Where Does Russia-Ukraine War Leave The African Tech Ecosystem?
When the first shots went off on Ukraine soil on February 24, 2022 from Russia, analysts & pundits were divided on what to make of what had just happened. While some said it was the end of the World Order as we knew it, some discounted it as a conflict between two neighbour countries where the more powerful of the duo, Russia, was out on a revanchist drive.
The ugly situation divided Africa’s response, where 28 out of 54 African countries sided with Ukraine. At the same time, Eritrea voted in favour of Russia and the rest abstained or didn’t show up to vote on the UN General Assembly resolution to condemn Russia’s action against Ukraine.
[How Africa voted on the Ukraine Declaration retrieved from Deutsche Welle]
Regardless of whatever school of thought anyone belonged to, the actions that preceded and followed Putin’s declaration of war on February 24 would remain under the petri dish of scholars from different fields for a long time.
More, it appears the war also wields weapons fashioned against the wallets and bellies of people in far Africa. Against this backdrop, several themes have emerged that would impact the African tech ecosystem:
“SHARE OF WALLET”: RISING COST OF ESSENTIALS
The crisis has posed significant risk for commodity trade. Wheat, for example, is a major ingredient in producing everyday staple foods like semolina, pasta, noodles, bread, to name a few. Russia and Ukraine jointly account for 25% of total wheat exports .
Two countries with the most active startup ecosystem in the continent are part of the world’s top wheat importers. Egypt, rank #1, imported about $4.67 billion (with $3.23B from Russia & Ukraine). Ranked #6 wheat importer globally with $1.48 billion in imports, Nigeria imports $450.2M in wheat from the embattled countries.
The export relationship and market realities have seen an unbearable increase in food prices, reacting to the supply pressure created by the situation. Worthy to note is the percentage of income spent on food across the selected African countries already, where people spend anywhere between 34% - 56.7% on food alone.
It is the same story with energy. The supply chain issues that come with the crisis and the sad total dependence on imports of refined petroleum for a petrostate like Nigeria has reared an ugly hydra-head for consumers. Both retail and bulk consumers have to grapple with scarcity and skyrocketed prices of fuel and diesel products while being left at the mercy of an epileptic national power grid. For manufacturers and service providers, the burgeoning operating expenses mean they need to raise the prices of goods and services.
To throw in this crisis and prevailing inflation situation means people need to pay significantly more for food and other essentials, leaving them with less discretionary income.
To paraphrase a sentiment that has been re-echoed often in the Nigerian startup ecosystem about the consumer’s share of wallet:
“Everything people sell in Africa competes with food”
THE FUNDING FRONT
Tier-1 VC firms participating in rounds on the continent are fast becoming a common scene, whether Softbank is leading rounds into Andela & Opay or Unicorn-bound startup, Sokowatch, bagging $125M Series B from Tiger Global and Avenir. Investors of Tiger’s stature have been instrumental in funding growth rounds for mature startups even as they are beginning to participate in earlier funding rounds on the continent.
Similarly, many early-stage funds in the ecosystem find their Limited Partners (LPs) in super angels and corporate entities outside the continent. Fund managers resort to raising capital like this to fill the existential void created by the lack of domestic capital (worthy to note is that the situation is changing).
The nature of funding has caused some in the ecosystem to question whether the African startups were truly African? One clear thing is that external capital remains very important in catalyzing the African startup ecosystem and realizing the famed Africa Growth Potential [for both startups & funds].
“The concept to look out for in all of these is risk premium. The Russian bonds have been downgraded to junk status in anticipation of a likely default. The war has a knock-on effect on how global fund managers & corporates assess the safety of deploying capital to Africa, affecting commitments to VC funds in Africa. Also, the culmination of these events may likely see startups due for growth rounds struggle during fundraising,” a Venture Partner in an SSA fund said. A slimming of round sizes coupled, while bad for the ecosystem, overall, may be good for participating VC firms in the short term.
Given the bird-eye view typically used to see Africa, it is unexpected there would be solid geopolitical concerns, especially with litters of Russia’s influence on the continent [Read more: Russia’s reengagement with Africa pays off]. “Prospective LPs say they are studying the situation. The enthusiasm to follow through on commitments for our new fund has waned,” another SSA fund manager revealed.
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‘Bami Olajide (@bamiolajide_) is a venture capital analyst on a mission of hunting & nurturing Africa’s next unicorns with Ingressive Capital. As a Brand-first operator, he contributes to raising the brand quality of startups in the African startup ecosystem with strategy & storytelling