Africa stands at a pivotal moment in its energy transition, with renewable energy emerging as a critical pathway to sustainable development and economic prosperity.
As the continent grapples with energy access challenges and environmental concerns, investors have a unique opportunity to drive positive change by funding startups focused on climate solutions and green technology innovations that are reducing environmental impact or promoting sustainability – ranging from renewable energy sources like solar and wind power, energy-efficient technologies, waste management solutions, and water purification systems.
According to some key facts on Trade and Human Rights disclosed by the Office of the High Commissioner for Human Rights (OHCHR), the AfCFTA is designed to boost intra-African trade by up to 52.3% whilst expecting it to expand Africa’s economy to USD 29 trillion by 2050.
In a noteworthy trend, the African continent is witnessing a substantial transition towards sustainability, marked by a notable upswing in initiatives centered around green technology.
This sweeping transformation spans diverse sectors such as renewable energy, agriculture, waste management, and transportation, signaling a profound shift towards eco-conscious practices across the region. Here is what you need to know about Africa’s Greentech Landscape:
- Solar energy is a key component of Africa’s greentech landscape. The International Renewable Energy Agency (IRENA) reports that Africa has abundant solar resources, with the potential to generate 10 terawatts (TW) of solar power by 2030.
- The Bahari Mali blue economy programme in Mainland Tanzania, the fisheries industry emerges as a crucial economic player, constituting 1.75% of the annual GDP. It stands as the third most significant sector following mining and tourism. With direct employment opportunities for 195,435 fishers and 30,064 aquafarmers, it also generates indirect employment for a staggering 4.5 million individuals, representing 6.89% of the total population. This underscores the sector’s expansive reach and its pivotal role in sustaining livelihoods along the fisheries value chain.
- Hydro Africa estimates 50% of the water supplied by utilities in Africa is lost before reaching the consumer due to leakages.
- African Union’s Agenda 2063 includes targets for increasing renewable energy capacity and expanding access to clean energy technologies.
- In September 2019, the Government of Malawi removed Value Added Tax and Import Duty on all solar products such as energy saver bulbs, solar batteries, solar battery chargers, energy lamps, generators, inverters and solar panels in an aim to reach approximately 11.2 million people.
- According to the Renewable Energy Market Analysis, only 2% of global investment in renewables was in Africa in 2021, and less than 3% of renewables jobs, yet the African continent could generate 7,900 gigawatts from solar power alone, with hundreds more gigawatts coming from wind, hydropower and geothermal energy.
Why Investors Must Fund Africa’s Greentech Startups
According to Henley & Partners, Africa is home to 135,200 millionaires, 342 centi-millionaires, and 21 billionaires, collectively holding a total investable wealth of USD 2.5 trillion yet, Africa’s startups still struggle to receive investment.
Urban centers or “startup hubs” such as Lagos, Nairobi, and Cape Town emerge as prime destinations for investment in Africa, closely followed by Cairo and Johannesburg.
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However, procuring financial support remains a formidable obstacle, particularly for fledgling startups. Notably, the majority of funding continues to originate from international investors.
Recent data highlights the stark reality: in 2021, less than 23% of startup funding in Africa was directed towards green enterprises, while a mere 0.2% of global climate-tech venture capital found its way to African shores. Despite the region’s acute need for climate mitigation funding, Africa attracts a meager 5% of total global investments in this area.
“Investing in renewable energy in Africa is not just a moral imperative; it’s a smart business decision,” says Dr. Fatima Kamara, a leading energy economist.
“The continent’s abundant renewable resources, coupled with increasing demand for energy access, present a compelling investment opportunity for forward-thinking investors.”
In Kenya, a nation at the forefront of entrepreneurial activity, nearly 90% of Entrepreneur Support Organizations (ESOs) identify “limited access to finance” as a major barrier hindering the growth of green startups, despite the country’s vibrant venture capital landscape.
