Startup funding concerns balanced by AI optimism at GITEX Africa

Resolving the funding crunch facing African startups and positioning economies across the continent to reap the full benefits of artificial intelligence (AI) dominated discussions at the third edition of GITEX Africa in Morocco, where over 45,000 international participants gathered in Marrakech for the continent’s largest tech and startup show.

Multiple speakers raised alarm over the decline in venture capital (VC) funding for African startups in the past year, arguing that this trend underscored the critical need for entrepreneurs on the continent to rethink their funding strategies and consider alternative sources of financing.

According to a new report by the African Private Capital Association (AVCA), the value of transactions involving African startups fell by 22% year-on-year in 2024, while the volume of deals declined by 28%. Persistent inflation, higher interest rates, supply chain disruptions and geopolitical shocks prompted capital allocators to retreat from the continent, compelling many startups to shelve their expansion plans and prioritise organic growth strategies.

African investors step up

Despite the challenging funding environment, Abi Mustapha-Maduakor, CEO of AVCA, struck a positive tone and stressed that Africa had demonstrated “notable resilience” in the face of global challenges. She pointed to the increasing involvement of African investors in funding rounds and diversification beyond fintech as reasons for optimism, noting that over a longer timeframe, dealmaking in African tech was on a healthy upward trajectory.

“While overall funding has contracted, we’re seeing strategic adaptations – higher quality deals, sector diversification beyond fintech, increased venture debt utilisation, and the strengthening role of African investors,” she said.

The AVCA report indicated that African investors emerged as the single largest group of active participants in VC in 2024, representing 31% of the total investor pool compared to 19% a decade ago. Overall, 35 fund managers across 41 funds have raised $2.7bn in final closes since 2015, reflecting a 25% compounded annual growth rate (CAGR).

Speaking on a panel, Olu Olufemi-White, CEO of Alami Capital, called on African startups to reassess their engagement strategies with investors in light of the recent pullback in VC funding. She noted that entrepreneurs should not only concentrate on showcasing their businesses’ growth potential, but also prioritise building credibility as responsible, trustworthy operators. Credibility, she argued, was vital in winning over investors in an environment marked by a risk-off sentiment

“Entrepreneurs need to understand that when you take onboard investor money it is a signal of trust. You are a fiduciary; it is not a repository to fund your lifestyle. Credibility allows you to build durable companies,” she said.

AI raises hopes

In terms of the sectors that attracted the highest VC funding, fintech remained dominant with 116 deals raising $1.4bn or 34% of all tech-enabled rounds in 2024, AVCA’s report revealed. Clean & climatetech rose to 13% of tech-enabled deal volume, up from a 7% five-year average, while AI made its debut appearance among the top four most funded verticals with 42 deals raising $108m.

Investors, startups and multinationals alike expressed optimism that AI would help fuel a faster recovery in African tech dealmaking. Speakers highlighted the increased deployment of digital infrastructure across the continent and the renewed focus on upskilling the African workforce as positive tailwinds for AI.

The recent partnership between Nvidia and UK-headquartered Cassava to build data centres powered with Nvidia AI computing technology in South Africa, Kenya, Nigeria, Morocco and Egypt was extensively cited in multiple panels as a major boost for African AI.

Nkululeko Thangelane, executive head of AI and big data at Vodacom South Africa, told African Business on the sidelines of GITEX that the benefits of AI are not far out in the future, but already being felt in the present.

“Internally we’ve seen improvements in productivity and efficiency while externally we have improved our offering to customers through increased personalisation, and our chatbot which speaks zulu and local languages” he said. “We’ve also been able to reduce fraud by a large factor of about 20%.”

Thangelane said that these improvements have prompted Vodacom to allocate a greater share of its capital expenditure to AI investments.

“We have a KPI to ensure at least 10% of our IT spend in the next two years is invested in AI, and that’s a minimum, so at some point it should be increased,” he said.

“The direction we want to go is agentic AI. We’re transforming the business from the traditional robotic automation to intelligent automation.”