The Most Valuable ‘White Spaces’ Today in African Investing

Image

By Victor Basta

In the vast and diverse landscape of African growth investing, more opportunities abound today than ever before. Africa’s recent growth surge has created a large group of companies already scaling successfully, while the current market environment has reduced the capital available. This untapped potential between high-quality investment “demand” and reduced capital “supply” extends to various commercial sectors, including logistics, HR, and insurance, all presenting significant high-value “white spaces” waiting to be filled. For those looking to invest in Africa, especially in high-growth, digitally-driven companies, these markets offer immense potential.

African Investment In Developed Digital Sectors

Africa’s digital sectors are leading the way in terms of economic viability on the continent. These sectors encompass fintech, tech-enabled commerce (such as logistics, supply chain, mobility, digital health, and education), and renewable energy. These industries revolve around key themes like financial inclusion, climate change mitigation, and poverty alleviation.

With low manufacturing capabilities, high youth unemployment rates, poor-quality health care, and inadequate infrastructure, Africa’s sustained growth now depends on its digital economy. Crucially, the continent has historically exhibited a remarkable ability to “leapfrog,” for example by embracing a mobile-first approach and swiftly adopting digitally managed renewable energy. This digital-first mindset, often born out of necessity, has made these sectors essential employers, providing opportunities for the millions of Africans entering the job market annually.

A Growing Investment Landscape

In recent years, investment in African start-ups has surged, exceeding $5 billion in 2021. However, this figure has dipped sharply due to global macroeconomic issues and specific African challenges. Despite this growth, two significant “white spaces” continue to exist in the African investment landscape.

The first gap is in the range of $10-25 million scale-up funding rounds. The second is the lack of customised, structured non-equity financing to support company growth. Notably, because the vast majority of African investments are impact or mission-driven, focusing on positive social and economic change, this provides a natural path to overlay specific investors’ objectives, such as gender-lens investing, climate positivity, or financial inclusion.

The $10-25 Million Funding Gap

In the chart below, based on proprietary research, we can see the number of investors active in Africa categorised by the size of their investments. On the left are the traditional African start-up investors, usually committing less than $5 million. To the right are investors, including international or regional players, whose criteria demand larger investments, usually exceeding $20 million. This gap between $5-20 million is where relatively few investors are actively engaged, creating a significant opportunity for future investments.

White Spaces in African Investing Victor Basta

There is a yawning gap:

Several forward-thinking funds have recognised this gap and are adapting to address it. Investors like NorrskenPartech, and TLCom have or will naturally raise larger funds to support these companies’ growth. Simultaneously, the number of quality African companies qualifying for such funding is on the rise, leading to increased demand that will outstrip the capital supply for many years. This persistence in the funding gap presents a compelling investment opportunity.

Structured Financings in Africa

Non-equity capital is still in its early stages of development in Africa. Typically, local currency debt is primarily offered by banks, but these institutions are known for being burdensome, expensive, and reluctant to support companies looking to invest in growth, which naturally reduces profitability in the short term. Moreover, their financial products tend to be relatively basic and are usually accessible only to larger, well-established businesses at the top of the economic hierarchy.

Dollar-denominated debt, on the other hand, is available in various forms, with a significant portion originating from Development Finance Institutions (DFIs) or similar organisations. However, the innovative financial structures and speed of execution required in Africa are often lacking from these sources.

This issue is compounded by the fact that many African companies, particularly those aiming for growth, rely at least in part on selling money in some form to generate profits in their operations. This can take the form of financing productive assets like motorcycles, mobile phones, solar pumps, or even embedded finance such as providing financing to retailers for weekly stock replenishment, funding agricultural inputs with guaranteed off-take, or supporting the deployment of POS terminals for agent banking. We estimate that over 70% of African scale-up businesses generate income through these “money resale” activities.

This dependence on money resale for income makes it financially impractical to rely solely on equity financing. Equity returns are typically around 30% annually, while financing margins, especially for commercial financing, are usually much lower. Consequently, companies cannot afford to “burn” capital in this way to simply fuel growth.

Examples of this kind of capital are diverse. They include payments companies seeking up to $10m to support the purchase and distribution of POS terminals to contracted merchants, providers of renewable power products looking to transfer an initial $20 million+ of dollar-indexed receivables generated from three markets to an off-balance sheet Special Purpose Vehicle (SPV), with the potential to expand to $40-50 million to enhance liquidity, and even large companies looking to finance a second year of market entry through a mix of debt and equity, since banks typically require 2-3 years of evidence before lending the first $, even if a client has $100m+ of revenue already.

