African growth promise tempts investors
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
A list of Africa’s fastest-growing companies that is topped by Kenyan tech disrupters, South African platinum miners and Nigerian commodity traders makes one thing clear: the businesses thriving in the continent’s major economies are as diverse as they come.
This inaugural FT ranking, compiled with data company Statista and based on compound annual growth rate (CAGR) in revenues from 2017 to 2020, reflects big themes across African markets, both old and new.
Miners owe their place to a traditional tailwind for African corporate growth: booming commodities. But their presence also reveals that African producers are at the forefront of enabling new clean technologies around the world — demand for catalytic converters for cars, for example, has contributed to the run-up in platinum prices that has driven revenues in recent years.
But the list is characterised far more by start-ups, such as the frontrunner, Kenya’s Wasoko, that are tailoring the internet’s worldwide disruption of business models to classic African sectors, such as informal trade. In 2017, about a fifth of sub-Saharan Africa’s population was online. By 2020, that had risen to just under a third, according to the World Bank.
While the ranking does not extend beyond revenue growth to the cost of sales, or to profitability, Africa’s markets represent a more battle-hardened environment for fast-growing companies than other regions.
When raising funds, African start-up founders often say that they face greater pressure to show a path to profit earlier than companies in other parts of the world because their markets are considered less familiar to international investors.
And they are clearly doing so, as venture capitalists and other investors are coming to African markets with bigger cheque books than ever before. Evidence suggests more capital is finding its way to start-ups at later stages, when they are already approaching significant scale.
Last year marked an explosion in funding for fintech, in particular. African start-ups raised about $5bn in private markets, notably in venture capital, in 2021, according to data and estimates from the African Private Equity and Venture Capital Association (AVCA), an investor representative group, and Briter Bridges, a research firm.
While that was a sliver of the $600bn raised worldwide, it was more fundraising than had been achieved on the continent in the previous seven years combined, according to AVCA.
By the number of deals, the more than 600 transactions recorded by the body last year were nearly 10 times 2014’s total.
More than a dozen companies raised $100mn or more in 2021, compared with three in 2019 — supporting the idea that increasing amounts of capital are reaching start-ups when they are already nearing notable scale.
Almost all could be classed as fintech, and some, such as Flutterwave and Opay, both Nigeria-based digital payment companies, broke through to “unicorn” billion-dollar valuations with these funding rounds.
Wasoko, the top company in this ranking, came close to joining them. It raised $125mn, at a valuation of $625mn (although the company was ranked on CAGR to 2020). Opay’s $400mn round alone was larger than the entire African start-up market’s fundraising in 2017.
More from this report
However, even with this recent surge in investment, “there remains too little capital and talent, when compared to the strong demand for both from the many entrepreneurs building the next generation of world class African companies,” according to the AVCA.
One emerging talent bottleneck for high-growth African start-ups is the number of professional software developers on the continent, which has been estimated by Google at about 716,000, nearly half of whom are in Egypt, Kenya, Nigeria and South Africa. The average age of these developers, at 29, is younger than the global average of 36. One-third are under 25.
At the current rate of venture capital dealmaking, it is a fair bet that next year’s list will feature many more tech groups. But the ranking also reflects how capital markets beyond Africa have been swayed by companies from the continent. Revenue growth at South Africa’s Naspers (number 37 on this list and the continent’s biggest company by market capitalisation) reflects its stake of just under a third in China’s Tencent, and other international internet assets that are now housed in Prosus, its European investment vehicle that was created in 2019.
A few rungs up the list is IHS Towers, the continent’s biggest independent mobile phone mast operator, benefiting from a boom in the infrastructure needed for Africa’s surging internet use. IHS listed in New York last year in the biggest initial public offering by an African company on US markets.
Especially striking is heavy representation for South African miners of platinum group metals, of which the country is a large world supplier, including Northam, Royal Bafokeng and Anglo American Platinum.
That reflects the nature of a revenue-based growth ranking — miner sales in recent years have been boosted by surging platinum prices and depreciation of the South African rand, in which many costs are priced, relative to the US dollar.
It is a volatile mix. In 2020, the last year used for this ranking, the average platinum price was $885 per ounce — but this concealed highs of about $1,070 and lows of around $605. Palladium prices were just as wild, ricocheting between $2,800 and $1,600 per ounce beneath a 2020 average of $2,200.
Even though analysts point to signs of a maturing cycle, such as rising costs, mining executives insist that long-term demand for platinum is here to stay, given lack of supply and the requirement for the metal in clean energy technologies — producing fuel cells, for example.
“There is a systemic global primary supply problem, and it boils down to the scarcity of new mining projects to replace the depleting profiles of currently operating, mature mines,” said Paul Dunne, Northam’s chief executive, in March.
The platinum mining boom also shows that, while the ranking methodology stresses that it is tilted to “primarily organic” growth, expansion through acquisitions is important, too. In recent months, Northam has built a stake of around a third in Royal Bafokeng during a bid battle with Impala Platinum, another miner. Sibanye-Stillwater, a South African platinum miner that is not on this list, tripled revenues from 2018 to last year as it made deals including an entry into battery metals.
M&A-driven growth could also become part of the lifeblood of Africa’s biggest fintech start-ups, both on and off this ranking.
MFS Africa, a South Africa-based digital payments gateway, pulled off one of last year’s $100mn-plus fundraising deals. It has also been highly involved in pan-African M&A, making two large acquisitions to expand in both west and east Africa, as well as three minority investments, over 2020 and 2021.
Deals such as those by MFS “are critical building blocks in building an expansive fintech infrastructure business on the continent”, because of the importance of scale in payments, Renaissance Capital analysts said last month.
“We think the trend of consolidations in the ecosystem is likely to continue, spurred on by access to venture funding, with fintech companies leading the charge,” they added.