Nadia Kouassi is the Head of Research, at the African Private Equity and Venture Capital Association (AVCA).
In this interview with Nairametrics, she identified some key challenges Nigeria and other African countries face on Venture Capital and other issues affecting the economy.
Nairametrics: How do you assess the state of venture capital in Nigeria?
Nadia Kouassi: Home to Africa’s largest population and consumer class, Nigeria has been positioning itself as a hub for Venture Capital (VC) activity not just regionally, but cross-continentally.
When categorised from a country-specific level, Nigeria currently leads the Big 4 and is the most active country in both West Africa and the wider continent.
Nigeria has occupied the top spot by both venture capital deal volume and value in Africa since 2021.
More recently, US$929 million went to startups headquartered in Nigeria between 2022-2023 H1, across a total of 228 deals. This corresponds to 22% of the total volume and 13% of the total value of venture capital deals in Africa during this period.
The engine for Nigeria’s rapid escalation to the top spot in Africa’s startup ecosystem lies largely in FinTech. Deals in the financial sector dominate Nigeria’s investment history, accounting for 43% of deal volume in the country between 2017 and 2022 H1, followed by Industrials at 12% (driven by deals in Transportation) and Consumer Discretionary (11%).
Nigeria has also produced four of Africa’s seven unicorns – namely Interswitch, Flutterwave, Opay, and Andela.
Nairametrics: What are the challenges Nigeria and other African countries face in Venture Capital?
Nadia Kouassi: Venture Capital is faced with various challenges such as the following:
Challenges for Venture Capital Fund Managers:
Fundraising: The global macroeconomic downturn has created a competitive and challenging fundraising landscape for venture capital fund managers, amplified by diminished distributions from Limited Partners (LPs), a subdued exit environment, and declines in tech activity, stock prices, and valuations.
Inflation and Currency Volatility: As with several other African currencies, the Nigerian Naira has lost significant ground against the US dollar in 2023.
The Naira’s freefall reached a record new low earlier this month according to Reuters, at N999 per dollar.
The exchange rate volatility has made it difficult for venture capital fund managers to assess and manage currency risk exposure and brought about lower portfolio valuations and financial returns for exited investments.
Challenges from the Entrepreneurial Perspective:
Limited Access to Capital: As venture capital investors adopt a more insular and judicious approach to capital deployment, African entrepreneurs are finding it more challenging to raise funding.
Entrepreneurs that do manage to successfully raise venture capital, are also facing protracted due-diligence processes as investors take more time to evaluate deal opportunities and focus on companies with demonstrable potential for growth and profitability.
Inflation and Currency Volatility: Inflation erodes the purchasing power of capital and has created challenges related to increased operational costs for startups, limiting their profitability and growth potential.
For startups that generate revenue from exports, volatile exchange rates also pose a challenge as weaker domestic currencies can make their products more expensive for overseas customers.
Nairametrics: How do you think the force of technology and African Intelligence in sustainable development will address growth in emerging economies?
Nadia Kouassi: In an age of boundless innovation, the marriage of technology and sustainable investing is shaping the future of sustainable development in emerging economies.
The transformative potential of technology as a tool in sustainable development across multiple sectors can be summarised as follows:
Agriculture: With tools such as predictive analysis, drones, and smart irrigation, farmers in emerging economies can increase yield, reduce waste, and optimize the use of resources.
This is of particular importance to Africa, given agriculture’s centrality to the continent’s economic activity.
The agriculture sector accounts for 15% of Africa’s GDP, rising to 23% when localised to sub-Saharan Africa1.
Financial Inclusion: Fintech and AI-driven solutions can bridge the gap for those who lack access to traditional banking services, which in Africa stands at over 40% of the population.
Mobile banking, micro-financing, and AI-driven credit risk assessments can be leveraged to drive economic growth in Africa and catalyse entrepreneurial activities for individuals and small businesses.
- Education: Africa has seen a proliferation of startups offering practical yet innovative solutions to facilitate learning and raise funding in recent years.
These range from e-learning and edutainment platforms to startups developing school management software, and founders leveraging chatbox platforms to enable cheaper, offline access to learning materials.