This structured finance gap is often filled by DFIs, which, while invaluable to the African ecosystem, may not be an ideal fit for most growing companies. They tend to be cumbersome, and inflexible, demand extensive reporting, and have less tolerance for the dynamic evolution of growing businesses. Although some flexibility has been introduced in recent years, the need for structured finance remains unmet across the continent, necessitating earlier risk-taking and a faster response time than current providers can offer.

Victor Basta is the CEO of DAI Magister

Share
Related Stories
Image
01-February-2024

Triple Win: How Africa’s Industrials Can Decarbonise, Lower Energy Costs and Increase Reliability at the Same Time

By Ella Teperi In African countries, particularly those with a well-developed industrial sector, a significant portion of energy production may come from the industry’s power plants. This is especially true in countries where the reliability of the grid is low, and industries rely on self-generated power to ensure a stable energy supply. In this article, we are offering insights into our approach to supporting energy-intensive industries to optimise the use of renewable energy and reach their decarbonisation objectives. In Africa, just like anywhere else, energy-intensive businesses are under great pressure to decrease CO2 emissions as they continue to compete in

Image
28-February-2024

Zero Routine Gas Flares and Delta Communities

By Jerome-Mario Utomi It is common knowledge that in pursuit of meeting the targets of 20 per cent (unconditional) and 47 per cent (conditional) greenhouse gas emission reduction as contained in the Nationally Determined Contribution under the Paris Accord reportedly signed by the President Bola Tinubu administration, the Nigerian National Petroleum Company Limited/TotalEnergies joint venture recently achieved zero routine gas flare in all its assets. While it is obvious that “the significance of this achievement is that the last routine flare volume of about 12MMscf/d (12 million standard cubic feet per day) of gas has now been eliminated giving rise

Image
06-February-2024

Creating Jobs and Developing Skills is Vital to Sustaining Livelihoods of Communities

By Kuda Mukova Despite the immense developmental gains that sub-Saharan Africa has seen over the past few decades, there is no doubt that much work remains to be done. According to the 2023 Multidimensional Poverty Index (MPI) released by the United Nations Development Programme (UNDP) and the Oxford Poverty and Human Development Initiative (OPHI) at the University of Oxford, some 534 million people live in poverty across the region. We still fall behind on other developmental indices too. Data from the World Bank shows that nearly half the region’s population doesn’t have access to electricity and, according to the World

More Stories
Image
16-February-2022

Airtel Unveils Red Data Plan for Customers with New Smartphones

By Modupe Gbadeyanka Customers with newly activated smartphones with Airtel SIM cards will be instantly rewarded with double the value of the data bundle purchased (between N500 and N5000) for a 3-month period, the leading telecommunications services provider has promised. Airtel Nigeria said the new value offering is consistent with its positioning as the smartphone network in the country. Under the new plan dubbed Red Data Plan, a customer who inserts his/her Airtel SIM in a newly purchased smartphone and opts for a 3GB data plan will instantly be rewarded with a 6GB data plan. Customers are only required to

Image
27-March-2021

Economic Diversification Pivotal to Development Plan—Osinbajo

By Ahmed Rahma Nigeria’s Vice President, Mr Yemi Osinbajo, on Friday said to bring about an economy that works for all, a national development plan must promote economic diversification amongst other things. In his keynote address delivered virtually at the 19th meeting of the National Council on Development Planning (NCDP) themed National Development Planning in Nigeria: Issues and Challenges, the VP said it is generally agreed that the primary purpose of planning in the Nigerian economy is to accelerate growth and development outcomes that will improve the lives of Nigerians, stating that to be meaningful, our planning processes must lead

Image
11-April-2023

Drama as Security Guards Refuse Arik Air Founder Access to Premises

By Modupe Gbadeyanka Security guards on duty on Tuesday prevented the founder and chairman of Arik Air, Mr Johnson Arumemi-Ikhide, from entering the airline’s premises in Lagos. The Chief Security Officer of Arik Air, identified as D Tom-West, said his team was acting on an order from above, as he was not answerable to Mr Arumemi-Ikhide but only to the receiver manager. “The receiver manager gave an instruction not to allow you in. I am not aware of the court order. We cannot give you access to get into the compound. This is the instruction from above. I’m very sorry

Image
05-February-2018

FG Begins Scheme to Promote on-farm, off-farm Business Activities

By Dipo Olowookere A programme designed by Federal Government to promote community-based on-farm and off-farm business activities across the country has commenced. The scheme tagged ‘Livelihood Improvement Family Enterprise (LIFE) programme’ is an initiative of the Federal Ministry of Agriculture and Rural Development. Business Post gathered that the first phase of the LIFE programme focuses on advocacy, needs assessment and sensitization in 24 states of the federation as well as the FCT. The LIFE Programme was also designed for job and wealth creation among women and youth in rural and suburban households. This will be implemented through training and support

