Melvyn Lubega is the founder of the online education business Go1, South Africa’s first unicorn tech company valued at over $1 billion, and a Partner at venture capital firm Breega. He shares his thoughts on the future growth of Africa’s tech ecosystem.

Breega has invested in early-stage tech companies across the continent, including Numida in Uganda, and Kwara in Kenya. Breega recently participated in a funding round for YMO, a fintech startup in Guinea, which raised €3 million. Founded in 2019, YMO is a mobile payments service with nearly 1 million users, primarily in West Africa.

Q: African tech markets are still lagging behind the rest of the world, and those markets are primarily concentrated in four countries – Kenya, Nigeria, Egypt and South Africa. What are the obstacles to the further development of the African tech ecosystem?

Melvyn Lubega: A big element is capital. I think what you find is that capital is attracted to those four key geographies and less to others. It doesn’t mean there are lesser quality entrepreneurs, or lower quality businesses elsewhere. Those four are also the foremost developed countries in Africa. Basic infrastructure, such as access to electricity and access to Internet, is better in those countries than elsewhere in Africa. If you can’t have access to Internet, how do you build out affordable data? How do you build out a tech platform?

Look at the tech investment in Africa. We know that it is behind other geographies. Last year Africa raised about five billion dollars odd in venture capital, which is the equivalent to Spain. Thinking about the obstacles for the African tech ecosystem, and broadening that ecosystem, is one of the reasons why Breega is keen to expand its investment on the continent.

Policy also plays an important role. The biggest challenge for many investors looking at Africa is always exits. And exit implies: how do I get my money out? Are you building something of enough value that you can realize that value and, if you realize that value, how do you get the money back to your investors on the other side?

Q: Are there any countries that you feel already have specifically well-designed policies?

Melvyn Lubega: There’s a big movement around Startup Acts. Tunisia and Zambia are making good grounds on their policies. South Africa is probably two steps behind them in terms of getting the policy through into law.

I think the problem is in Africa, we forget that capital (investment) can choose where it goes and it’s fluid. It’s not necessarily tied to Africa in some way. Someone’s not necessarily thinking – “do I invest in South Africa or Nigeria?” They’re thinking – “do I invest in Africa or Europe?” I think we may often argue, especially amongst the big countries, who has the biggest sandcastle whilst our peers are building skyscrapers on the beachfront.

Q: After several years of euphoria, the tech market is likely to see a significant drop in deal value. Will African startups also find it increasingly difficult to raise funds, or is that something that won’t affect them as much?

Melvyn Lubega: I believe there will be a change, and one that will also affect us in Africa. I think the question is to what extent? It may not be to the same extent only because South Africa benefits from many macro-economic tailwinds, and because the base is so low when it comes to tech and tech innovation that there’s so much white space for entrepreneurs to go and solve meaningful problems.

I do think the market will see a flight to quality. I think over the last two years we had a situation where there was lots of capital but it wasn’t necessarily going to the right entrepreneurs in the right quantums.  I think that, for a long time, business fundamentals were ignored. It was almost like growth at all costs.

Q: What do you think are just some of the most promising sectors for African startups? Are there some industries that are particularly exciting?

Melvyn Lubega: For me, when we think about economic growth, I see capital and the flow of capital being an engine for that growth. And so that’s where you see things like fintech coming to the fore and even insurtech, which has a lower base in Africa.

Another mainstay would be thinking through logistics. In Africa, from a logistics perspective, there is limited infrastructure. The reality is, if you think about Africa, sometimes up to 75% of the cost of a final good can be the result of logistics costs.  Whereas, in a functioning developing market, that can be 6%. It’s an opportunity to use tech to create the infrastructure that bridges that divide.

Q: The fintech sector seems particularly promising, but very competitive. What are the keys to success there?

Melvyn Lubega: It’s a very complex space in Africa. What’s important is that the most valuable fintechs, the most useful ones, are the ones that you don’t even think of. It’s the ones that are embedded in the flow of creating value. To succeed in that sector, you have to be solving real problems. Which is why Breega is a good fit—our aim is to propel pioneering and purpose driven-founders from idea to impact and in doing so help shape the world of tomorrow. It’s not about creating another wallet for creating a wallet’s sake or doing another payment platform. It’s about saying: what problem are you actually solving?

 

This interview has been condensed and edited for clarity.

End

To Get The Latest News Update

Sign up to Our Subscription.

We don’t spam! Read our privacy policy for more info.

To Get The Latest News Update

Sign up to Our Subscription.

We don’t spam! Read our privacy policy for more info.

Leave a Reply

Your email address will not be published. Required fields are marked *