The global business landscape underwent a profound transformation in 2023, bringing surprises and a sobering reality 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.

The stage was set early in the year with surging inflation rates, paving the way for interest rate hikes, marking a decisive departure from an era characterised by readily available, low-cost borrowing that had driven relentless growth. An increasingly unpredictable world with changing economic conditions prompted a significant shift in investor sentiment. The ‘growth at any cost’ mentality of yesteryear gave way to a more prudent focus on profitability. Global and geopolitical conflicts also loomed, casting a shadow of caution across the investment landscape and further intensifying investor apprehension.

Companies unable to adapt to this new reality faltered, adding momentum to the growing apprehension already starting to surface amongst investors. This was a global occurrence, and the African ecosystem wasn’t spared. In this blog, we look at a few areas that surprised us and how we expect this to play out in the year ahead.

Volatility and headwinds – a recurring theme

Depth of FX volatility and depreciation

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 aback.

Key African economies experienced notable depreciation. In Africa’s largest market, Nigeria, the central bank liberalised forex trading, leading to the convergence of official and parallel exchange rates. The Nigerian Naira (NGN) saw a staggering 40% depreciation for 2023, in sharp contrast to the 2.5% in 2021 and 10% in 2022.

Kenya experienced a 20% depreciation in its currency value, as opposed to 2% in 2021 and 8% in 2022. The South African rand was also hit, with a 12% depreciation in 2023, compared to 5% in 2021 and 9% in 2022. Countries like South Sudan and Angola were not spared from substantial declines either, experiencing 33% and 40% depreciation, respectively.[1]

A mass extinction event

2023 brought forth a reckoning for companies worldwide, irrespective of maturity or standing in the market, as they teetered on the brink of failure, ultimately succumbing to their own undoing. Even companies once heralded as industry disruptors didn’t escape unscathed.

Take, for instance, SmileDirectClub, a well-known Telehealth company that made headlines with its unexpected bankruptcy filing, leading to the cessation of its operations. Meanwhile, Bird, a once high-flying e-scooter pioneer listed on the New York Stock Exchange, saw its fortunes take a sharp nosedive. Previously valued as a billion-dollar unicorn and celebrated as one of the fastest-growing start-ups, the company’s valuation fell to a mere $7 million. The dramatic fall from grace resulted in Bird’s delisting, marking a humbling descent from its previous peak valuation of $2.5 billion.

A similar story played out in the African and MENA regions. Start-ups, growth companies, and even established players grappled with survival. Egypt’s SWVL, a mass transit start-up listed on NASDAQ, experienced a massive freefall as its market capitalisation plummeted from $1.5 billion to $5 million.[2] Ominous delisting warnings loomed over the company, signalling the gravity of its profitability challenges and cash haemorrhage. In the face of this reality, SWVL had no choice but to make painful decisions, including significant layoffs, operational cutbacks, and ceasing its operations in Pakistan.

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 turmoil and shut its doors.[3] Wabi, an e-commerce start-up backed by Coca-Cola, halted its operations across many African markets, a stark reversal of its earlier fortunes. Hytch, a Nigerian logistics company fought but couldn’t secure the necessary funds, closing down less than a year after launching. Similarly, Zumi, a Kenyan B2B e-commerce start-up, couldn’t secure crucial funding at the eleventh hour, marking the end of its operations.[4]

However, despite the setbacks and 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.

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. In recent years, we’ve observed an average of more than 20 growth-stage deals, a substantial increase compared to the nine deals exceeding $40 million seen more than five years ago.*[5] Although fintech companies dominate these deals, and only a handful surpass the $40 million mark, they signify an evolving market that is inching closer to ‘consolidation territory.’ This shift makes M&As a viable option for an increasing number of businesses.

What 2024 might have in store for us – market sentiment has stabilised, but remains complex

As we cast our gaze forward to 2024, we see a market that, while showing signs of stabilisation, continues grappling with several challenges.

‘After-effects’ of currency volatility will likely linger

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.

Recent currency upheavals have cast a long shadow over investors’ minds, especially in two pivotal African nations – Egypt and Nigeria. These currencies have undergone significant depreciation, ranging from 350% to 400% over the past decade. Ghana has experienced a similar fate, with depreciation exceeding 400%, while the South African Rand experienced an 80% depreciation. These numbers surpass the 80% threshold investors typically tolerate for a 10-year fund vintage, equivalent to an annual depreciation rate of 6%.