While Kenyan-based startups have witnessed a surge in investment deals in recent years, the funding gaps in nascent ecosystems like Malawi, Mozambique, and Tanzania remain glaring.
In the face of mounting climate challenges, sub-Saharan Africa finds itself at a critical juncture, grappling with the urgent need for innovative solutions to combat the impacts of climate change. With its heavy reliance on rain-fed agriculture, inadequate infrastructure, and disparities in resource access, the region is exceptionally vulnerable to climate externalities.
These challenges hinder economic progress, disrupt livelihoods, and disproportionately affect vulnerable groups, including women and youth.
“Entrepreneurs and startups with innovative ideas and services have an important role to play in contributing to the Sustainable Development Goals. Today such actors often lack access to financing and technical support due to a number of barriers”, said Per Fredrik Ilsaas Pharo, Director of Climate and Environment at Norad.
To understand how vital investors are to strengthening Africa’s startup landscape, it is important to study past successful examples. Last year in May 2023, M-KOPA general manager, Babajide Duroshola, on a Twitter space organized by Big Tech This Week explained that debt helps one to get the required working capital to put to use as soon as possible.
M-KOPA secured a substantial USD 55 million in equity funding, coupled with an additional USD 200 million in debt financing. BasiGo, in collaboration with Novastar and Mobility54 successfully raised USD 6.6 million, aimed at bolstering efforts to revolutionize Kenya’s public transport system by electrifying it.
Also Read: Climate Crisis to Cost Global Economy $38 trillion Yearly, Experts Warn
Additionally, LeapFrog made a notable investment of USD 75 million in Sun King, a prominent provider of off-grid solar systems, further underscoring the robust momentum within the renewable energy sector yet more is needed beyond the call to finance greentech solutions.
Preparing Climate Startups for Sustainability – Navigating Funding Challenges while Developing Impactful Solutions:
Sub-Saharan Africa is increasingly emerging as a hotspot for climate innovation, with a growing array of homegrown solutions poised to make a tangible impact on the ground.
However, the journey from ideation to scale is fraught with challenges, chief among them being the scarcity of funding for green businesses.
Locally led Entrepreneur Support Organizations (ESOs) supporting startups in Africa’s green tech ecosystems could be the solutions to Africa’s climate challenges. Programs such as the “Empowering Sustainable Entrepreneurship Africa” are responding to these pressing needs.
“ESOs play a crucial role in the entrepreneurial ecosystem, serving as the first line of support for entrepreneurs, acting as both trainer and convener of essential networks such as investors and talent, especially in emerging ecosystems,” shares Rachel Crawford, who leads Special Projects at Village Capital, a nonprofit organization reinventing the system to back the entrepreneurs of the future who are building solutions to emergent social, economic, and environmental challenges in Africa and around the world.
An investable pipeline of high-growth potential startups addressing critical areas such as the blue economy, climate adaptation, food security, and renewable energy are the real influencers of our time.
Since its commercial inception in October 2012, M-KOPA, a Kenya-based consumer finance powerhouse has achieved unparalleled feats, selling over 250,000 solar energy systems to rural, low-income customers across East Africa in a mere three years.
M-KOPA achieved notable milestones through a blend of cutting-edge technology, an efficient rural distribution network, a compelling value proposition, and a steadfast commitment to customer satisfaction. Capitalizing on its robust infrastructure, M-KOPA has embarked on a journey beyond solar energy, extending its offerings to include a range of additional products available on credit.
In conclusion, it is “programs” such as the Empowering Sustainable Entrepreneurship Africa focusing on locally led ESOs in Ghana, Kenya, Malawi, Mozambique, and Tanzania that are vital to the economy. The holistic ecosystem-building for ESOs and startups focusing efforts to address the pervasive gaps and challenges in the entrepreneurial ecosystems in Africa by Africans to address climate thorns is where governments’ and investors’ attention should be.
By Zindzi Kibiku, a communications Consultant
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