from US$ 857 million in Q1 to US$916.4 million in Q2, nearly crossing US$1 billion and totalling a 6.9% increase from the last quarter. This was driven by two mega deals: M-Kopa securing $255 million in a debt-and-equity financing round and SunKing’s $130 million securitisation deal in May 2023.

Although there was a decline in the number of funding deals compared to the last and corresponding quarter, we have seen a trend of quality investments and deals as well as growth from startups in East Africa as Kenya jumped to the top in terms of funding position to secure an impressive $462.4 million, with Nigeria following distantly at $149.3 million.

“The downsizing of deals is important to building a more mature and structured ecosystem for Africa. Startups have become more margin-conscious and pay attention to the fact that investors now prioritise scalability, unit economics, and capacity,” said Leslie Ossete, co-founder and COO at Mstudio at the launch of The State of Tech Report Q2 2023 on Friday, August 4, 2023.

One of the most noteworthy trends in Q2 2023 was the shift in the venture funding landscape, as fintech startups no longer receive the largest chunk of investment. Instead, energy-focused startups took the lead, securing an impressive $486.9 million to represent 53% of the total funding in the quarter. This implies that while innovation around payment or digital financial services remains attractive on the continent, Africa’s energy needs are beginning to gain investor attention, considering the gap in energy consumption across the continent.

While there has been a general increase in the environmental and climate consciousness globally, we have also seen an increase in regulatory policies which has served as a major driver for investment and innovations in the cleantech and energy sector. For example, Nigeria signed an electricity bill in 2023 that provides a framework for the generation, transmission, and distribution of electricity. The bill also provides incentives for private investors to create a viable market that would drive investment, improve electricity access, and foster economic growth. Like Victoria Oloni, an associate at Templars said: “If a sector is going to experience a boom, it starts with regulatory policies that make it attractive for investment to come into the space.”

The surge in digital financial services adoption across Africa has brought about an increase in cyber fraud risks. For instance, MTN’s mobile money service sued 18 Nigerian banks after a $53.7 million loss to mobile money fraud. Union54, a Zambian fintech, paused operations due to an attempted $1.2 billion chargeback. We also witnessed other cyber fraud activities with financial institutions like Flutterwave, Heritage Bank, Globus Bank, and even one of Africa’s biggest streaming platforms- Showmax.

These incidents highlight the pressing need for enhanced cybersecurity to protect user information and financial assets amidst Africa’s expanding digital finance landscape. Emeka Ajene, founder at Afridigest advised: “It is important for startups to start thinking around optimising their products against cyber fraud early rather than later.”

Although the year began with a lot of scepticism about funding in Africa’s startup ecosystem, the performance so far has sharply contrasted it. With each passing quarter, the African tech ecosystem evolves and adapts, continually pushing boundaries and redefining what is possible despite various challenges. By ensuring more stakeholder engagement and collaboration on the implementation of policies, we will begin to see unparalleled growth across Africa’s diverse tech ecosystem.

To get valuable insights into the state of tech in Africa in Q2 2023, download the report here.