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By Chinese researcher Yuke Zhao. First published in Tencent News.
The United States is trying to "return to Africa" under the influence of the global geopolitical landscape. Does this conflict with the layout of my country's "Belt and Road" initiative in Africa? Africa's technology industry is booming. In this niche track, Chinese and American capital are competing fiercely. This article will show you how the competition between China and the United States will develop in this vast virgin land of Africa?
Gallup's World Leadership Report shows that in 2023, China will replace the United States as the most influential global power in Africa. 58% of respondents believe that China is the leader, up 6% from 2022, while 56% believe that the United States is the leader. Some reports further suggest that the United States is losing its soft power advantage in Africa.
In recent years, China has been the largest trading partner of African countries. The Belt and Road Initiative covers most African countries. Large-scale infrastructure investment led by the public sector and the prosperity of China-Africa trade have become important factors in enhancing China's soft power in Africa. At the same time, the United States is also trying to "return to Africa" under the global geopolitical pattern, promoting investment in small infrastructure, industry and green energy projects, and striving to gain a foothold in the critical period of Africa's development.
In addition to the investment and trade fields led by the government and other public sectors, the competition between China and the United States in the field of technological innovation and investment, where the private sector is active, is still fierce.
In the economic winter, Africa is the only continent experiencing economic growth, and it is also a blue ocean under the fourth technological revolution. Since 2018, even though affected by the epidemic, the number and scale of transactions in the African science and technology innovation ecosystem have achieved growth, with a compound annual growth rate of 42% in the number of financings and a compound annual growth rate of 46% in the scale of financing.
Source: Yuke Zhao
In fact, more than a decade ago, communication giants such as Huawei, ZTE, and Transsion, and Internet giants such as Tencent and Alibaba, have been expanding their presence in the African market.
Chinese-backed companies have gradually begun to invest in and acquire local African technology startups to get a piece of the pie in Africa's digitalization. Microsoft, Google and other companies have set up technology research and development centers and invested in startups in African countries.
Leading American venture capital companies such as Y Combinator have also increased their investments in African technology companies. It can be seen that as the two largest economies in the world, China and the United States have a strong interest in Africa's technological innovation and entrepreneurship ecosystem. At the same time, both countries also have leading technological innovation capabilities. Whether it is patent licensing, technology research and development, or venture capital, China and the United States are catching up with each other, but overall, China's growth trend cannot be underestimated.
However, we need to remain calm and ask further questions: From the perspective of local African technology entrepreneurs, which venture capitalists are stronger, Chinese or American, and what are the similarities and differences? In Africa's digital transformation, can the participation of China and the United States establish a sustainable technology ecosystem?
The United States, a temporary leader in African venture capital
In 2022, Africa's technology sector ushered in a strong wave of investment, and in this wave, American capital undoubtedly played a leading role. In 2022, the venture capitalists with the highest transaction amount came from the United States. They not only have active investment institutions, but also have funds denominated in US dollars to provide solid financial support for Africa's innovative projects. In the early stage investment field in Africa, local companies such as Launch Africa Ventures, Loftylnc and Future Africa have become the main promoters, and most of the chairmen of the boards of these companies are in the U.S. In addition, globally renowned startup incubators such as Y Combinator and Techstars are also active in the African market, providing valuable resources and guidance for start-ups.
However, in the field of African venture capital, Chinese investors are relatively rare. Data from 2023 shows that only one investment institution, Adaverse, ranks among the top 20 African venture capitals, and one of its founders is from China. When I discussed the influence of China and the United States on venture capital with Ruth Iselema, the founder of African blockchain payment startup Bitmama, Ruth admitted that her investors are mainly from the United States and Nigeria, and there are no Chinese investors. But in fact, Adaverse also participated in the Bitmama Preseed financing, but she ignored the fact that the founder of Adaverse is from China.
In the development history of African unicorn companies, world-renowned institutions from the United States have a strong presence, and African entrepreneurs also tend to choose American venture capitalists.
To a certain extent, this comes from the United States' long-term dominant position in the venture capital ecosystem and the advantages of providing a resource network for mid- and late-stage investments. In fact, in the late-stage investment and financing of African technology companies, well-known funds such as Tiger Global Management, Sequoia Capital, and SoftBank Group have been active, injecting new vitality into Africa's technological innovation.
It has to be admitted that there are very few Chinese venture capital institutions that focus on investing in Africa. Currently, there are only two, namely Roselake Ventures founded in Hong Kong and Feicheng Innovation backed by Transsion.
Eric Anna, founder of Ghana's blockchain education platform Aya, also mentioned that China's presence in the African venture capital field is very weak, and even 75% of African business visits come from the United States, not China.
