Reasons why funding into African AI startups remains poor despite a global boom

Artificial Intelligence (AI) has advanced considerably over the past decades, permeating every stratum of the digital experience. As the industry grew, so did investments in AI companies.

According to CB Insights, AI startups received a record funding of over $20 billion during the second quarter of 2021. This is more than double the $8 billion raised globally in Q2 last year.

Despite the global growth, the proliferation of artificial intelligence in Africa is very much still in its infancy thanks to several problems including funding.

Of the over $700 million raised by African startups in 2020, the AI sector contributed just 2.5%. This shows that the sector is very low on investor preference. In comparison, the fintech sector, which is the current VC favourite, saw over 24% (a quarter) of the total investment.

Growth of AI in Africa

Even with low funding, activity in the sector like everywhere else in the world is slowly beginning to pick up. The creation of learning algorithms like deep learning, chatbots and neural networks, which allow the software to learn from experience and upgrade themselves, has made AI increasingly important.

These developments, in addition to new funding, are gradually opening the lid on the AI Sector.

Before now, there was funding here and there (for example, South Africa’s IoT.nxt raised $7.7 million in 2017) as well as the presence of several pioneering startups like SA’s BrandsEye and the Egyptian startup, Affectiva (2009). However, beyond these, there was no significant growth to signify the emergence of the sector.

AI had its watershed year on the continent in 2019, with funding into the sector leaping up significantly from earlier years. The sector raised $11.27 million, up a whopping 223% from the $3.6 million in 2018.

2020 was even better, with reports showing that funding rose to $11.63 million. Notably, four startups raised over the million-dollar mark, and the average raised was US$1,162,700.

This year (2021) isn’t different as AI startups participated in the record $1.19bn raked in the first half of the year.

However, in relation to the huge funding attracted by other sectors and considering the huge potential of Artificial intelligence, these fundings remain acutely very low and hardly well distributed. Here are some reasons why.

Reasons why funding is still nascent in Africa

Funding in the African AI space is still fuelled in large part by individual startups closing big rounds. In 2019, 62% of total investment was closed by Tunisia’s Instadeep (US$7 million), while in 2020 it was the $6 million funding of SA’s DataProphet that accounted for more than half of the funding attracted to the continent.

In addition to that, investment in AI is not spread out across the continent as some countries like SA see more AI funding than others.

For example, asides DataProphet, SA has two more notable rounds in 2020, with inQuba raising an undisclosed amount, and LightWare netting US$1.5 million and one additional smaller raise.

This makes SA, significantly ahead of the rest of the continent in terms of AI funding.

Nigeria is not left behind. The country doesn’t have SA’s huge AI investments but has several AI-focused labs. The latest is the Data Science Nigeria, AI incubation lab which was funded by Main One, the Bill and Melinda Gates Foundation, UK-Nigeria Tech Hub and Microsoft Nigeria.

The struggles of early-stage AI start-ups

Even as more AI or AI-enabled startups are being born, the funds and resources they readily need to survive are unavailable.

For example, Nigeria’s infrastructural problems are still a threat to the proliferation of AI. Power, cost of the internet and renegade government policies are some of the many infrastructural barriers the adoption of AI faces.

These, in turn, affect the confidence of venture capitalists who, in some cases, may not fully understand the tech. According to the report, Early-stage deal share which includes seed, angel, and Series A rounds declined to a low of 55% in Q2 2021.

Recruiting AI talent 

In order for AI companies to succeed, companies need highly trained data scientists. These, however, are scarce on the African continent.

In Europe and the US, nearly every university has established new departments, institutes, and degree programs for Data Science. Africa, on the other hand, has only recently made any progress in closing the gaps in education in Africa.

Although AI and machine learning have become hot tech jobs with the new norms of remote working and digitisation, most schools that offer AI courses and certification are foreign e.g CISCO and Elev8.

In summary

Across Africa, the AI sector is still very early-stage, with the biggest advancements taking place in more developed ecosystems like South Africa.

However, the potential of AI services in sectors like manufacturing, security and financial services is very huge. Some examples are the AI-backed software like real-time transcription services and post-call analysis tools that are used across many companies.

Others are Carbon’s machine learning tool to evaluate credit applications and Kuda bank’s AI-powered digital assistant called “Ore”.

Like the solutions above, there is a myriad of problems AI could help solve in Africa.

After all, the future definitely looks better than it was a few years ago. The space is currently seeing much activity which should translate into substantial growth in 2021.

https://technext.ng/2021/04/21/the-many-struggles-of-the-ai-space-in-nigeria-and-the-lessons-from-mauritius/