Nigeria, along with Kenya, South Africa, and Egypt, collectively secured over $4 billion in tech startup investments in 2023, according to a new report by the GSM Association (GSMA) which underscores the rising profile of the African tech industry.
While the rising investments in Africa’s tech startups marks a significant milestone for the continent’s technology sector, the GSMA notes that funding for AI initiatives remains limited, with private investors favouring more established areas like fintech.
Investment Surge in Africa’s Tech Ecosystem
The report highlights that over the past decade, Africa’s tech ecosystem has evolved rapidly, drawing the attention of global investors. The bulk of the $4 billion investment in 2023 was concentrated in Nigeria, Kenya, South Africa, and Egypt, highlighting these countries as leaders in the continent’s digital transformation. However, despite the overall positive trend, AI development in Africa remains underfunded, with private sector investors often reluctant to dive into this nascent area.
GSMA.
The report highlights that over the past decade, Africa’s tech ecosystem has evolved rapidly, drawing the attention of global investors. The bulk of the $4 billion investment in 2023 was concentrated in Nigeria, Kenya, South Africa, and Egypt, highlighting these countries as leaders in the continent’s digital transformation. However, despite the overall positive trend, AI development in Africa remains underfunded, with private sector investors often reluctant to dive into this nascent area.
Challenges for AI Startups
The preference for more established sectors, particularly fintech, has left AI startup especially those led by women, struggling to attract investment. Female African AI founders face significant barriers in raising capital, which limits their ability to scale and commercialise their innovations. “Private sector investors are wary of investing in a technology that they are unfamiliar with and prefer to invest in well-established sectors like fintech. This disproportionately affects female African AI founders, for whom raising capital is often the single most important barrier,” according to the authors of the GSMA report.
Donor Funding: A Lifeline for AI Development
The development of AI solutions in Africa has largely been supported by donor funding and philanthropic capital rather than private investment. Many AI projects are tied to pilot schemes or research initiatives, which, while important, often lack a clear path to sustainability and market viability.
Blended Finance as a Solution
To address these challenges, the GSMA suggests adopting a blended finance approach that combines commercial investment with development funds. This model could help de-risk AI investments, enabling startups to transition from pilot projects to full-scale operations. The Global Innovation Fund’s investment in Viamo, which blends grants, loans, and equity, serves as a potential blueprint for supporting AI-driven innovation in Africa.
Building a Robust AI Ecosystem
Beyond direct investment in startups, the report underscores that international donors and philanthropies are also playing a crucial role in strengthening Africa’s broader AI ecosystem. These efforts include funding research on responsible and ethical AI, building local language datasets, and supporting AI skill-building initiatives. Organisations like Mozilla Foundation, the Bill & Melinda Gates Foundation, and the UK’s Foreign, Commonwealth & Development Office are among the key players driving these initiatives.
The Need for Sustained Investment
Despite these efforts, the scope of existing programmes remains limited, especially given the scale of the challenges. For instance, creating large language models (LLMs) that are tailored to local contexts requires substantial resources and time. Yet, funding for such essential activities, particularly for dataset building, remains inadequate.
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