Africa’s Tech Sector Is Powering Up in 2025

The sector reached its funding peak in 2020 and 2021, minting unicorns as companies secured hundreds of millions of dollars to propel innovation across industries.

It was, however, to be short-lived.

As global interest rates rose in response to mounting inflation, monetary tightening triggered a significant pullback of capital. Large, predominantly U.S.-based funds that had begun venturing into Africa redirected their focus toward domestic markets grappling with economic pressures.

The ecosystem, once buoyed by an influx of international capital, now faces a more selective and challenging investment landscape. According to Partech’s 2024 Africa Tech Report, tech start-ups across the continent secured $3.2 billion in gross funding in 2024 – a 7% drop year-on-year. The number of investors participating in deals within the Africa tech ecosystem was flattish year-on-year at 583 unique equity investors in 2024. While this demonstrates a resilient base of support for the ecosystem, it pales in comparison to 2022, when over 1,100 investors participated.

But encouraging signs suggest a cautiously optimistic outlook for funding in 2025.

While a dramatic rebound may not be on the horizon, stabilisation—or even a modest recovery—appears within reach. This sentiment is buoyed by the gradual easing of global interest rates seen through 2024, fostering a renewed appetite for risk among investors. With capital increasingly drawn to high-growth opportunities, Africa’s tech ecosystem is well-positioned to capture renewed interest though this optimism is tempered by the potential for an uptick in inflation and interest rates, a stronger dollar and its resultant implications for emerging and frontier markets. The M&A landscape is also poised for greater dynamism. While many tech companies will remain focused on driving organic growth, the sharp decline in valuations across the broader tech ecosystem presents fertile ground for increased deal-making. Notably, much of this activity is expected to be driven by tech companies themselves, capitalising on favourable market conditions to consolidate and fortify their competitive positions.

Three key areas are set to command attention across the continent this year: the merchant acquiring space, instant payment systems (IPS), and mergers and acquisitions (M&A).

Several trends are aligning to bolster the growth of the merchant acquiring sector on the continent. Digital penetration and usage are increasing steadily, driven by a young, tech-savvy population with rising demand for seamless payment solutions.

The fintech industry is rapidly evolving to meet these demands, introducing innovative tools and services that enhance payment accessibility in an omnichannel way. Additionally, collaborative efforts between regulators and financial institutions are creating an enabling environment that prioritises financial inclusion, further strengthening the ecosystem and unlocking new opportunities for merchants to integrate into the digital economy. The evolution of IPS across key African markets is another critical area to watch.

According to AfricaNenda, in 2023, IPS platforms on the continent processed a record-breaking 49 billion transactions. The total value transacted surged to over $1 trillion that year, marking an impressive average annual growth rate of 39% since 2019.

Central banks are increasingly taking proactive measures to expand the reach and inclusivity of these payment systems. In South Africa, for example, the Reserve Bank has been working to integrate non-banks into the national clearing and settlement system, a move designed to enhance financial inclusion for the unbanked and underbanked. As trust in these systems grows, it sets the stage for transformative models such as open banking, enabling non-traditional players to seamlessly integrate financial services into their platforms. This not only democratises access to financial tools but also accelerates the pace of financial inclusion and economic participation across the continent.

The market will be closely watching for potential M&A activity led by tech firms, as stronger and well-funded players evaluate strategic acquisitions to strengthen their positions and take advantage of the pull-back in valuations. Others will be watching to see whether leading mobile money providers, banks or card schemes will embark on acquisitions and, if so, in which markets and segments these deals might materialise. Such activity could signal a push to consolidate fragmented markets, expand into underserved regions or product lines, or integrate complementary services like digital lending, remittances or insurance. The outcomes of these moves will have significant implications, shaping competitive dynamics and influencing the trajectory of financial inclusion on the continent.

These shifts come as Africa's tech ecosystem enters a new phase. Unlike the previous era, this next chapter will not be defined by the pursuit of unicorn status. What the ecosystem truly needs are successful businesses that address real-world challenges and deliver scalable, impactful solutions. The size of these companies is secondary to the significance of the problems they solve and the tangible value they create.

In this environment, investors are likely to gravitate toward businesses led by capable entrepreneurs tackling pressing issues with clarity and innovation. Capital will naturally follow these ventures, reflecting their potential for meaningful impact. The current challenging market climate has served as a stress test for many companies, leaving behind those better equipped to navigate Africa’s unique complexities. What emerges is likely to be a cohort of stronger, more resilient businesses, armed not only with the resources to grow but also with a sharper understanding of the strategic imperatives for sustained success in the region.