There are now over 150 active EdTech startups across 25 African countries using technology and AI to democratise access to quality education in areas with limited physical infrastructure or resources.
Healthcare: Technological advancements have the potential to reshape the landscape of regions that are underserved by traditional healthcare infrastructure in emerging economies.
In Africa, telemedicine, mobile health services, AI-powered diagnostic tools, and predictive healthcare analytics are not only being used to improve health outcomes but also to reduce healthcare costs and improve overall productivity.
Renewable Energy: Technology is underpinning the economic viability of renewable energy production in emerging economies and making it cost-competitive to conventional fossil fuels.
Demonstratively, solar electricity costs fell by 82% between 2010 and 2019, while electricity generation costs from wind projects saw a contraction of 50-60% in the same period.
AI can also be used to optimise energy grids, predict maintenance, and improve energy storage solutions.
Nairametrics: COP 27 was named Africa’s COP after spotlighting. How is the climate crisis affecting the continent and Nigeria in particular?
Nadia Kouassi: The climate crisis is indeed affecting the continent and Nigeria in particular in various ways such as:
Climate Change and its Impact in Africa:
For many countries around the world, climate change will negatively impact their food and water security, population health, as well as wider ecological systems.
Developing countries are expected to bear the brunt of the effects of climate change.
Out of the 20 countries worldwide that are the most vulnerable to climate change, 16 of them are in Africa.
Africa is at the frontline of the global climate emergency and is highly exposed to climate shocks which are affecting millions of people, with about 86 million people in Africa being displaced over the next three decades due to climate change.
Climate-induced incidents could cause other knock-on effects such as decreased agricultural output, reduction in land available for livestock rearing, loss of biodiversity, reduced water resource availability, and decreased structural integrity of infrastructure and buildings.
Climate Change and its Impact in Nigeria:
In Nigeria specifically, the climate crisis is unfolding in the following ways:
Variable Rainfall and Flooding: Heightened durations and intensities of rainfall have caused large runoffs and flooding in Southern Nigeria.
According to the Nigeria Hydrological Services Agency, 178 local government areas in 32 of Nigeria’s 36 states fall within highly probable flood risk areas.
Given this geographic vulnerability and the fact that flooding claimed the lives of over 600 people and displaced a further 2.5 million in 2022 alone, flood risk is one of the most salient climate impacts Nigeria faces.
Drought and Desertification: On the opposite end of the spectrum, drought and desertification are threatening parts of Northern Nigeria.
Extensive cultivation and overgrazing have been compounded by desertification and higher temperatures, rendering unproductive large tracts of land in the region. This has an impact on food security in Nigeria, due to lower agricultural productivity and crop yields.
Sea Level Rise: Coastal regions of Africa, like Nigeria’s former capital, Lagos, face threats from rising sea levels, which can lead to displacement of populations, loss of arable land, and increased flooding.
Nairametrics: What has been your level of commitment to remain at raising awareness confronting the Private Capital ecosystem?
Nadia Kouassi: The African Private Capital Association (AVCA) is the pan-African industry body that promotes and enables private investment in Africa.
AVCA plays a significant role as a champion for the continent’s Private Equity (PE) and Venture Capital (VC) industries, serving as a conduit for industry stakeholders currently engaged or interested in private investment in Africa.
AVCA operates across four key verticals: Research, Training, Networking, and Advocacy: educating, equipping, and connecting members and stakeholders with independent industry research, best practice training programmes, and networking opportunities for knowledge exchange and capacity building.
Most recently, in October 2023 AVCA hosted a series of events in Lagos, convening the private capital ecosystem in West Africa.
This included an LP Private Capital Funds Masterclass to provide a common understanding of approaches, terminologies, strategies, roles, and expected outcomes for successful private capital fund investments, and a closed-door LP Only Breakfast Roundtable convening global LPs and African institutional investors in West Africa to dialogue and knowledge share around allocating to private capital in Africa.
The preceding illustrates AVCA’s commitment to remaining at the forefront of unlocking private capital’s transformative potential to build a prosperous Africa.
