What Keeps African Ecosystem Builders Awake at Night? The Challenge of Foreign Dependency

By: Salma Baghdadi

Ecosystem building is a collective effort, requiring contributions from a variety of stakeholders. In African contexts, where resources and funding are often limited, international enablers play a pivotal role in fueling and fostering growth. This support is both welcomed and appreciated, becoming a cornerstone in many ecosystem-building strategies. However, such reliance also presents risks, as shifting international funding strategies, especially in today’s politically and economically unstable times, can jeopardize the long-term sustainability of these ecosystems.

The Scale of Foreign Donations and Investments
It is difficult to quantify the exact amount of foreign donations and investments directed toward Africa's digitization, innovation, and startups, but the scale is undoubtedly significant. Africa continues to be the leading destination for DFI (Development Finance Institution) investments, accounting for 40% of total new commitments in 2023, amounting to €3.8 billion—an increase of 12% from the previous year. 

International funding takes various forms, including investments, co-investments, loans, and grants. Traditionally, these funds are channeled to support public strategies and initiatives, typically allocated to public institutions such as Ministries of Finance, Economy and Planning, or technical ministries like Telecommunications, Digitization, Education, and Academic Research.

In recent years, however, international funding has been diversifying its allocation methods. Increasingly, funding is being directed toward the private sector. This includes investments in venture capital (VC) funds and direct grants to startup support organizations, research labs, or even startups themselves.

In Tunisia, for example, the World Bank allocated a $75 million loan in 2019 to catalyze startup investment and foster the tech and innovation ecosystem.

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Similarly, Benin received a $300 million donation in 2021 to support education, entrepreneurship, and the promotion of the entrepreneurial ecosystem. Several European DFIs, including the European Investment Bank, AFD, CDC, DEG, FMO, Proparco, Swedfund, and Norfund, contribute substantial funds across various African countries.

Additional support comes from global organizations like the UN through programs such as the UN Accelerator Labs, as well as initiatives led by ITC and other key international players. Foreign cooperation agencies, including the European Union, GIZ, Expertise France, Dutch Development Agencies, and USAID, also provide substantial grants and donations across the continent.

The Role of DFIs as Ecosystem Enablers
DFIs and foreign cooperation agencies play an integral role in shaping Africa's tech ecosystems. Their involvement spans nearly all aspects of ecosystem building: from public policy advocacy and legal framework drafting to capacity building for stakeholders and driving digitization strategies in both the public and private sectors. These entities fund Startup Support Organizations (SSOs) and startups, act as LPs in Fund of Funds and in regional VC funds, sponsor participation of national delegations in international events, and promote local ecosystems on the global stage.

Acting as funders, enablers, capacity builders, and connectors, DFIs amplify national strategies by providing critical resources, expertise, and best practices. However, the governance and motivations behind these initiatives are often shaped outside Africa—in places such as the EU Parliament, Washington DC for IMF and IFC, or the UN offices in New York or Geneva. Decisions are typically driven by global agendas, which are then adapted to suit local and regional contexts and needs.

The Risks of Foreign Dependency
Reliance on foreign support comes with inherent risks. Such support is often tied to global political and economic agendas and is therefore vulnerable to shifts in the international landscape. Political instability, regional conflicts, or changes in donor countries’ priorities can result in disruptions or even the withdrawal of support.

Economic downturns in donor nations can reduce the funds allocated to African nations, as these contributions rely on taxpayer money, which may be redirected to address local economic challenges first (which is normal). A shift towards far-right political ideologies in donor countries can lead to significant changes in funding strategies. Or even, conflicts like the war in Ukraine or in Gaza can indirectly affect fund allocations.

Similarly, election outcomes in African nations or changes in political direction can result in a cessation of funding, as a way for foreign entities to express disapproval of new political orientations. In such cases, startups—private companies with no control over geopolitical decisions—bear the brunt of these changes, leaving the entire ecosystem vulnerable to external forces.

