We recently had a productive trip to the U.S. to see many of our co-investors. The message we heard repeatedly was that the bar remains very high for Africa-focused companies to raise capital. The context is that AI is attracting most of the capital and attention, and among emerging markets, India is receiving the lion’s share of investment. Ironically, India continues to ramp up its investment in Africa (more on that below).
We continue to look at exciting early stage opportunities while continuing to work intensively with many of our founders, especially those with a raise in process. Our goal for our early stage companies is to help them meet milestones that enable them to attract high-quality follow-on capital. Series A or later investors want more than good ideas and impressive founder resumes. Founders in Africa compete for attention and capital with founders globally. Investors want real traction — growth, strong unit economics, and evidence of scalable marketing strategies. Many of our founders have been able to raise capital because they have demonstrated real traction and proven they can deliver significant growth efficiently.
Capital flows are naturally cyclical, and some companies are able to raise only in bull markets. But the very best companies and founders can raise follow-on capital in any environment. The current down cycle can be good news for strong companies, as it reduces noise and dampens new entrants. We don’t know what the year ahead will bring, but we remain focused on the longer-term trends powering our thesis. A recent quote from LVMH CEO Bernard Arnault rings true: “Maybe the economy will be not as good in ’24 as it was in ’23. What I have in mind is 2030. Every one of our plans is aimed at this.”
Team Updates
We are excited to share that Seif Amr, co-founder of THNDR, has joined Raba as a scout. We have worked closely with Seif over the years. Prior to THNDR, he was part of Uber's leadership team in Egypt and the Middle East. We have benefited from Seif’s insights and introductions, and our recent visit to Egypt convinced us to build out our presence there. Seif and his team are building one of the fastest-growing and most prominent companies in the region, and we couldn’t imagine a better ambassador for Raba.
Investor attention on India and India’s attention on Africa
Besides AI, India is receiving significant investor attention, and for good reason. India boasts a large market of 1.5 billion people, high growth with a 7.8% GDP increase, and stable leadership. The country is also a leader in public digital infrastructure with UPI (low cost real-time payments) and Aadhaar (identification infrastructure). What does this have to do with Africa? A lot!
India and Africa share a long history of trade, and India is among Africa’s most important trading partners today. Indian immigrants have been in East and South Africa since the mid-1800s, building significant business communities in places like KwaZulu-Natal in South Africa and Mombasa in Kenya. Recently, Ugandan President Yoweri Museveni praised the economic contributions of the approximately 35,000 Indians who have returned to Uganda after many were expelled in the 1970s. Museveni noted, "They told me about the 900 factories that they (Indian community) had built since they came back." These are long-standing bonds that the Indian government is focused on strengthening across Africa. In 2023, Prime Minister Modi pushed for the African Union to be a permanent member of the G-20, a decision that was ratified last September.
India is becoming one of the largest investors in Africa, committing $70 billion to the African Development Bank (AfDB) to finance public projects across the continent. India is also sharing its playbook for rolling out digital infrastructure like UPI, which has been one of the most successful digital projects globally. UPI processed over $240 billion in transactions in June alone — at scale and growing 37% year-on-year. Below are screenshots of recent announcements from NPCI, the international arm of India's payments corporation that developed UPI and operates under the aegis of the Reserve Bank of India.
And here is another announcement from May 2024:
In May 2024, Ritesh Shukla, the CEO of NPCI, shared that the number of countries going live on UPI will double in the next 12 to 18 months. Some of these UPI launches and partnerships are in Africa. The challenges facing African countries are ones that India has worked to resolve, including high cash usage, underbanked populations, little visibility into transactions and erratic tax receipts.
- "There are many countries in the world that have similar problems we had before the advent of UPI. These are financial inclusion, supporting rural economies, fintech incubation, transparency, and other things. We are looking at partnering with those countries to help them create their own versions of UPI in a very sovereign manner." - Ritesh Shukla, CEO of NPCI
Where is this headed?
India is Africa’s third-largest trading partner, with trade growing at 16.5% per year since 2001, reaching $103 billion in 2023 (over 20X growth). We call this big E to little E, or big emerging markets (India and China) to little emerging markets. To give a sense of scale, India and China average $16B of trade every two weeks with Africa, which is more than the annual trade of both countries with Africa in 2001. Our hypothesis is that government-led investment will open private sector companies to invest as well. The Indian private sector is increasingly active, with several investments announced in late 2023. Examples include India's Jindal Steel and Power committing $3 billion to develop Nigeria's steel sector, and Indorama Corp planning to invest an additional $8 billion to expand its petrochemical facility. These levels of investment and trade are unprecedented.Ultimately, the super trend is increased trade, investment and digitization, driving the growth of the real economies across the continent. The same confidence that global investors have in India is being demonstrated by India’s big bet on Africa.
Other: South Africa
South Africa held its presidential election in June and is now governed by a coalition, the Government of National Unity (GNU), comprising ten parties, including the ANC and DA. For those who attended the February Raba x Stitch summit, you heard from the Mayor of Cape Town, a representative of the DA. Following the election results, investor optimism has surged. JPMorgan issued a 'double upgrade' for South Africa, and Capitec, a consumer-focused bank we've previously highlighted, has added nearly $6 billion in market cap since the start of the year, with most gains occurring post-election. Positive momentum has returned in the short term.While we refrain from making future predictions on the country's macroeconomic outlook (we don’t know), we believe Cape Town will continue to strengthen as an international destination for capital and talent. Reflecting on our early days in Cape Town over five years ago, direct flights from the US were non-existent. Today, there are almost daily flights from New York, Washington DC, and Atlanta. To accommodate growing demand, a second international airport is being constructed in Cape Town’s wine region. There is growing investor interest in the region, and recently Cape Town's credit rating was upgraded, enabling the city to raise debt at a lower cost of capital to drive further investment.One of the impediments to growth, particularly a constraint for tech, was the difficulty for foreigners to work in South Africa. In our conversations with government leadership, we learned that reform is forthcoming, and as this recent Bloomberg article states, programs such as the digital nomad visa and a visa points system to attract highly skilled foreign talent are underway. These changes are incredibly important and have significant ramifications for both Cape Town and South Africa broadly. For those of you who are interested in reading our Why Cape Town piece from 2019, please find the link here.