The year 2023 proved to be a formidable test for businesses worldwide, as the global landscape grappled with geopolitical uncertainties, inflationary pressures, and evolving economic dynamics. The African business ecosystem was no exception, and this report delves into the specific challenges faced by the continent, highlighting the insights provided by Risana Zitha, Managing Director and Head of Africa at DAI Magister.

FX Volatility and Depreciation:

A prominent challenge in 2023 was the volatility in foreign exchange rates that significantly affected African markets. Two noteworthy examples include the Nigerian Naira, which saw a staggering 40% depreciation, and Kenya’s currency, which experienced a 20% devaluation. These fluctuations created unfavorable conditions for businesses operating in these regions.

Investors, keenly aware of the risks associated with currency instability, adopted a cautious stance towards markets characterized by significant FX uncertainties. Such volatility had the potential to erode the value of their portfolios, leading many to reconsider their investment strategies.

Financial Turmoil in African Start-ups:

Several promising African start-ups faced financial turmoil in 2023. One notable example is Dash, a Ghanaian fintech company that had successfully secured $86 million in funding over five years. However, Dash found itself entangled in financial issues, ultimately leading to its closure. Similarly, Zumi, a Kenyan B2B e-commerce start-up, struggled to secure vital funding at a crucial juncture, resulting in the termination of its operations.

Despite the prevalence of macroeconomic challenges and reduced funding, a significant development emerged in the African business ecosystem. The landscape is evolving into a more mature and resilient environment, with a shift towards prioritizing profitability over unbridled growth. Investors are now placing increased emphasis on factors such as cash flow predictability, profitability, and efficient capital utilization.

One positive trend in 2023 was the increase in growth-stage deals, signaling a departure from the earlier focus on seed and Series A funding rounds. This shift reflects the maturing of the African market and its progression towards “consolidation territory.” It suggests that mergers and acquisitions (M&A) are becoming viable options for an increasing number of businesses as the ecosystem continues to evolve.

Despite the challenges posed by FX volatility, inflationary pressures, and macroeconomic uncertainties in 2023, the African business ecosystem is demonstrating resilience and maturation. The emphasis on profitability, cash flow predictability, and efficient capital utilization underscores a shift towards a more sustainable and robust market. Moreover, the rising trend in growth-stage deals hints at an evolving landscape inching closer to consolidation, paving the way for M&A activities.