The African business ecosystem has matured, despite a 2023 characterised by macroeconomic and funding challenges, says Risana Zitha, Managing Director and Head of Africa at DAI Magister
The global business landscape underwent a profound transformation in 2023, triggering a turbulent year for companies worldwide. Geopolitical turmoil, inflationary pressures, and a shifting economic landscape unleashed a torrent of challenges, particularly for start-ups and growth-oriented companies.
In Africa, notable currency depreciations created unfavourable market conditions − the Nigerian Naira saw a 40% depreciation for 2023, while Kenya experienced a 20% depreciation in its currency value. Additionally, there was a contraction in the size and volume of VC deals, with both metrics decreasing by 40% when comparing H1 2023 with H1 2022.
According to Risana Zitha, Managing Director and Head of Africa at DAI Magister, the fallout of 2023 indicates that African businesses prioritising profitability over unbridled growth will achieve success in the year ahead.
Zitha said: “2023 brought about a familiar challenge to the African market – foreign exchange volatility and depreciation. While many anticipated some level of volatility, the depth of currency fluctuations unfolding throughout the year left many industry experts and observers taken aback.
“In discussions with investors well-versed in the African business ecosystem, it’s evident that many have steered clear of engaging in markets marked by significant foreign exchange uncertainties. This caution stems from a keen awareness that pronounced currency fluctuations can be the chief catalyst for eroding the value of their portfolios.
“Many of Africa’s brightest stars were also entangled in financial turmoil. Dash, the Ghanaian fintech darling, which had garnered an impressive $86 million in funding over five years, was entangled in a web of financial issues and shut its doors. Similarly, Zumi, a Kenyan B2B e-commerce start-up, couldn’t secure crucial funding at the eleventh hour, marking the end of its operations.
“However, despite reports of macroeconomic challenges and reduced funding dominating the headlines, a positive development is worth underscoring: the African business ecosystem is transforming into a more mature and robust landscape. As global funding and venture capital activities enter a period of recalibration, the focus is shifting away from unbridled growth. Investors are now placing increasing importance on factors such as cash flow predictability, profitability, and efficient capital utilisation.”
Zitha concluded: “We maintain an optimistic outlook for the African business environment as it enters a phase of ‘growth territory.’ Notably, there is a rising trend in deals at the growth stage, representing a significant departure from a market primarily focused on seed and Series A funding rounds just five years ago. This signifies an evolving market that is inching closer to ‘consolidation territory’, indicating the arrival of M&A as a viable option for an increasing number of businesses.”