Funding for Nigerian Startups Hits a Three-Year Low at $410 Million
In the ever-evolving world of startup ecosystems, the African continent has been a promising frontier for innovation and entrepreneurship. However, a recent report from Africa: The Big Deal has brought attention to a significant shift in the funding landscape, particularly in Nigeria, once considered the powerhouse of startup investment in Africa.
The report reveals a substantial downturn in funding for Nigerian startups, marking a three-year low at $410 million in 2023. This drastic reduction from $1.2 billion in 2022 has not only impacted the standing of Africa’s largest economy but also caused it to lose its coveted top position to Kenya. The report notes that while Nigeria still boasts the highest number of startups raising $100,000 or more, the amount raised has plummeted by 67 percent.
The implications of this decline extend beyond mere numbers. The report underscores Nigeria’s share of Western African funding has dwindled to 68 percent, a significant drop from 85 percent in 2021 to 77 percent in 2022. This decline is the lowest regional share recorded among the Big Four markets since data collection began in 2019.
The concerns are not confined to startup funding alone. The report highlights a concurrent decrease in foreign investments in Nigeria, reaching $654.7 million in the third quarter of 2023. This figure represents the lowest level since the National Bureau of Statistics started compiling data in 2013. The total foreign investments into the country have declined for two consecutive quarters, experiencing a 36.5 percent drop from $1.03 billion in the previous quarter and a year-on-year decrease of 43.6 percent from $1.16 billion in Q3 2022.
These numbers point towards a broader economic trend, raising questions about the overall investment climate in Nigeria. The decline in startup funding and foreign investments suggests a need for a closer examination of the factors contributing to this downturn.
In stark contrast to Nigeria’s challenges, Kenya has emerged as a beacon of resilience in East Africa. The report highlights that Kenya attracted the most funding in 2023, totaling just under $800 million, constituting 28 percent of the continent’s total. Despite facing a 25 percent year-on-year decline, Kenya’s share of Eastern Africa’s funding grew from 86 percent in 2022 to an impressive 91 percent in 2023.
This resilience suggests that the challenges faced by African startups are not uniform across the continent. Understanding the factors that contribute to Kenya’s ability to weather the storm could provide valuable insights for other economies navigating similar headwinds.
While Egypt experienced a decline in the number of startups raising $100,000 or more in 2023, the report highlights a more moderate year-on-year decrease compared to Nigeria and Kenya. Egypt’s share of North African funding grew from 72 percent in 2022 to an impressive 95 percent in 2023, marking a substantial progression.
This unexpected growth in Egypt’s funding share is attributed to the magnitude of MNT-Halan‘s fundraising and the relative inability of Algeria and Tunisia to replicate their strong 2022 performance. It underscores the importance of understanding the unique dynamics within each country’s startup ecosystem.
South Africa maintains its stronghold as the leader in regional funding, with a 97 percent share. The report notes that the 70 startups raising $100,000 or more in the country accumulated $600 million in funding, constituting 21 percent of the continent’s total. Remarkably, South Africa is the only one among the Big Four not experiencing a decrease in total funding between 2022 and 2023, registering an eight percent year-on-year increase.
This resilience in South Africa’s startup ecosystem suggests the existence of key factors contributing to its sustained dominance. Analyzing these factors can offer valuable lessons for other African economies facing challenges in their startup landscapes.
In conclusion, the decline in startup funding in Nigeria signals a pivotal moment for reflection and action. The challenges faced by Nigeria contrasted with the resilience of Kenya, the progression of Egypt, and the sustained dominance of South Africa, presents a diverse landscape of opportunities and obstacles.
Understanding the unique dynamics at play in each country’s startup ecosystem is crucial for policymakers, investors, and entrepreneurs alike. As Africa continues to be a hub for innovation, adapting strategies based on these insights can pave the way for a more robust and sustainable future for startups across the continent. The journey ahead involves collaboration, adaptability, and a collective commitment to nurturing the entrepreneurial spirit that defines Africa’s potential.
