Startup funding in "French Africa"

A Certain Venture Funding Apathy Has Francophone Africa In Dire Straits

By  |  December 29, 2020

The tech startup ecosystem in Africa is one that has, without a doubt, grown tremendously over the years. This growth can be tied to the increasing inflow of venture capital (VC) to Africa.

Hence, it can be said that venture investments, both locally-sourced and foreign-sourced, have been of great significance to the growth of the African startup scene in the last decade.

However, it appears that some specific regions have reaped more from this influx of investment than others.

It’s not much of a secret that Francophone nations on the African continent have been somewhat sidelined when it comes to venture investments. These French-speaking countries are seen to be way behind their counterpart Anglophone countries in the startup investment map.

A well-known fact is that Africa’s startup investment destinations are dominated by English-speaking countries like Kenya, Nigeria, South Africa, etc. These countries attract the bulk of the venture funding seeping into Africa, with their French-speaking counterparts taking the back seat.

For instance, last year alone, Nigeria and Kenya, which are two of the top Anglophone tech ecosystems in Africa, attracted more than 80 percent of the venture capital invested across the continent.

Indeed, WeeTracker’s 2019 funding report revealed that more than 75 percent of the deals were concentrated in Nigeria, Kenya & South Africa.

However, what’s even more unsettling between these two extremes is the huge funding and investment gap found. Yes, it is known that one end receives more funding than the other, but to what extent? Well, it’s actually a wide gap.

The data from Partech Partner’s 2018 report on startup funding in Africa disclosed that only 1 percent of its reported USD 1.16 Bn raised by African tech startups was allocated to ventures in Francophone Africa. This reveals how small the share of venture investment is in those parts.

Many other reports, just like the above, have documented this same worrying trend. It then appears that most of the time, Francophone markets are generally left fighting for crumbs with respect to startup investments in Africa, despite the fact that that demographic host some of the world’s fastest-growing economies.

It’s quite ironic that these same French-speaking countries have been spotted as countries with the highest growth rate in Africa.

In the World Bank’s World Economic Outlook report, the economic growth rate of French-speaking African countries between the year 2012 and 2018 was pegged at 4.9 percent, in comparison with 2.9 percent for the rest of the continent.

This metric shows greater growth potential for these French-speaking countries. But it appears that this growth hasn’t translated to increased venture funding in the region. And so this brings up the “what’s wrong?” question.

The missing pieces

There is no one-size-fits-all reason for the low startup investments recorded in Africa’s French-speaking countries. However, a pool of many likely reasons can keep one a step ahead for the answers sought.

One of these reasons would be the comparatively small population size of these Francophone countries. On introspection, it is seen that the population of the 14 CFA countries added together is slightly lesser than the population of Africa’s biggest country, Nigeria.

This small population size is reflected in the economic size of these countries. Their small population produces a small economic output. And a small economy isn’t exactly a green light for investment, especially for ventures whose growth highly depends on numbers that are tied to scalability.

Insights from the Francophone countries in West Africa alone in comparison to a single Anglophone country in the same region depicts the “small economy” battle they are up against.

In 2016, the Nigerian economy was worth USD 405 Bn, despite the harsh recession at the time. That same year, the Francophone ECOWAS markets (which exclude Ghana and Nigeria), only amounted to USD 120 Bn combined. This amount represents less than 30 percent of the size of the Nigerian economy.

This small population and economic size have therefore placed a strain and have been a huge setback for investment in these countries. It is not strange that a region with a relatively smaller market size would be less prioritized than that with a bigger market size in the selection of an investment destination.

While the “small market size” is worth considering while explaining the paucity of venture investments in Africa’s French-speaking nations, could that be all there is to it? Certainly not.

There’s also the issue of language disparity between both distinct regions. It is important to know that most of the investments in the African tech scene are from English-dominated foreign countries.

In fact, the United States of America, which is primarily English-speaking, is home to many of the big venture capital firms in the world, some of which taken quite an interest in the African market. US-based VCs make up the biggest source of funding for African startups.

The language barrier is a troubling downside and disadvantage to startups in these French-speaking countries, as it basically creates a void between them and important investment sources.

This language barrier, more likely than not, would have played a role in the setback on equity investments in the French-speaking countries in Africa.

If unclear, then think about this: Whose funding application to English-speaking investors is more likely to pull through? That from a person whose primary language is English, or from the person whose primary language is French?

Another valid cause of low startup Investment is the stifling business environment in French-speaking countries.

The World Bank’s Ease of Doing Business ranking reveals the difficulty of doing business in these countries. In this ranking, the 17 OHADA member countries, which are all French-speaking countries, occupied the bottom of the World Bank’s Doing Business report.

OHADA is the acronym for the French “Organisation pour l’harmonisation en Afrique du droit des affaires,” known in English as the French “Organisation for the Harmonisation of Corporate Law in Africa.”

The World’s Bank’s Ease of Doing Business ranking has OHADA countries occupying from 97th place (Togo) to 184th place (Central African Republic). Their English-speaking counterparts are ranked higher.

A country with a tough business environment is a huge turnoff to potential investors and this could also be a thing that has played out against these French-speaking African countries in the area of venture capital inflows.

A glimmer of hope?

Starting from 2018, there has been a surge in the rise of local angel investors focused on these French-speaking countries. These local investors are filling the gaps, though slowly. Angels saving the day, yes?

In 2019, the Dakar Network Angels (DNA) group was launched. The mission of Dakar Network Angels is to pull experts and capital together for startups in French-speaking countries and hence bridge the resource gap these countries have faced.

Other angel groups similar to DNA have arisen in several francophone countries likewise.

In the same 2019, World Bank launched its novel “l’Afrique Excelle”. L’Afrique Excelle. It was established to address the gaps in accelerator and funding programs for Francophone African entrepreneurs.

The accelerator program was geared towards investment-readiness and was designed to support the expansion of 20 startups from Francophone countries in Africa.

In its first cohort, 18 of the selected 20 startups were from French-speaking countries. A total amount of approximately USD 10 Mn was raised for these startups.

It’s not entirely doom for these countries, it appears. With more efforts out in place for these countries, there are glimmers of hope that the record books would reveal better results in the nearest future.

Featured Image Courtesy: LSE

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