How to Build Less Dependent Ecosystems

This is a complex challenge with no easy solutions, but here are some areas for collective exploration:

1. Create a trustworthy environment for local and international investors: High-potential local startups are often required to incorporate abroad in investor-friendly jurisdictions to access larger funding opportunities. This is primarily due to the scarcity of local funds and the understandable apprehension of international investors about entering less-developed markets. However, this challenge can be addressed through the implementation of conducive public policies that create a healthy and trustworthy investment environment.For example, Mauritius’ Investment Promotion Act of 2000 significantly increased the number of funds created and attracted to the country. Similarly, the Astana International Financial Center (AIFC) in Kazakhstan, which introduced an independent jurisdiction based on British law, has greatly boosted investor confidence. This has led to a tenfold increase in venture capital over the past two years, attracting investments from across Central Asia.
2. Strengthen local Ecosystem Builders: Unite public and private sector ecosystem builders under a common vision to create a sustainable tech ecosystem. Collaborative discussions between these stakeholders are crucial for progress. Côte d'Ivoire is a notable example to watch, as the country is developing a holistic strategy to support local startups. This includes an encouraging legal framework and fostering collaboration between the public and private sectors to provide both technical and financial support to innovative companies.
3. Champion local political support: Advocate for political leaders who can champion the growth of tech ecosystems, startups, and the knowledge economy. While political alignment with governments may be difficult, maintaining an open dialogue with public institutions is vital for driving change.
4. Push for local funding: Public funds in many African countries may not match the scale of international support, but even small contributions can make a significant difference. Beyond financial aid, local funding represents a public endorsement of innovation as a strategic national priority.
5. 
   Foster entrepreneurial resilience: Encourage resilience among entrepreneurs and ecosystem stakeholders to withstand external shocks. While African entrepreneurs are already resilient, there is a need to cultivate an African mindset focused on collaboration, bootstrapping, and prioritizing market validation over fundraising.
6. Engage the Private Sector: Work with the local private sector to promote innovation, build capacity, and provide funding. While the private sector's involvement in emerging ecosystems is often limited, co-designing programs and fostering connections could yield promising results. Banks are increasingly supporting fintech growth through partnerships, collaborations, and mergers & acquisitions (M&A) opportunities. Ecobank is a prime example of this. As a Pan-African bank with a presence in 35 African countries, Ecobank is actively backing the growth of numerous fintech startups across different ecosystems, including Kenya, Nigeria, and Togo. This kind of private sector endorsement and engagement should be encouraged and expanded to more industries and countries.
7. Leverage international connections: Build relationships with international SSOs, investors, and global players to open up more opportunities for African startups. With global programs increasingly focused on diversity and inclusion, there is room for African startups to benefit from these initiatives.
8. Encourage regional collaboration: Form consortiums with neighboring countries to expand market access and connections for local startups. Regional collaboration can increase the ecosystem's strength and reach.
9. Sustainability of support systems: Shift towards a model where startups contribute to the cost of services offered by incubators, accelerators, and experts. SSOs should establish sustainable business models to continue providing valuable services. Currently, many startups in Africa have become used to receiving free services, largely due to grants from DFIs and international donors. This practice has diminished their appreciation for the true cost of support, which needs to change.

Conclusion
For African ecosystems to thrive sustainably, they must aim for greater local ownership, regional collaboration, and entrepreneurial independence. International funding can play a crucial role in the short term, but long-term success lies in developing self-sustaining models, fostering private sector engagement, and building resilience to withstand external shocks. By aligning local political, financial, and entrepreneurial interests, Africa can create thriving ecosystems that are less vulnerable to the whims of global geopolitics.

We would love to hear from you about effective actions that have been implemented in your ecosystems that could serve as valuable lessons for peers in other regions. Additionally, are there other potential strategies or initiatives—beyond what has already been discussed—that you believe are key to building a more resilient and self-sustaining environment for startups and ecosystem stakeholders?

Please feel free to share your experiences, insights, and thoughts.