Image
27-March-2018

British Council, YNaija Launch West Africa Arts Exchange

By Dipo Olowookere A partnership has been entered into for the establishment of West Africa Arts Exchange, a community of the talented artists from West Africa and arts lovers across the world. The initiative, formed by the British Council and YNaija.com, will serve as a one-stop online destination for art enthusiasts interested in learning about the African contemporary art space as expressed by creatives aged 18-35. The West Africa Arts Exchange will showcase artistes working in diverse art genres including music, visual arts, film/television, theatre, dance, design, fashion and gaming. The online platform is designed to progressively assess and admit

Image
15-February-2022

Oyo Suspends SS2 Student for Slapping NYSC Member

By Modupe Gbadeyanka A student of the Anglican Commercial Secondary School, Orita-Mefa, Ibadan, Oyo State, Ojo Roqeeb, has been suspended by the Oyo State government. A statement issued on Tuesday by the Commissioner for Information, Culture and Tourism, Mr Wasiu Olatunbosun, disclosed that the action was taken following an assault on a member of the National Youth Service Corps (NYSC). It was alleged that the Senior Secondary School (SSS) 2 student slapped the corps member and to serve as a deterrent to others, Master Roqeeb would be suspended for one month. It was gathered that the assault of the NYSC

Image
02-February-2018

Treasury Bills Market Remains Bullish as CBN Drains N215b

By Dipo Olowookere The treasury bills market remained bullish on Thursday as the Central Bank of Nigeria (CBN) continued with its liquidity mop-up operations. This was done by the apex bank through the sale T-bills worth N215.42 billion via the Open Market Operations (OMO) yesterday. At the close of the exercise, the CBN raised N5 billion from 98-day bill at 12.60 percent stop rate, while it sold N210.42 billion from the 266-day bill at 14.40 percent. With the funding for retail forex by banks expected to weigh on system liquidity, the treasury bills market is expected to be relatively quiet

Image
12-December-2017

PayU Nigeria Unveils PayU Receive Secure Payment Solution

By Dipo Olowookere As part of efforts to make businesses in Nigeria securely request and receive payments directly from their customers without any hassles, PayU Nigeria has released an innovative and secure product called PayU Receive. PayU Receive is a secure payment solution that facilitates business-to-business and business-to-consumer payments easily via email or SMS. It allows businesses to make use of PayU’s safe and secure payment services by allowing them to send payment requests via email or sms to their customers. Customers then have the flexibility of paying via their bank cards or their bank accounts. This is a convenient

Ad
Ad
Recent Stories
Image
03-March-2024

Dangote Cement’s African Subsidiaries Contribute 41.2% to FY 2023 Sales

By Dipo Olowookere Dangote Cement Plc has revealed that sales from its factories outside Nigeria, its base, improved in the 2023 fiscal year by 12.7 per cent, contributing about 41.2 per cent to its total volume for the period under review, with its Nigerian operations accounting for the rest. In its audited financial statements for the year ended December 31, 2023, filed to the Nigerian Exchange (NGX) Limited, the cement maker said revenue generated from its pan-African operations increased by a record 123.2 percent to N925.9 billion, while EBITDA surged by over four-fold to N263.7 billion. Business Post reports that

Image
03-March-2024

Nigeria Pays N1trn Monthly Subsidy to Keep Petrol at N650/Litre

By Aduragbemi Omiyale Despite the federal government claiming it has stopped the payment of subsidies on premium motor spirit (PMS), well-known as petrol, more people are countering this. Recall that a few weeks ago, the International Monetary Fund (IMF) said the government had returned fuel subsidies through the backdoor and kept Nigerians in the dark about this. It then advised the government of President Bola Tinubu, which announced an end to it on May 29, 2023, to completely stop the payment as it was increasing his administration’s fiscal deficit. The global lender, in a report released last month, said the

Image
02-March-2024

JUST IN: Nollywood Star Mr Ibu Dies

By Modupe Gbadeyanka Information just reaching Business Post indicates that popular Nigerian actor, Mr John Okafor, otherwise known as Mr Ibu, is dead. It was gathered that the Nollywood star breathed his last on Saturday in a hospital in Lagos. His demise comes a day after the Nigeria film industry lost an actor, Mr Tolani Quadri Oyebamiji, well-known as Sisi Quadri. Mr Ibu underwent a surgery, which led to the amputation of one of his legs. He was later discharged from the hospital, but was reportedly taken back. Until his death, he acted in several movies. He was well known