Furthermore, concerns have arisen about the structural challenges encountered by international capital denominated in USD when assessing African assets. The large depreciations have created a potential disconnect between the growth stage of companies and their capital requirements in USD. Priced rounds may no longer align with the preferred investment size of eligible funds, as these funds might perceive the opportunity as insufficient in size (in USD) to warrant capital deployment.

Navigating this landscape presents a significant challenge. Companies must put their best foot forward and showcase a robust operating model that hedges against FX risks to attract and retain investor confidence and maintain a competitive edge over their peers. That said, we also believe that steps are being taken in the right direction to rein in these uncertainties and rekindle investor interest. For example, in Nigeria, Africa’s largest market, removing fuel subsidies and aligning official and parallel exchange rates should help level the playing field and infuse greater predictability for investors. While uncertainties will likely persist for most of the year, the positive strides in government reforms will comfort international investors as they re-evaluate regional opportunities.

Investors to introduce additional terms as they re-engage

Drawing from our ongoing engagements within the region, where we’ve partnered with growth-stage companies spanning a diverse spectrum of tech-enabled sectors, we anticipate including additional terms designed to bolster downside protection, becoming more prominent in shareholder agreement negotiations.

We expect an uptick in the use of convertible instruments and the issuance of shares denominated in USD. These mechanisms offer flexibility and are likely to become more standard. We’ve also already started to see cumulative dividends, liquidation preferences, & participating preferred shares terms rapidly becoming the norm in negotiations.

Some investors may also forgo the intricacies of complex terms and structures and instead opt for a more direct approach – revising valuations and entry prices to align with their risk perceptions.

African M&A activity should start gathering pace

The African business landscape is consolidating as it evolves toward a more mature phase. In recent years, including 2023, we’ve seen the initial ripples of this through a wave of smaller M&A deals. These deals have been driven by companies seeking geographic expansion, diversification of their client base, or opportunistic acquisitions of distressed assets. Notable examples include the merger of B2B e-commerce platforms MaxAB and Wasoko, Chari’s acquisition of the credit line of Axa Assurance in Morocco[6] and Nigerian B2B marketplace Trade Depot’s acquisition of GreenLion.[7]

While relatively limited in number, there have also been international acquirers looking to obtain an African footprint or specific competencies. Examples include BioNTech’s acquisition of Instadeep[8], Network International’s acquisition of DPO Group[9], and Stripe’s acquisition of Paystack.[10]

Additionally, a growing number of African companies have begun building up their acquisitions of foreign companies. In 2021, South Africa-based MFS Africa acquired Baxi, one of Nigeria’s largest digital solutions companies.[11] The company subsequently acquired US-based Global Technology Partners (GTP) in a deal worth $34 million in mid-2022.[12] Cross-border payment app Chipper Cash also purchased Zambian fintech Zoona[13], while Nigeria’s OPay recently acquired the payment operations of Pakistani fintech firm Finja.[14]

Currently, half of the 12 larger African fundraises we are handling involve some element of M&A, compared to none in 2022. As we look ahead, four key sectors stand out as potential hotspots for increased M&A activity.

Fintech: Africa’s burgeoning mobile penetration is fuelling a fintech revolution. As the continent leaps over traditional banking infrastructure, fintech start-ups will continue attracting a sizable chunk of investments. But to truly dominate, they need scale. We could see established players gobbling up promising disruptors to consolidate market share and expertise.

E-commerce: Africa’s online shopping scene is exploding, but fragmentation is holding back its full potential. Look for e-commerce giants acquiring rivals and building nationwide empires. Scale isn’t just about logistics; it’s about offering customers the most comprehensive selection and best deals. Consolidation will be the key to unlocking the true buying power of African consumers.

Renewable Energy: Affordability is the holy grail for renewable energy in Africa. M&A activity can pave the way for cost-cutting synergies. Solar panel providers may merge with battery storage providers to reduce prices and make clean energy more accessible. By joining forces, companies can optimise supply chains, share expertise, and power more homes and businesses across the continent.

Telco: Africa’s mobile data appetite is insatiable. To keep up, telecom giants need increased network capacity. M&A could be vital to quickly boost capacity and meet the escalating demands across the continent. Smaller Fibre companies will likely be acquired by larger players and there is likely to be more activity in the data centre sector with capital raising activity and consolidation amongst the various players.

Learn more about us.

View our transactions.


*[5] Pitchbook and DAI Magister internal estimates



Say Hello