Depreciating African Currencies Deter VC Inflows, Experts Say

October 23, 2023


The depreciation of local currencies in African markets poses a significant barrier to attracting venture capital (VC) and other types of investments, further complicating the investment climate in Africa, including Egypt, with particular consequences for small and medium-sized enterprises (SMEs) and startups.

A panel of experts and government officials shared these insights with Business Monthly during the inaugural SuperBridge Summit, which ran alongside the 43rd edition of the world’s largest tech and startups exhibition, GITEX GLOBAL 2023, held from October 16 to 20 in Dubai.

The SuperBridge Summit is introduced as a novel platform aimed at fostering strong connections among investors, entrepreneurs, government officials, SMEs, and startups, with a specific emphasis on enhancing the global investment climate, particularly in the Middle East and Africa, against the backdrop of the ongoing severe economic crisis.

The Summit is designed to provide a platform for voices from Africa, Asia, and elsewhere to collectively address the most pressing global challenges. This includes tackling climate change and finding solutions to a range of other issues.

Zoom in on Africa

“The primary concern in this regard is the devaluation of local currencies by African governments, including countries like Egypt, in response to the challenges they face, which presents a significant hurdle. While currency devaluation may be necessary, it is equally important to establish hedging contracts to safeguard such investments and the overall economy from the adverse effects of fluctuating exchange rates between local currencies and the US dollar,” emphasized Kadri Obafemi Hamzat, the deputy governor of Lagos state in Nigeria, in a conversation with Business Monthly.

He further noted that there are additional challenges, such as the high levels of debt in countries that have redirected their attention to managing debt at the expense of introducing investor incentives to encourage them to invest in their markets.

In an interview with Business Monthly, Ghita Mezzour, the Moroccan minister of digital transition and administration reform, emphasized that Africa should prioritize opportunities over challenges to effectively address the economic difficulties it faces amidst various global and regional political and economic uncertainties.

Africa has proved its leadership when it comes to innovation and startups in the continent. The entrepreneurship ecosystem in Africa is very vibrant in all different areas, especially in fintech, for instance, Mezzour said. The African youth is a great asset of the continent that the governments need to invest more in to bring prosperity and also to tackle all the challenges the continent is already facing, he added.

“Innovation emerges from the challenges,” Mezzour stressed.

Challenges in the African continent are severe; especially the weakness of the local currencies in its markets, which need innovative and out-of-box initiatives and solutions to help the continent at least deal with these serious challenges, according to Shane Tedjarati, founder, chairman and CEO of the Tribridge Group and the co-founder of SuprerBridge Council.

Tedjarati emphasized the critical importance of developing connections between investors, government bodies, and entrepreneurs in the current African context. This collaboration is essential for optimizing investments and financial resources, which can aid the continent in addressing the challenges of climate change, the delay in adopting green initiatives, and advancing the digital transformation process.

He further underlined the significance of offering incentives to SMEs and startups in Africa, stressing that it is crucial for these businesses to sustain their market presence. He emphasized the pivotal role these businesses play in African economies, where a significant portion of economic activity is driven by SMEs and entrepreneurs. To ensure a conducive investment environment for entrepreneurs, he noted the need for effective regulation. Governments can act as enablers by creating the right regulatory and investment framework to protect and support small and medium-sized enterprises.

What about Egypt?

Meanwhile, Sharif Al-Badawi, CEO of the Dubai Future District Fund, highlighted the significant challenges facing the investment landscape in Africa, particularly in Egypt. He identified the continuous devaluation of local currencies and the lack of trust among VC investors in SMEs as the key issues impacting the current economic environment.

“The startup and entrepreneurship landscape in Egypt is very promising, but these challenges pose a threat to this ecosystem. Egypt must actively attract investors through attractive incentives and create a regulatory environment that encourages them to invest in the country,” emphasized Al-Badawi in his conversation with Business Monthly.