China, a strong new partner for Africa’s digital development
It is worth noting that in the development of the global digital economy, the cooperation between China and Africa is deepening. From the transfer of manufacturing to the rise of e-commerce and the construction of digital management platforms, China's experience and technology are providing new solutions for Africa's leapfrog development. Chinese investors are also gradually becoming an option that cannot be ignored.
China's Internet business model is an important blueprint for reference for African technology entrepreneurs, and this is also the core competitiveness that Chinese investors bring to African founders. The rise of e-commerce platforms, especially cross-border e-commerce, has provided African entrepreneurs with new ideas and models. After visiting and studying at Alibaba in Hangzhou, China, Marvin Kiragu, the founder of Shopzetu, a fashion e-commerce platform from Kenya, gradually began to pay attention to China's e-commerce model and marketing plans.
By the end of 2023, Shopzetu will build Africa's top fashion consumption ecosystem and become a combination of Douyin, Xiaohongshu and Shein in the African fashion field, introducing live broadcasts, videos, pictures and other forms into the African fashion ecosystem. Marvin believes: "The key ability of African founders is the ability to connect the African and Chinese experiences.
It is crucial to learn from the successful experiences of Chinese companies and establish cooperative relationships with them."
The advantages of China's manufacturing industry also provide strong support for African entrepreneurs. In this process, Chinese investors play an important bridging role. Generally speaking, the development of Africa's manufacturing industry is relatively weak. In addition to taking over the transfer of traditional industrial chains such as clothing from China, Africa has almost no ability to manufacture electronic products, which means that the hardware equipment supporting Africa's digitalization is very insufficient.
Some Chinese venture capital institutions investing in Africa mentioned that the catering digitalization and logistics and transportation enterprises they invested in have a huge demand for Chinese hardware, such as POS devices for programming payments. They will help African founders contact manufacturers and suppliers and coordinate supporting software, which can greatly reduce operating costs. African entrepreneurs also emphasized that
Chinese investors can connect African technology companies with more low-cost, high-quality hardware and software suppliers, which not only lowers the threshold for entrepreneurship, but also provides a material basis for Africa's digital transformation.
This reminds me of an exchange activity for African entrepreneurs in China organized by Chinese companies. Most of the entrepreneurs had their own WeChat accounts within three days of arriving in China, and began to share their entrepreneurial stories and thoughts about China in WeChat groups. In fact, for African founders, compared with China, they are more familiar with North American education, as they generally receive elite education in Europe and the United States. However, once they arrived in China, African business founders discovered that, unlike the gray Chinese cities captured by foreign media such as BBC and CNN, cities such as Shenzhen, Hangzhou, and Beijing are full of vitality: from cashless payment that only requires a mobile phone QR code to 30-minute takeout, electric cars running all over the streets, from automated manufacturing industrial zones to brightly lit high-tech parks, China's lifestyle, economic operation, and efficient interpersonal communication have made them discover "another China."
In the future, African technological innovation needs to be localized
Venture capital is a game of high stakes, and there is still a power game between entrepreneurs and investors. Investors from the United States and China often hope that African entrepreneurs can directly copy the successful models of Silicon Valley and other regions, so that companies can quickly expand and occupy the market, usher in joint ventures and mergers and acquisitions, and investors can withdraw from the game. However, for founders and even the African continent, the side effect of this game rule is to sacrifice the long-term development of Africa's science and technology innovation ecosystem.
African founders have long recognized the drawbacks of “copy-paste”.
At a China-Africa venture capital roundtable, all speakers from Africa directly pointed out that the Silicon Valley model and the Chinese experience are not suitable for Africa. Kayode Adeyinka, founder of the African travel platform Gigmile, emphasized: “Africa is made up of 54 countries with 54 different sets of laws, regulations, market conditions and social rules, and foreign investors and entrepreneurs often conceptualize and simplify Africa.”
Nadayar Enegesi, a serial entrepreneur from Nigeria, also believes that investors from the United States, Europe and China expect to complete communication, invest and make a big move within 5 minutes, but in fact investors need to communicate with entrepreneurs more sincerely, delve into the reality of Africa and solve real problems.
Aggrey Nyondwa from Ghana, who works at the 100x Impact Accelerator in the UK, also believes that: "We still need to change the situation where Western investors dominate (investment and development of African companies). We are pleased to see that some small-scale Chinese venture capital companies have begun to focus on local African companies and participate in the wave of technological innovation in Africa with a more sincere attitude.
In this context, we can expect that humble Chinese investors, together with potential African entrepreneurs, will help Africa find its own voice and position in the tide of digitalization and technological innovation, and move towards a more equal and sustainable future.
