5 major trends that will define the African tech space in 2023

David Afolayan
Lagos leads as Africa performs poorly on 2021 global startup ecosystem rankings
Lagos leads as Africa performs poorly on 2021 global startup ecosystem rankings

It is not unusual for folks to be anxious about future possibilities. 2022 Is the 3rd in a row of the unpredictable years of the ’20s. At the onset of 2020, tech was at its peak: the age of unicorns, mindblowing raises and the reality that tech can solve all problems, especially poverty.

But, 2 months into the year, the world was locked down by a priorly underrated illness that turned out to be a pandemic that shook the global economic foundations. That incident set in motion a series of events that have disrupted several foundational beliefs in the tech ecosystem. 

Isolation, lockdowns and social distancing characterized 2020. Consequently, it became notable for job cuts and the unravelling of what we know as corporate life. It was also the year that streaming platforms began to flourish and the year that marked the rise of Zoom and TikTok.

For Africa, it was the year of possibilities. In  2020, Paystack was acquired by US fintech giant, Stripe, in a deal reported to be worth over $200 million. Paystack’s acquisition is a testament to the possibility of more multimillion-dollar exit deals happening within the Nigeria tech ecosystem.

2021 was the year of remote testing, contact tracing and remote working. It witnessed some economic rebound, but it was not a breakthrough for most of the industry. This year also saw a boom in crypto transactions across Africa.

2022 witnessed a rebound in funding rounds. According to a report by Renaissance Capital on the African tech and fintech industry, Nigerian startups raised $678 million in 107 different deals between January and April. This accounts for 31% of the total funds raised by African tech companies in the four months, which stood at $2.2 billion.

It was also the year of acquisitions. World’s digital infrastructure company, Equinix Inc acquired West African data centre and connectivity solution provider, MainOne for $320 million in February. In September, mPharma acquired a majority stake in Nigeria’s leading pharmacy brand, HealthPlus.

Perhaps, the biggest trends of 2022 were Elon Musk’s acquisition of Twitter and the crash of Terra and FTX and the impact on the crypto market. 

As to what to expect in 2023, first, you need to realise that the world is going through an unremitting economic meltdown. Analysts likened this to previous ones and have predicted that this is not going away soon and Africa is not going to be left out.

With that in mind, let us consider 5 major trends that will define the tech space across Africa in 2023. Unlike my previous reviews, ​​I have avoided listing specific startups, innovations or any of such words here. I have enunciated principles and processes that will make a difference.

This is because great ideas/businesses will come and go. the principles and enabling processes are most important. And, if what we have seen in these years has taught us anything, it is that business innovations survive only when they are tempered with a healthy dose of entrepreneurial management.

Read also: Technology Trends that Will Define the African Tech Space in the New Decade

So, here we go:

Challenger platforms would not be able to meet up

Traditionally, challenger platforms are new market entrants that base their entire business model on challenging the entire product categories of established players or improving their customer experiences with better processes.

Examples that easily come to mind are Fintechs vs banks, e-commerce vs traditional commerce and food delivery vs restaurants.

Challengers are typically the underdogs. And they are willing to make bold moves to break through to mainstream consumers using limited resources and very innovative products. The COVID-19 pandemic decimated a lot of traditional patterns. it also created new opportunities for challenger brands to thrive.

But with waning post-pandemic realities, the advantages of most challengers are being eroded. For example, Jumia’s model received a significant boost following the pandemic in 2020. By August of the year, the company had declared a ₦2.6 billion profit and loss reduction of about 44%.

The year before, it had shut down operations in 12 African markets – Nigeria, Egypt, Morocco, Kenya, Ivory Coast, South Africa, Tunisia, Algeria, Ghana, Senegal, Uganda and Rwanda following a $180.1 million annual loss.

5 major trends that will define the African tech space in 2023
The New York Stock Exchange welcomes JUMIA TECHNOLOGIES AG (NYSE:JMIA) to the New York Stock Exchange (NYSE)

In H1 2022, Jumia’s revenue reached $104.9 million, a 43.3% increase from H1 2021, which was $73.2 million, indicating that the company is taking advantage of its post-pandemic momentum.

But the momentum will significantly wane in 2023 as more businesses trash remote-work culture and mobility restrictions have become entirely free. Jumia’s gross merchandise value (GMV) declined to $240.7 million from $252.7 million in Q2.

