Africa’s Tech Sector Is Powering Up In 2025
Author: Absa Investment Banking Origination, Absa’s head of financial technology and banking
Even in the harshest environments, growth will flourish in unexpected ways. Although there was little to be considered positive for Africa’s tech ecosystem in the early days of the pandemic, this challenging time unexpectedly stimulated extraordinary development. The industry reached its funding peak in 2020 and 2021, as the company gained hundreds of millions of dollars in sales to drive innovation across the industry.
However, this is short-lived.
As global interest rates respond to the constant inflation response, currency tightening has triggered a major capital pullback. Large, mainly American funds began to venture into Africa, shifting their focus to domestic markets that deal with economic pressure.
Once influx of international capital, the ecosystem is now facing a more selective and challenging investment landscape. according to Parttech’s 2024 Africa Technology Reporttechnology startups across the continent received $3.2 billion in total funding in 2024 – a 7% year-on-year decline. The number of investors participating in trading in the African technology ecosystem is flat year-on-year, with the number of unique stock investors being 583 unique stock investors in 2024. While this shows a foundation for resilience to the ecosystem, it pales compared to 2022, when more than 1,100 investors participated.
But encouraging signs indicate cautiously optimistic outlook in 2025.
While a dramatic rebound may not occur, stability (even modest recovery) can be reached. This sentiment is due to the gradual reduction of global interest rates in 2024, which promotes new demand for investor risks. As capital increasingly attracts high growth opportunities, Africa’s technology ecosystem has a good place to attract new interest, although this optimism has been alleviated by the potential for inflation and rising interest rates, Potential and its strength on emerging and border markets and its impact. The M&A landscape is also expected to gain greater vitality. While many tech companies will continue to focus on driving organic growth, the sharp decline in valuations across the wider tech ecosystem has laid a fertile foundation for increased deals. It is worth noting that much of this activity is expected to be driven by the technology companies themselves, leveraging favorable market conditions to consolidate and strengthen their competitive position.
This year will lead to three key areas across the continent: Merchant Access Space, Instant Payment Systems (IPS), and Mergers and Acquisitions (M&A).
Several trends are intended to strengthen the growth of the businessmen gaining industry on the mainland. Driven by a young, tech-savvy population, the demand for seamless payment solutions is growing, and digital penetration and use are growing steadily.
The fintech industry is rapidly evolving to meet these needs, introducing innovative tools and services to enhance payment accessibility in an omnichannel manner. In addition, cooperative efforts between regulators and financial institutions are creating an enabling environment to prioritize financial inclusion, further strengthening the ecosystem and integrating businessmen into the digital economy. The development of IPS in major African markets is another key area.
according to AfricanIn 2023, the continent’s IPS platform handled a record 49 billion transactions. Total value soared to $1 trillion that year, marking an average annual growth rate of 39% since 2019.
Central banks are increasingly taking active measures to expand the coverage and inclusion of these payment systems. In South Africa, for example, the Reserve Bank has been working to integrate non-banks into national clearing and settlement systems, a move aimed at enhancing unaccounted and unpopular bank finances. As trust in these systems grows, it sets the stage for transformative models such as open banking, allowing non-traditional players to seamlessly integrate financial services into their platforms. This not only allows access to financial instruments to accelerate the pace of financial inclusion and economic participation across the continent.
The market will closely monitor potential M&A activities led by tech companies as stronger, funded participants evaluate strategic acquisitions to strengthen their stance and capitalize on backpacks in valuation. Others will watch whether leading mobile currency providers, banks or card plans will begin to acquire, and if so, these transactions may be realized in the market and segments. Such activities may mark a consolidation of the market segment, expanding to underserved areas or product lines, or integrating complementary services such as digital loans, remittances or insurance. The results of these moves will have a significant impact, shaping competitive momentum and affecting the trajectory of financial inclusion on the continent.
These shifts occur as Africa’s tech ecosystem enters a new stage. Unlike the previous era, the next chapter will not be defined by pursuing unicorn identity. What the ecosystem really needs is successful businesses that successfully solve real-world challenges and provide scalable, impactful solutions. The size of these companies is the importance of the problems they solve and the importance of the tangible value they create.
In this environment, investors are likely to tend toward businesses led by competent entrepreneurs to address pressing problems with clarity and innovation. Capital naturally follows these risks, reflecting their potential to have meaningful impact. The current challenging market atmosphere has become a stress test for many companies, leaving behind people who can handle the unique complexity of Africa. What emerges may be a more powerful and resilient business that not only possesses the resources to grow, but also has a better understanding of the region’s strategy of continuing success.
