Venture Capital flows to fintech innovators in Africa: How governmental policy and actions affect the ecosystem and capital sources

Abstract

This master’s thesis explores aspects of the current state of fintech and venture capital within Africa as an emerging market, bringing to light the policies and actions of the different governments that contribute to stimulate the market. The study looks at policies and actions that directly relate to fintech and those that relate to venture capital and brings out the connection between both. The study goes further to bring in the issue of political stability and how it contributes to the industry. Through this multiple case study, which focuses on the selected fintech ‘hotspot’ countries of Nigeria, Ghana, Kenya, South Africa and Rwanda, insights have been gathered as to what factors contribute to these countries achieving higher levels of fintech innovation and venture capital investment. The study is based on data collected from both primary and secondary sources, with the primary data collected through interviews with policy makers of the different countries, venture capital fund managers, investment advisors and other intermediaries. Secondary data was collected through articles, industry reports, websites and other online sources. Furthermore, this study presents a detailed review of relevant concepts, including factors that VC firms consider before investing into a foreign market, which is used as the base of analysis. Based on the empirical findings, there exists a lot of similarities as well as some uniqueness in the way the governments approach policies relating to VC and fintech. The analysis carried out shows that for policies and actions that support innovation, which include fintech, sandboxes and innovation hubs, R&D incentives, innovation funds as well as the design of startup acts, are put in place by the governments of these countries to encourage researchers and entrepreneurs. Regarding actions and policies that support VC transactions, there are exchange controls put in place to regulate the flow of capital, direct investments by governments into VC firms, direct regulations put in place by governments, as well as development of the stock market to encourage high value exits. These actions and policies are similar in all the countries covered in this study but unique in their application and stimulating innovation leads to more deal flow into the VC industry. With regards to political stability, frequent civil conflicts happening in some countries and changes in leadership are the main highlights that influence VC activities and innovation. The study presents that though the countries are making progress in putting in place regulations that stimulate the industry, a lot still needs to be done and considered in making these policies as some of them instead stifle activities within the industry. There is the possibility to use industry actors and intermediaries in the regulatory process, to make use of their experiences and design policies that work.