Image
02-March-2024

African Bishops Seek Overhaul of Financial System as Debt Burden Worsens

African Catholic Bishops called for an overhaul of the financial system to address health, climate, food and other challenges the region faces. Ahead of a gathering of African Finance Ministers in Victoria Falls, Zimbabwe, the Justice, Peace and Development Commission of the Catholic Symposium of Episcopal Conferences of Africa and Madagascar (SECAM) outlined reforms for debt relief, development resources and governance. “In Sub-Saharan Africa the number of people facing food insecurity stress or crisis has more than doubled since 2019, reaching 420 million people last year,” noted the bishops in a statement. A delegation representing the African Bishops and religious

Image
02-March-2024

MTF Class of 2023 to Premiere Her Dark Past, Grown

By Modupe Gbadeyanka Two feature films will be premiered this weekend exclusively on the Africa Magic Showcase channel 151 and Africa Magic Urban channel 153 by the students of the MultiChoice Talent Factory (MTF). The two pieces of art titled Grown and Her Dark Past are the final projects of the MTF Class of 2023 students, a statement from the organisation said. The MTF is a leading film school in West Africa for young, talented and passionate filmmakers. It was established by the media platform to grow the region’s creative industry. Grown premieres on Africa Magic Showcase at 8.30 pm

Image
02-March-2024

Mandela’s Heirs Lose Power in South Africa

By Alexander Braterskiy South African authorities warn that if the opposition wins the parliamentary elections, the country may change course and leave the informal BRICS economic bloc, which includes Russia. The position of the African National Congress party, which has been in power since the collapse of apartheid, is indeed not the best, as shown by the municipal elections held earlier in the country. The opposition accuses the president of corruption and abuse of power, as well as an inability to cope with the country’s energy crisis. The ANC crisis occurred on the 30th anniversary of the first free elections

Image
02-March-2024

CAA Reaffirms Commitment to Climate Innovation for Sustainable Future

By Modupe Gbadeyanka A leading social enterprise focused on environmental sustainability, Climate Action Africa (CAA), has reaffirmed its commitment to being at the forefront of driving climate innovation for a sustainable future. The organization, which is a key participant at the four-day Omniverse Summit 2024 in Lagos, emphasised the need to integrate environmental sustainability models, technology, and community-driven innovation to address climate change challenges. It promised to foster an inclusive climate action ecosystem through innovation, which it said can be used to identify and scale solutions to address the imminent climate crisis in Nigeria and Africa as a whole, The

Image
02-March-2024

Endosurvivors Foundation Set For Another Endometriosis Awareness

By Adedapo Adesanya EndoSurvivors International Foundation (ESIF), an NGO championing endometriosis awareness in Nigeria, has announced its upcoming events in commemoration of the Global Endometriosis Advocacy Month in March, fondly tagged March4Endo by advocates all over the world.  Endometriosis is a chronic and inflammatory condition that affects approximately 1 in 10 girls and women in Nigeria and on a global scale. This sums up to about 190 million affected girls/women around the world, about the population of Nigeria in 2018.  The World Health Organisation (WHO) recognizes that endometriosis has significant social, public health, and economic implications leading to a decrease

Image
02-March-2024

CSCS, FrieslandCampina Lift NASD OTC Bourse by 0.31%

By Adedapo Adesanya The NASD Over-the-Counter (OTC) Securities Exchange returned to the positive territory after it gained 0.31 per cent on Friday, March 1, thanks to the duo of Central Securities Clearing System (CSCS) Plc and FrieslandCampina Wamco Nigeria Plc. CSCS Plc added 81 Kobo to its value to sell for N19.46 per unit compared with the preceding day’s N18.65 per unit, and FrieslandCampina improved by N1.15 to settle at N71.4o per share, in contrast to Thursday’s closing price of N70.25 per share. However, Aradel Holdings Plc continued its price depreciation yesterday as it shed N6.75 to sell at N2,395.00

Image
02-March-2024

Naira Now N1,548.25 at Official Market, N1,560/$1 at Black Market

By Adedapo Adesanya The Naira sustained its gradual recovery against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEM) on Friday, March 1, appreciating by 2.94 per cent or N46.86 to sell at N1,548.25/$1, in contrast to the N1,595.11/$1 it was traded on Thursday. Also, in the spot market, the Nigerian currency improved its value against the Pound Sterling during the trading day by N90.13 to close at N1,956.06/£1 versus the previous day’s N2,046.19/£1 and against the Euro, it gained N76.39 to trade at N1,675.25/€1, in contrast to the N1,751.64/€1 it closed a day earlier. The supply of