Challengers will particularly struggle in Sub-Saharan Africa because of the absence of the basic social infrastructure to support innovative solutions. And, the traditional players, mostly, have found ways around these challenges. In the case of Jumia for instance, the challenge with eCommerce in Africa is delivery, last-mile delivery. 

Without an efficient last-mile system, Jumia and other eCommerce companies created their own alternatives, which proved to be a distraction and a major cost addition for users.  In Q4 2022, the company axed Jumia Prime,  its delivery subscription service that shares similarities with Amazon Prime.

2023 will provide similar challenges for challengers in the fintech, logistics, security, edtech and service tech industries. 

Japa would reach its peak… and start to decline

Japa is a Yoruba word (in Nigeria) which means “to run, flee or escape”. It has taken root in the lexicon of young Nigerians since 2020. It represents something most aspire to: relocating to another country in hopes of a better future in a more structured system.

The process of Japa is popularly marked by many with a social media announcement with a meme of Nollywood actress Sola Sobowale raising a glass of wine (a still from a scene in the hugely popular film -King of Boys with the caption “Welcome to a new dispensation”. 

Nigerians are emigrating in droves. UK’s Higher Education Statistics Agency said that the number of Nigerian students in the country rose by 69%, spiking from 13,020 in the 2019/2020 academic session to 21,305 by the 2020/2021 session.

 In Canada alone, more than 15,000 Nigerians were granted permanent residence in 2021. This is 300% of the total 4,400 granted five years prior.

According to a report by Punch, Skilled workers from the healthcare sector were the largest recipients, with more than 16,000 visas out of about 22,000 granted since January 2021. The Nigerian Association of Resident Doctors recently revealed that only approximately 10,000 resident doctors are left in the nation. According to a Nairametrics report, roughly 100 depart the country every month. 

In 2023, the Japa trend will wane. You ask why? For three major reasons. 

First, the economies of destination countries are also under distress, so it won’t be so lucrative to leave here for there. The Chief of the International Monetary Fund (IMF), Kristalina Georgieva, recently warned that 2023 would be a challenging year for the global economy, as top economies like the US, Europe, and China will all see declining growth. She emphasised that 2023 will be “tougher than the year we leave behind.” 

Given the tough economic realities across Europe and North America, there are already reports of many Nigerian students experiencing accommodation crises, escalating food insecurity and lack of employment, especially in the UK. Many more will not have the incentive to leave in 2023 when they consider their privileges back home.

– Kristalina Georgieva

Second, it costs a lot to emigrate, and Nigeria does not have an endless supply of the middle class that can afford it. The United Kingdom’s post-study work visas are popular among Nigerian students eager to permanently immigrate to that country (486,868 as of June 2022). 

But, Education in the UK is not cheap. According to the UK government, the financial requirement for applicants seeking a student visa can be up to US$14,000, excluding tuition. For a family of three, the costs of a complete relocation can be as high as US$40,000. The Central Bank of Nigeria has reported that Nigerians spent US$609.5 million on foreign education between January and August 2022.

Few more will be able to afford that sum, especially with the rising cost of FX. 

The third reason is that some destination countries will begin to put a peg on the influx of migrants to their countries for economic reasons. For instance, it was reported that migrants from Nigeria might face a clampdown under Home Secretary Suella Braverman’s plans to cut net migration sometime in October.

Braverman and Nadhim Zahawi, at the time the minister for intergovernmental relations and equalities, are considering imposing a cap on the number of children that foreign students can bring with them to cut unskilled migration.

Trust me; the UK is not alone on this train.

Yet, before the decline, there will be a peak. This will be a mixed population made up of spillovers from 2022 and a reaction to the aftermath of the presidential elections if the popular candidate among the young people and the middle class in Nigeria does not win.

Talent costs will spike

Population experts have determined that the African continent has one of the fastest-growing populations and will likely contribute to more than half the increase in the global population by 2050.

One of the benefits of this fact is that Africa, with the right structures, will provide a significant population of talent for the global tech space. The journey has already begun. In 2019, Jack Dorsey and Parag Agrawal (former Twitter CEOs) visited Nigeria. During his visit, the company hired Dara Oladosu to help build a native ‘quoted tweet’ feature for the social media platform. This proves African developers’ ability to compete at the global level.

Today, Africa is emerging as a significant source of software engineering talent and is home to the fastest-growing population of developers. The demand for a pipeline of software engineers led to the growth of talent accelerators across the continent. Some of these include Andela, Decagon, AltSchool, and Univelcity.

Despite the significant efforts of the players, we are not there yet.

