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Africa's tech sector forecast to attract US$5.9-billion in M&A investment

Africa's tech sector forecast to attract US.9-billion in M&A investment

US$250-million directed towards continent's telecommunications industry, claims research by Thomson Reuters/Refinitiv.

The technology, media and telecommunications (TMT) sector in Africa is expected to show impressive growth in 2019, with transactions forecasted to exceed earlier predictions of mergers & acquisition (M&A) investments worth US$5.9-billion in 2019, according to Baker McKenzie's Global Transaction Forecast (Forecast) in association with Oxford Economics.

Speaking at Baker McKenzie's African Transactional Summit, held recently in Johannesburg , Janet MacKenzie, partner in the Corporate/M&A Practice and Head of the TMT Industry Group at Baker McKenzie said that Africa is considered to be a region of significant investment potential in the tech space.

"Increasingly, M&A deals and IPOs in the TMT sector in Africa point to the growing reliance of African consumers on technology across multiple platforms. The unabated demand for technology has caused extensive cross-sector disruption in Africa, with, for example the financial, energy, transport, retail, health and agricultural sectors all seeking opportunities to expand their tech infrastructure in order to acquire the necessary skills and innovation needed to keep up with demand," she noted.

According to Thomson Reuters/Refinitiv 35 deals were completed in the high technology sector in 2018. While many of these deals have undisclosed values, those that were disclosed amounted to US$ 1.5 billion.

Moreover, there were 13 completed deals within the telecommunications sector in 2018, the value of those that were disclosed amounted to US$250-million.

Growth in investment in FinTech shows no signs of abating said MacKenzie, driven by the advent of mobile payment and remittance systems.

"In 2019, FinTech will likely remain the most popular tech sector for investment in Africa, with health-tech, mobility and agritech also attracting investment. Tech companies in South Africa, Nigeria and Kenya are expected to secure the biggest funding deals of the year in 2019," said MacKenzie.

"The growth in investment in both the financial services sector and the technology sector in Africa are interlinked. A rapidly growing middle-class, improved access to new technology and demand for accessible financial services has boosted investor interest in the technology and financial services sectors in Africa. Financial services organisations are becoming more dependent on investment in technology and innovation as they look to upgrade their IT systems and find news way to grow their customer bases," she added.

Investor caution

Inbound investment in Africa has been affected by political uncertainty, corruption and bad governance, as well as the strict anti-bribery and anti-corruption laws in some investor countries, such as the United States and the United Kingdom.

While this has made investors more cautious said MacKenzie, it has not impacted on demand for technology.

"There is, however, a growing reliance of African consumers on technology across multiple platforms. The unabated demand for technology has caused extensive cross-sector disruption in Africa, with, for example the financial, energy, transport, retail, health and agricultural sectors all seeking opportunities to expand their tech infrastructure in order to acquire the necessary skills and innovation needed to keep up with demand."

Broadband availability and internet access represent ongoing challenges, particularly for a country like South Africa.

MacKenzie says according to the Digital in 2018 Report by We Are Social and HootSuite, South Africa has just 54% internet penetration and "there is a lack of significant broadband services in general, and in rural areas in particular."

The formation of a new commission focused on 4IR is a welcome development adds MacKenzie "because it has become critical for South Africa to have the correct policy and regulations in place to ensure we can effectively roll out the TMT infrastructure and services needed to implement 4IR technology. There is significant policy and regulatory work still to be done in this arena before South Africa will be on par with other countries who are much further along in the process than we are."

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