Foreign Investment in Nigeria Tech Startups Falls by 66% - Report

Foreign investments in Nigerian startups fell by 65.83% year on year to US$410 million in 2023 from US$1.2 billion recorded in 2022, the Big Deal, a tech research firm said in a report.

According to the firm, it was a remarkable year for African entrepreneurs, with investments rebalanced across four of the continent’s main tech markets: Egypt, Nigeria, Kenya, and South Africa.

Nigeria has long earned the largest share of startup investments; however, in 2023, Kenya surpassed the West African country, receiving the most tech funding on the continent.

The latest decline in investment in Nigerian startups resulted in the country relinquishing its leading position on the continent to Kenya.

Kenyan President William Ruto announced the increased financing on X, citing the country’s strategic changes that have improved Kenya’s economic environment.

“I’m proud that Kenya leads Africa in startup capital, securing an impressive $800 million (Ksh 124 billion) in 2023,” he said.

”Our strategic reforms have improved the business environment, making Kenya the ideal destination for investors. This achievement demonstrates our dedication to promoting innovation and economic progress.

“The significant money is producing new ideas, spurring technical advancements, and propelling employment development,” he noted.

Last year, Kenyan startups raised a little under US$800 million to claim the top spot in Africa. Nigeria finished the year as number four behind Kenya, Egypt, and South Africa, according to the BigDeal Africa Research – which tracks all US$100k and above funding deals secured by startups in Africa.

The Big Four sustained their market dominance, securing 87% of the total startup funding on the continent. Overall, startup funding in Africa declined by 39% to US$2.9 billion in 2023.

The BigDeal Africa Research reiterated that Nigeria is the only country among the big four where the most dramatic change happened in 2023. Naira Rises by 19% as Forex Market Pressures Ease

While the country still claimed the highest number of start-ups to raise US$100k or more (146, 29% of the continent), the amount raised only reached US$410 million, compared to US$1.2 billion in 2022, and US$1.7 billion in 2021

Nigeria’s share of Western African funding continued to drop to reach 68% in 2023, down from 77% in 2022 and 85% in 2021. This is the lowest regional share of any Big Four market since data tracking in 2019. 

Despite experiencing a decline (25% y/y), Kenyan startups were able to raise just under US$800m in 2023, attracting the most funding, 28% of the continent’s total.

In Egypt, 48 startups raised US$100k+ in 2023, the lowest number out of the big four but the country claimed the second spot on the continent, raising US$640m.

In South Africa, the 70 startups that raised US$100k or more in the country accumulated US$600m in funding i.e. 21% of the continent’s total. South Africa was the only one of the big four not to see its total funding shrink between 2022 and 2023 (+85 y/y). 

As the largest economy in Africa with a dynamic and youthful population, Nigeria is rapidly evolving into a thriving tech ecosystem, emerging as a prominent hub for technology startups on the continent.

In 2022, the country, according to media reports, attracted more than 20% of Africa’s total tech investment. Despite this promising growth, the landscape presents a set of challenges that impact the sustainability of startups.

Notably, Nigerian startups heavily rely on foreign investments, constituting approximately 87% of their funding. However, recent concerns have arisen due to challenges faced by investors in repatriating their funds, leading to a decline in confidence within the investment community.

The long-term viability of startups in Nigeria is further hindered by inadequate infrastructure and acute shortages of foreign exchange.

These issues pose significant obstacles to the seamless operation and expansion of tech ventures, impacting their ability to thrive in the competitive market. Reports put the startup failure rate in Nigeria at about 61.07%.

During the period, 93 start-ups raised $100,000 or more, accounting for 19% of Africa’s total.