Venture Capital flows to fintech innovators in Africa: How governmental policy and actions affect the ecosystem and capital sources

University essay from Göteborgs universitet/Graduate School

Abstract: This master’s thesis explores aspects of the current state of fintech and venture capital withinAfrica as an emerging market, bringing to light the policies and actions of the differentgovernments that contribute to stimulate the market. The study looks at policies and actions thatdirectly relate to fintech and those that relate to venture capital and brings out the connectionbetween both. The study goes further to bring in the issue of political stability and how itcontributes to the industry. Through this multiple case study, which focuses on the selectedfintech ‘hotspot’ countries of Nigeria, Ghana, Kenya, South Africa and Rwanda, insights havebeen gathered as to what factors contribute to these countries achieving higher levels of fintechinnovation and venture capital investment. The study is based on data collected from bothprimary and secondary sources, with the primary data collected through interviews with policymakers of the different countries, venture capital fund managers, investment advisors and otherintermediaries. Secondary data was collected through articles, industry reports, websites andother online sources. Furthermore, this study presents a detailed review of relevant concepts,including factors that VC firms consider before investing into a foreign market, which is used asthe base of analysis. Based on the empirical findings, there exists a lot of similarities as well assome uniqueness in the way the governments approach policies relating to VC and fintech. Theanalysis carried out shows that for policies and actions that support innovation, which includefintech, sandboxes and innovation hubs, R&D incentives, innovation funds as well as the designof startup acts, are put in place by the governments of these countries to encourage researchersand entrepreneurs. Regarding actions and policies that support VC transactions, there areexchange controls put in place to regulate the flow of capital, direct investments by governmentsinto VC firms, direct regulations put in place by governments, as well as development of thestock market to encourage high value exits. These actions and policies are similar in all thecountries covered in this study but unique in their application and stimulating innovation leads tomore deal flow into the VC industry. With regards to political stability, frequent civil conflictshappening in some countries and changes in leadership are the main highlights that influence VCactivities and innovation. The study presents that though the countries are making progress inputting in place regulations that stimulate the industry, a lot still needs to be done and consideredin making these policies as some of them instead stifle activities within the industry. There is thepossibility to use industry actors and intermediaries in the regulatory process, to make use oftheir experiences and design policies that work.

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