How are Chinese investments impacting African startups?

Africa and China have a rather loud relationship that cannot be ignored regardless of one’s alignment. The Chinese authorities have encouraged their people to go out and explore and make a name for the country wherever they are. In business, technology and geopolitics, China cannot be ignored, especially when dealing with Africa. But what is in there for African startups?

When Chinese President Jiang Zemin announced the 1999-initiated policy in 2000, it intended to broaden Chinese investment abroad hoping that it would translate to growth in China. Under the policy, the goals were to increase outbound foreign direct investment (FDI), pursue product diversification, improve the level and quality of projects, expand financial markets concerning the national market and promote Chinese brands in the European Union (US) and US markets. The beneficiaries of this policy cut across but startups have nonetheless been a major group of beneficiaries of this policy.

Huge production and cheap labour have strongly supported this policy as Chinese as Chinese outward direct investment (ODI) reached US$146.5 billion in 2022, ranking third in the world. In Africa, the figure dropped to US$1.8 billion in 2022 from US$5 billion the previous year. Nonetheless, Africa remains a key beneficiary of Chinese investment with giant smartphone manufacturer Transsion Holdings playing a huge part in Africa’s startup ecosystem.

Chinese venture capital firms and investors have been the force behind some of Africa’s successful tech startups with hundreds of millions of United States dollars pushed into these startups. Wapi Pay, Carry1st and Termii have been some of the top beneficiaries. Transsion-backed early-stage investment fund, Future Hub has been taking giant strides in this direction for years. The early-stage investor that gladly puts in up to US$300,000 for 5% of equity in pre-seed/Seed tech startups first ventured into Africa when it invested in Nigeria-based business communication provider Termii in 2019. It later invested in Wapi Pay, a payment service provider that enables transactions between Africa and Asia. Carry1st, a South Africa-based mobile gaming publisher soon joined and media tech company Techpoint Africa added to the Chinese growing portfolio.

Meituan and 3W Capital, two China-based venture capital firms alongside several other Chinese firms have also invested in African tech startups. Notable among the African startups on the portfolio of 3W Capital and Meituan is Opay which raised US$400 million in 2021. SoftBank Vision Fund 2, a Chinese led the round for the Nigeria-based startup. Sequoia Capital China and Redpoint China were among the investors in that round which valued Opay at US$2 billion.

Interest in African startups by Chinese investors based on the examples above shows that it is a trend on the rise. Smartphone giant Transsion backed the launching of PalmPay in Africa in 2019. Transsion invested in the fintech through its subsidiary, Techno together with Chinese internet technology company NetEase and chipmaker, Mediatek. The trio provided a seed round investment of $40 million to power the startup that is now a leader in the payment service. PalmPay has since gone on to raise US$100 million in Series A funding in 2022 backed by Chuangshi Capital, Yunshi Equity Investment Management, Trust Capital, Chengyu Capital and AfricInvest.

With Transsion’s continued growth in Africa, the device maker’s investment in African startups won’t slow down anytime soon, especially for startups that align towards its market area. It currently controls at least 20% of the smartphone market in Africa with its three brands; Techno (12.95%), Infinix (7.13%) and Itel (4.55%) as of November 2023, according to Statcounter.

Africa’s financial service sector just like other areas is underserved in terms of technology, opening a huge gap for startups to spring up to take the opportunity. And with Chinese interest in the continent still very high, the prospects of more Chinese investments in African startups are likely to be on a higher trajectory.

Jack Ma Foundation-backed African Business Heroes has been running for half a decade, supporting several African startups with funding, training and exposure. The programme aims to over 10 years recognize 100 African entrepreneurs, and provide grant funding and training to help them amplify the impact they are making in their communities. Apart from the prize won by the top 10, a number of them have successfully raised funding to expand following the conclusion of the programme. ANKA, which entered the competition as Afrikrea has been able to raise US$6.2 million in pre-Series A round to expand.

Chinese investment in African startups is thus not a novelty and will not fade out any time soon as African entrepreneurs keep innovating to attract global eyes.

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