There are over 26 million active software developers across the globe. And Africa has only contributed only a fragment of that number. According to a 2021 study of software developers in Africa, there are just over 700,000 software developers on the continent. 

5 major trends that will define the African tech space in 2023
There are about 700,000 software developers in Africa… Image source: Unsplash

Plus, the increase in the local and global tech space has increased the demand for more talent. The African tech ecosystem grew exponentially in 2021, with capital investments hitting an all-time high.

The ‘Big Four’ countries, Nigeria, South Africa, Egypt, and Kenya, received 81% of the investments. Five of the eight unicorns in Africa (Flutterwave, Andela, ChipperCash, Opay, and Wave) attained unicorn status in 2021.

So, there is still a significant gap between demand and supply.

Today, the situation is harder for African startups because they now compete with international brands for the same talent, thanks to the phenomenon of remote, hybrid work, which enables African talent to be considered globally.

As the global average for software developers ranges between USD 80,000 – 120,000, senior developers in Africa are seeing an increase in their income from USD 11,000 annually to over 55,500 on average. 

So, if you are building in Africa in 2023, you need to significantly increase your budget to get good talents to develop your ideas. And, you have to be willing to accept the fact that they may not be entirely loyal to your brand after all.

2023 is a make-or-break year for cryptocurrencies

Ask any player in the crypto space about 2022. Those that are willing to comment will tell you that it was mostly chaotic.

In 2022, the value of the U.S. stock market has fallen over 15% in value, and the bond markets have fallen over 20% from their peak a year before.

Early in 2022, central banks around the world began to raise interest rates to slow inflation and decrease the rate of economic expansion. The tightening of monetary and fiscal policies has dramatically decreased investors’ appetite for risk and speculative investment strategies. Many investors have opted to sell or exit speculative asset classes altogether.

Consequently, the crypto markets have fallen over 50% from their peak as investors began to sell off their assets in favour of liquidity. By the end of the second quarter of 2022, the crypto market cap had fallen by over $1 trillion.

To make matters worse, the crypto market suffered two major scandals that shook the confidence of many investors. The first was the crash of the Terra ecosystem. That scandal shook the belief that stablecoins like the UST are immune from market instability.

By September, investor confidence had begun to return as the CoinDesk Market Index (CMI) rose to a high level of $1,092. This confidence was driven by FTX, a larger exchange that Terra had stepped in to rescue the CeFi lender BlockFi from bankruptcy after the crash of Terra’s Luna.

SEC charges Sam Bankman-Fried with fraud 
Sam Bankman-Fried, co-founder and chief executive officer of FTX, in Hong Kong, China, on Tuesday, May 11, 2021. FTX, the digital-assets trading platform launched two years ago by Bankman-Fried, said it handled enough volume last month to make it one of the largest crypto exchanges. Photographer: Lam Yik/Bloomberg via Getty Images

By the way, FTX, led by founder Sam Bankman-Fried bailed out several other crypto startups.

Surprisingly, shocking revelations about FTX and its sister company, Alameda Research, came to light in November when Binance CEO, Changpeng Zhao publicly expressed concerns about FTX’s solvency and ability to sustain its self-issued token, FTT.

The previously healthy company was discovered insolvent, having commingled customer deposits and funds. FTX filed for bankruptcy protection in late November. Sam Bankman-Fried was arrested about a month ago and charged by the Securities and Exchange Commission (SEC) before a court.

Some observers think that the game is about to get worse. For example, Sinclair Skinner, blockchain organiser and entrepreneur, told Time that the FTX crash would drive increased institutional apathy towards crypto. 

“It will hurt all of us. Why would a politician or a policymaker want to be exposed to looking like an idiot? So the meetings get pushed off, and the emails get slower. These political folks are looking at this exposure and don’t want to be on another headline.”

Some others believe that 2023 will be the year of turnaround. For instance, Max Yampolsky, a popular commentator, believes that the turmoils experienced by crypto in 2022 have helped to separate speculators from long-term investors. He believes that the game changer in 2023 will be the entry of government and regulators. His thoughts:

“Governments, institutions, and brands are making their steps in crypto, despite spending years talking against it. Prices might be bleeding, but crypto is here to stay, and the big dogs are joining in.”

Africans, with not so much income to lose, are now more sceptical of the potential of crypto. But, they might overcome this fear if the crypto industry stabilises in 2023.

