MENA Venture Capital investment report raises Africa’s prospects

African countries have managed to defy a tumultuous year and raise an impressive $1.9 billion in venture capital funding in 2023, signaling a stronger prospect for 2024. This positive news comes amidst a global slowdown in venture capital funding, which has seen a close to 40% drop in global investment overall. Magnitt CEO, Philip Bahoshy, shared insights on the current state of venture capital funding in emerging markets, particularly in Africa, the Middle East, Pakistan, Turkey, and Southeast Asia. Bahoshy highlighted that the global venture capital ecosystem has been impacted by interest rates, making it more costly to invest in venture capital as an asset class. The slowdown in funding and deals in 2023 is expected to carry over into 2024, with potential changes in interest rates likely to influence investment decisions. Despite the decline in late-stage funding, there has been continued strong investment at the seed and early stage, indicating a focus on supporting early-stage startups. In terms of African markets, the leading geographies for venture capital transactions were Nigeria, Egypt, and Kenya, albeit with a close to 50% drop in investment activity on average. However, South Africa saw an increase in capital deployment, which stands out among the countries covered by Magnitt. The trend of focusing on unit economics and profitability has become more prevalent, with companies looking to raise funds from local and international investors in 2024 to sustain their growth and development. Bahoshy emphasized the connection between the Middle East and Africa in the venture capital landscape, highlighting the previous cross-pollination of investments between the two regions during the boom years of 2021 and 2022. Despite the challenges faced in 2023, the anticipation is for organic growth and potential M&A acquisitions between companies in the Middle East and Africa in 2024. Additionally, there is growing interest from Southeast Asia in investing in African markets, creating a corridor for venture capital investment that spans from Africa to Southeast Asia. Looking at regions like Saudi Arabia and the UAE, there has been a notable increase in venture capital activity, with Saudi Arabia recording a 33% year-on-year increase. The oil price benefits in these regions have led to sovereign entities deploying capital into the venture capital ecosystem through fund of funds and VC funds. Moving into 2024, the stability and strength of oil prices will continue to influence the investment decisions of sovereign entities in the GCC. Internationally, the risk appetite of investors, such as family offices from Southeast Asia and sovereign entities, will play a key role in determining the flow of capital in 2024. While many international investors focused on their home markets in 2023, the upcoming year will reveal whether there is a willingness to transcend borders and explore investment opportunities in new markets. Overall, the outlook for venture capital funding in 2024 is poised for recovery and potential growth, with a focus on early-stage investments, unit economics, and cross-regional investment opportunities.