Private investment in African climate-tech startups is on the rise, but despite this growth, there remains a significant shortfall in meeting the financial requirements for climate action across the continent.
Ademola Adesina’s journey founding a startup in Nigeria back in 2015 illustrates the challenges early climate tech entrepreneurs faced in accessing funding. At that time, Africa was relatively new to climate tech, with limited venture capital opportunities and fewer investors. Adesina recalls the difficulty of raising his initial funding of just under $1 million, describing it as a year-long process of networking and perseverance.
However, the landscape has shifted since then. Adesina’s startup, Rensource Energy, has since raised approximately $30 million, primarily from venture capital firms. The funding for climate tech startups in Africa has seen significant growth, with businesses raising over $3.4 billion since 2019. Yet, there remains a substantial gap, as the continent requires $277 billion annually to meet its climate goals by 2030.
To bridge this gap, experts emphasize the need for African countries to address risks such as currency instability, which can dampen investor interest, and for investors to diversify their focus beyond renewable energy to include sectors like flood protection and disaster management.
Despite the challenges, the investment numbers in climate tech are promising. Last year alone, climate tech startups in Africa raised $1.04 billion, a 9% increase from the previous year and triple the amount raised in 2019. This demonstrates the growing appetite for climate solutions despite a decline in overall startup funding on the continent.
Venture capital plays a crucial role in providing risk capital to nascent climate tech startups, allowing them to experiment and innovate in an uncertain landscape. Startups utilize these funds to expand into new markets and bring their products and services to fruition.
The investment figures highlight the potential of climate tech, with funding for these startups comprising over a third of all funds raised by startups in Africa in 2023, placing it second only to fintech. Venture capitalists are uniquely positioned to take risks and provide the necessary funding for businesses with long-term growth potential.
For startups like Metro Africa Xpress, which focuses on electric vehicles and infrastructure in Nigeria, venture capitalists play a catalytic role in driving decarbonization efforts. These investments are vital for transforming traditional sectors like waste management and construction, paving the way for innovation and sustainability.
However, private sector financing still lags behind public financing in Africa’s climate finance landscape. While private sector financing represented only 14% of all climate finance in Africa from 2019 to 2020, there is optimism for growth and diversification in the coming years.
Investors are increasingly recognizing the economic benefits of climate adaptation solutions, which offer tangible returns on investment. The shift towards more diverse funding models, blending private and public sector financing, is essential for unlocking additional capital for climate initiatives and driving sustainable development across the continent.