AI will go from gimmick/ PR to actual products

One of the most exciting phenomena in 2022 was the introduction of ChatGPT, an OpenAI-trained model that was created by OpenAI based on its autocomplete text generator GPT-3.5. 

The user interface of the bot encourages users to ask questions and, in response, provides impressive and fluid responses for various queries, including writing and debugging lines of code and creating songs, poems, and TV scripts, among other things.

Since the announcement on the 30th of November, social media has been awash with conversations about the bot. But that isn’t the only AI tool being used across the world. It may just be the loudest announcement that the time for open AI use has come.

While Africa and Latin America account for a combined share of about 1% of the 70 largest digital platforms, Africa has all the right ingredients to capture a large share of the AI-driven economy to advance its social and environmental well-being as it has a young, curious, tech-savvy and entrepreneurial population that is increasingly educated, an ARSTI2021 report pointed out.

Don’t be deceived. African companies have been on the AI train for a while too. The 2022 State of AI in Africa report (pdf) published recently by AI Media Group shows that in the past five years, many companies across the continent have been trying to leverage AI for business efficiency.

5 major trends that will define the African tech space in 2023
Here is what you might not know ChatGPT, the coding AI chatbot

PwC projects (pdf) that AI could contribute up to $15.7 trillion to the global economy in 2030, more than the current output of China and India combined. Analysts say AI could expand Africa’s economy by a staggering $1.5 trillion by 2030—about 50% of its current GDP—if it could only capture 10% of the fast-growing global AI market.

Countries that dominate AI in the continent’s cardinal regions are South Africa, Kenya, Egypt, and Nigeria.

Out of the 226 investments in African AI analyzed, 55% were made up of seed, pre-seed and angel funding, compared to 27% of non-equity assistance and grants. Overall, 82% of deals required early-stage support and a possible pointer towards a critical success factor for traction in this sector. Some 141 separate organizations were identified as funding these deals.

AI is used in the retail industry to offer a seamless shopping experience for customers. It’s widely embraced in other sectors of the economy because it’s a handy tool for managing business processes. AI could hold the key to treating critical medical conditions and helping companies establish a synergy between the business and IT teams in the continent.

What will change in 2023?

The arrival of ChatGPT in 2022 will give many of these companies the courage to move their AI projects from mere R&D favourites and look-good pet projects to the mainstream. It will also help African companies use AI more effectively to gather customer data, solve users’ issues and offer products/services.

We saw a similar trend four years ago with the launch of chatbots by major banks in Nigeria (Remember Leo?). We will see a similar trend in 2023.

Just that you know, Artificial intelligence (AI) could expand Africa’s economy by a staggering US$1.5 trillion – about 50% of its current gross domestic product – if it could only capture 10% of the fast-growing AI market, which is set to reach a whooping US$15.7 trillion by 2030. We cannot afford to be left behind!

UBA's Leo Now Fully Available on Whatsapp for Extremely Fast Banking Transaction
Remember LEO?

Conclusion

Like I said at the beginning of this decade, a lot has changed since the beginning of the last decade in Africa and for the denizens of the continent. Honestly, the continent has just been a drag-along of the West and Asia. We adopted the technologies as they came, but did not develop our people and lands to make the best of them.

It is also important to note that the level of acceleration or deceleration of each of the listed trends will differ from one African country to another. Why not? Despite the similarities in opportunities and challenges across African countries, the policy structures and social infrastructure rates are not similar.

The African Heads of States and Governments pose during African Union (AU) Summit for the agreement to establish the African Continental Free Trade Area in Kigali, Rwanda, on March 21, 2018. / AFP PHOTO / STR (Photo credit should read STR/AFP/Getty Images)
The African Heads of State and Governments pose during African Union (AU) Summit for the agreement to establish the African Continental Free Trade Area in Kigali, Rwanda, on March 21, 2018. / AFP PHOTO / STR (Photo credit should read STR/AFP/Getty Images)

For instance, a study of government policy on AI development across Africa shows an unequal effort by different countries. 

Quartz Africa reports that Mauritius was the first country in Africa to publish a national AI strategy and has an attractive tech and investment ecosystem. South Africa was instrumental in contributing to a pan-African AI for Africa Blueprint (pdf) that helps member-states in developing policies, strategies, and plans using the African Union Development Agency (AUDA-NEPAD).

Kenya was the second country in Africa to publish a national AI strategy in 2019. Egypt and Tunisia have followed suit. Although Nigeria has documented it in the works, it is yet to become a working document. And these are the six countries that dominate the space.

But we will be alright in the end!


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