In VC alone, funding to climate tech grew five times faster than the wider industry between 2013 and 2019. And the surge has not stopped: in the first half of this year, start-ups focused on climate tech got more VC funds than they did in all of 2019. Added to recent announcements by the USA and UK to increase investment, there’s never been a better time to build the technologies we need to solve the climate crisis.
Despite this gold rush, however, activity is yet to echo through Africa. While close to 93% of climate tech investments went to the USA, China and Europe, Africa had only 0.2% of deals. Even the growing interest in Africa’s tech ecosystem has yet to translate into more action in this area. The recent announcement that Y-Combinator, one of Silicon Valley’s foremost accelerators, was admitting its largest cohort of African start-ups was even disappointing in this regard. Of the 60+ African companies on their register, only a few are climate-tech-focused.
This needs to change. As it stands, the threats posed by climate change to vulnerable populations in Africa will get worse in the coming years.
Investing in climate tech will be critical to countering these risks and to building adaptive and resilient economies. The continent is home to vast resources needed for climate innovation: from the DRC’s large cobalt deposits, which enables global battery production, to the swathes of desert land now attracting attention for green hydrogen. Political leaders must act decisively to be part of the climate tech investment wave. Without it, Africa risks missing out on a trillion-dollar opportunity.
Look within while signalling for global capital
First, Africa should tap into its wealth. The continent is home to approximately two trillion dollars of private capital accumulated by thousands of high-net-worth individuals, yet local investors accounted for only a fifth of tech VC funding on the continent. Africa’s underdeveloped local investor base contributes to higher risk perception and hesitance by foreign investors who may not have experience in managing investments on the continent.
African leaders must build a strong local investor ecosystem to signal to global investors that the continent is ready for business. Governments need to support the local VCs and angel networks that focus on climate tech start-ups, through developing tax reliefs for climate-focused investments.
The article continues below
Get your free PDF: Top 200 banks 2019
The race to transform
Complete the form and download, for free, the highlights from The Africa Report’s Exclusive Ranking of Africa’s top 200 banks from last year. Get your free PDF by completing the following form
The diaspora population would have an opportunity here to become pioneering investors, with just five per cent of remittances exceeding all VC funds on the continent. In addition to tax incentives, setting up funds of funds through regional and national investment banks to support climate tech will be a crucial step forward.
Build stronger corporate links
The challenges for African tech start-ups are enormous – from fragmented markets to poor digital and physical infrastructure. But even if the companies get to navigate the hurdles successfully, there remains the challenge of incumbent national players who stack up the odds against them. A climate tech start-up that specializes in providing peer-to-peer battery energy trading, for example, would have challenges working with utilities on customer acquisition.
Africa must therefore incentivise partnerships between climate tech start-ups and the national corporate champions. Corporate social responsibility should be directed to funding local start-ups that address local problems in climate adaptation and resilience.
Traditional energy companies like Shell and Chevron continue to be part of the world’s major investors in climate tech. Their presence in tech hubs like Nigeria must be harnessed to boost the local climate tech ecosystem in areas like biofuel and biogas innovation. A similar principle applies to utilities, mining, construction, and industrial sector players whose business models can be enhanced by upscaling climate innovation.
African countries from Rwanda to Ghana are developing start-up acts which are a great way of making it easy to create and run tech start-ups. But for such legislation to work for climate tech, much deeper action must take place in developing capital, providing incentives, and reducing policy barriers. From creating high-quality carbon offset markets to closing the gaps in access to clean energy, climate tech holds a huge promise in Africa. Now is the time to make that promise a reality.