Why invest in Africa now? Four Questions with GreenTec Capital’s CIO Tomi Davies

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Frankfurt (Germany); November 2020. We sat down with GreenTec Capital Partner’s CIO Tomi Davies (TD) to ask him a few questions and get a better sense of what one of Africa’s most prominent and recognizable angel investors has to say about his plans for GreenTec, his investment thesis, and the future investment landscape in Africa.

To those already familiar with the African start-up ecosystem TD needs no introduction. Before joining GreenTec Capital as Chief Investment Officer, TD has enjoyed numerous successes across a number of ventures, but he is most dedicated to his current project of building the future of Africa through investing in innovative African entrepreneurs. To this end, he has been working to build up supporting infrastructure around the start-up ecosystem on the continent for some time. His work includes building some of the 50 angel networks across 33 African countries with ABAN and supporting other ecosystem players like the innovation hubs through networks like Afrilabs and managing his growing portfolio of startups at TVC Labs in Lagos. We sat down to ask Tomi a few questions about his move to join GreenTec Capital and his plans for the future:

What brought you to join GreenTec Capital Partners?

I joined GreenTec Capital Partners because I see a once in a lifetime opportunity to build synergies between the work I have been engaging with for the last decade and a team that shares the same vision and values that I do. Before joining GCP, I had interactions with Thomas Festerling, Erick Yong and Sannssi Cisse from my work as an Advisor to the Greentec Foundation. However, getting to know them, other members of the leadership team JD Rugiero and Shelly Kelly better in the last two months has convinced me this has been the right decision.”

What is your Investment Thesis?

“My investment thesis is centered on the premise that supporting African founders implementing innovative solutions to significant problems, especially those that are technology enabled can be lucrative and impactful. Put simply, these entrepreneurs are quickly and effectively building the future of Africa as we speak and those who support their efforts constructively will benefit from the results. So while ‘technology’ is a common investment destination, I prefer to think about how technology is applied to create sustainable resources in what we refer to as ‘the essentials’ which are “food & agric”, “healthtech”, “energy” and “edtech”, then there are those that are creating efficiencies innovation with ecommerce, fintech and mobility. Then, there’s ‘the Future of work.’ which embraces Edutech and enterprise as lifelong learning becomes the norm.  While the importance of food does not need to be belabored, there are a number of interesting technological solutions already disrupting and improving how Africans are getting their food and learning making agriculture and education two sectors that can only continue to grow driven by African’s growing population and where technology will be critical to meeting future demand. With respect to the ‘Efficiencies’ I refer to innovative mobile technology-based solutions and commercial improvements being applied to age old continental challenges such as the proliferation of mobile payments and, more recently, ride hailing applications. Finally, as much as the rest of the world, Africa is poised to reap the benefits from the ‘Future of Work’ as learning and education move online to accommodate scale. With rapid urbanization and more and more businesses moving online, Africa’s youth will be living and working in a very different world tomorrow…

What do you think about current investment opportunities in Africa?

“Some of Africa’s biggest opportunities are in identifying regional and continental scale solutions which are language independent. These solutions go directly head-on into the communications problems faced on the continent. Here the rapid proliferation of Fintech and mobile payments are instructive examples. I expect MedTech and EdTech solutions to follow suit shortly. Let me use Nigeria as one quantum of the problem: Every year, there are between 5 and 6 million new Nigerians born. With this growing population technology will be more and more important to stem the decay and provide alternatives to the overburdened government educational system. Addressing even just 10% of this demographic will be a challenge. I want to dwell on the issue of scale here for a moment. At over 30 million square kilometers, The African continent is a significant geography. You can easily fit the land mass of continental US, China, and India into the continent and still find room for most European countries as well. We are talking about more than 1 billion people from over 3,000 tribes, speaking over 2,000 languages in 54 different countries and 8 regional economic communities. The African Continental Free Trade Agreement (AfCFTA) is a 5.6 trillion-dollar opportunity because of several transformative factors. The first is that Africa has the fastest urbanization rate in the world, providing numerous opportunities in the challenges of bringing some many people together. Next, is the demographic factor that by 2034, Africa’s youth will number more than 1 billion exceeding China and India. With smartphone penetration already at 50% year, this represents an enormous number of people going online and doing business in new ways. This will also have cascading impacts on energy demand and indeed fundamentally reorient the business landscape. However, I do not want to leave people with the impression that business in Africa is “all peaches and cream. Africa faces many significant challenges, starting with Leadership across the continent that are failing to build the necessary infrastructure quickly enough to meet the population growth especially in our cities. Many countries in Africa are still suffering from the legacy of colonial education systems leaving their citizens further and further behind in this new digital age. In addition, the continent has plenty of its own security challenges from Somalia to Nigeria, Libya to Mali typifying political instability. Finally, with inadequate energy infrastructure the problems of access to electrical power for millions of Africans remains a luxury.

What are your thoughts on impact & exits in Africa?

We are just starting to understand impact assessment metrics when combined with commercial expectations so it will be interesting to see how we measure the impact of Covid-19 on African developmental partner and family office efforts that lead the impact investing activities on the continent. With reference to commercial startups, we saw a 74% jump in early stage investment funding last year (2019) and funnily enough we are on track to still exceed the billion-dollar mark this year also as evidenced by the Stripe purchase of Paystack and the continued funding of startups by angel groups across the continent. The African Diamond – Egypt in the North, Nigeria in the West, Kenya in the East and South Africa in the South remain the destination of choice for venture capital and private equity alike so expect to continue to see increasing activity albeit with smaller cheque sizes as we go along. However, we are also seeing the rise of stable growth countries such as Ghana, Rwanda and Senegal becoming startup investment destinations too. Hope as they say springs eternal.

 

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