The buzz of fintech funding activities in Lagos, Nairobi and Johannesburg can sometimes restrict our imagination of the scope of African tech ecosystems.
But over the past year, we have seen the strong emergence of North Africa on the landscape, somewhat buoyed by organisations like the International Finance Corporation (IFC).
The IFC has announced that, through a new independent private equity fund, it will invest up to $20 million in companies in the Middle East and North Africa (MENA) region. Of particular interest are Egypt, Morocco and Tunisia, three countries with a combined population of about 150 million.
SPE Capital, an Africa-based private equity firm, will manage the fund for the IFC.
The goal of the $20 million fund is to “to help small and mid-cap companies in the region improve their access to institutional capital and boost growth,” the IFC said.
Private equity has become a significant source for funding innovation around the world. However, the penetration rate of private equity in North Africa is 0.02 percent compared to 0.11 percent in emerging markets, according to data by the Emerging Markets Private Equity Association.
Between 2014 and 2019, the total value of African PE fundraising was $18.7 billion while $25.3 billion was reported in total value of deals closed, according to the African Private Equity and Venture Capital Association. North Africa’s share of the PE deals by volume was 17% compared to West Africa’s 24%. South Africa alone accounted for 17% of deal volumes.
Over the five year period, 183 deals valued at $3.6 billion occurred in North Africa. Within the region, Egypt received 47% and 42% of deals by volume and value respectively, with Morocco and Tunisia taking the second and third place.
At $8 million, the median value of deals in North Africa compares well with other regions but the total number of deals is lower than West Africa’s 274 deals, Southern Africa’s 311 deals, and East Africa’s 184 deals.
On tech specifically, funding for African companies tends to focus on the sub-Saharan region. Nigeria, South Africa and Kenya are usually top dogs as shown by data on funding activity in the last quarter and in 2019.
With the IFC’s SPE-managed fund, the expectation is that private equity funds will start paying more attention to the opportunities available in North Africa’s small business environment, including tech startups.
One of the best known startups in the region is Swvl, a leading player in Africa’s newly found appetite for using digital technology to make mobility and transportation easier.
In 2019, Swvl raised $42 million in a follow-up Series B round in which investors from Sweden, the US, Dubai, China, Oman, Kuwait and Egypt participated. It remains the largest funding round of any Egyptian startup, a noteworthy development considering the dominance of fintech in fundraising.
Beyond mobility, North Africa is booming with tech activity in other sectors. In February, Vezeeta closed a $40 million Series D to expand its digital healthcare platform.
Eventtus, an event management company planning on launching a digital virtual events platform, announced the close of an undisclosed amount of funding this month.
The creation of institutional frameworks like the startup act in Tunisia has also laid the groundwork to inspire investors confidence. A wave of political revolutions in the early 2010s known as Arab Spring caused destabilization in North Africa, making it rather unattractive to investors.
The region’s long-term outlook requires greater stability and better security to enable deeper structural reforms, trigger greater investment and ramp up productivity. But while waiting for macroeconomic conditions to stabilize, institutional investors like the IFC have thrown financial weight behind the region.
One of the IFC’s first investments in North Africa was a $6 million financing of Fawry, a fintech that produces electronic payment machines. That was in 2013.
Two years later, the IFC invested $10 million into a fund by Wamda Capital targeting tech startups in MENA. That fund focused on providing seed funding to emerging IT firms especially in Egypt, Lebanon, and Jordan.
The SPE fund’s most recent predecessor is a $15 million fund managed by BECO Capital, a Dubai-based firm, set up n 2018. That fund went into supporting startups like Vezeeta.
Of course, the IFC has invested in other parts of the continent, having most recently participated in the $15 million Series A by biotech company 54Gene. Other portfolio companies include Kobo360, Interswitch, as well as Lulalend, Net 1 and Zoona from South Africa.
The $20 million fund for North Africa is a continuation of the IFC’s strategy to partner with fund managers in key regions to help spur innovation and growth in entrepreneurship ecosystems. You can expect more funding announcements coming out of North Africa in the coming months.