The growth potential of the digital economy in Africa is enormous compared to other regions of the world. On the continent, the Internet penetration rate is only 33% and that of broadband mobile telephony is limited to 41%.
The size of Africa’s digital economy is set to increase six-fold by 2050, to $712 billion from the current $115 billion, the international network of high-impact entrepreneurs Endeavor estimated in a report published on 9 June 2022.
Entitled “The Inflection Point: Africa’s Digital Economy Is About to Take Off”, the report states that the continent represents “the next frontier of growth” for the digital economy.
Boosted by the Covid-19 pandemic in recent years, the growth of the digital economy in Africa is essentially based on three factors: the rising penetration of digital tools among populations, galloping urbanization, the rise in consumer spending and the strong economic growth.
By 2030, consumer spending is expected to reach $2.5 trillion on the continent. In 2025, one in six Internet users worldwide will be in Africa, while 33% of new mobile phone subscriptions will come from sub-Saharan Africa.
A significant impact on African economies
Endeavor also believes that the growth potential of the digital economy in Africa remains very high compared to other regions of the world. Especially since the room for improvement is enormous. Only 33% of Africans use the Internet against a global average of 63%, while mobile broadband penetration is only 41% in Africa against a global average of 83%.
On the other hand, the digital opportunity is currently concentrated in four countries on the continent. Nigeria, South Africa, Egypt and Kenya. These countries account for 51% of all mobile phone subscriptions on the continent, 50% of software developers and 73% of start-up accelerators.
Despite the differences between various countries, the growth of the digital economy is expected to have a significant impact on African economies. GDP per capita is expected to increase by 2.5% for every 10% increase in mobile phone penetration, and by 1.9% for every 10% increase in digitization (conversion of information to digital media ).
44 million jobs could also be created if the Internet penetration rate in Africa reaches 75%, and 3 million jobs will be created by marketplaces by 2025.
Growing opportunities for investors
The digital economy is already attracting considerable funding in Africa. Investments in start-ups operating on the continent increased 18 times between 2015 and 2021. Between 2020 and 2021, these investments increased twice as fast as the global average.
The increase in the number of mega-rounds (over $50 million), liquidity and unicorn events is further increasing investors’ sense of excitement about digital opportunities on the continent.
Since 2011, there have been 7 liquidity events over $50 million and over 20 mega-rounds over $50 million. Furthermore, Africa has produced 11 unicorns in the past six years, including Jumia, Interswitch, Opay and Flutterwave, while the time it takes for an African start-up to become a unicorn is rapidly shrinking.
In the coming years, opportunities will exist in both pre-seed, seed and early stage as well as scale-up and exit. Endeavor notes, however, that “white space” remains important. Due to the large number of transactions in the $0.2-5 million range recorded in 2021 (600 fundraisings) compared to the USD 5-50 million range (150 fundraisings), it is likely that there will be there will be a shortage in the supply of financing when companies that have raised between 1 and 5 million will need additional capital to develop further. To fill this gap, investors will need to consider adjusting the size of their tickets
In this context, the authors of the report recommend that international investors seeking to support the development of African tech nuggets to learn more about the continent’s markets, by collaborating with local incubators and accelerators.