China, Japan eye start-ups in the scramble for Africa
International investors are changing tack by eying Kenyan startups for billions of shillings in the scramble for Africa after lights went red on several sovereign debts.
The signals were long on the wall with Japanese Prime Minister Abe Shinzo urging companies and banks to make ties with African startups to counter China’s Belt and Road Initiative.
Investors are now opting for startups that have the potential to scale up and take over the continent with most of the funding going towards expansion into new African markets.
Carmaker Toyota invested Sh200 million in Kenyan logistics firm Sendy while Sumitomo Corporation tapped the Nairobi-headquartered pay-as-you-go solar firm M-Kopa.
Japanese insurer Sompo Holdings financed payment platform BitPesa, while Nigerian motorcycle app Max raised Sh700 million from Japanese motorcycle manufacturer Yamaha.
“They have seen that private sector investments will deliver more returns than governments. Kenya has a vibrant enterprise culture and it will benefit from this,” Robert Shaw, a Nairobi-based economist.
In the emerging onslaught for Kenyan startups, Lori Systems and Twiga Foods are recent recipients of billions of shillings in investments by Chinese, Japanese and American investors.
Top US bank Goldman Sachs bought a stake in Twiga Foods earlier in the year following a Sh2.44 billion deal to help the agro-based firm spread across Africa.
In June this year, Creadev injected $5 million (Sh508.5 million) in Twiga Foods. Early investors, that is, Adolf H Lundin Charitable Foundation, Blue Haven Ventures, Crescat Ltd, Omidyar Networks, Index Ventures through Project Hand Purpose Trust, and Uqalo, partially sold their stake to Creadev.
According to the Financial Times, Nairobi-based Lori Systems received Sh2 billion in Series A round led by Chinese investors Hillhouse Capital and Crystal Stream Capital.
Nikkei-owned Deal Street, however, puts the figure at Sh3 billion but Lori Systems declined to comment saying they do not disclose their funding. Founded in Kenya in 2016, the company provides mobile-based on-demand trucking logistics services through an Uber-like network of drivers and merchant partners.
Africa-focused fintech startup Opay, led by Opera with offices in Nairobi and Lagos, mid this year secured Sh12 billion in a Series B financing round mainly from Chinese investors.
Nigeria and South Africa are the other major beneficiaries of rising investments in startups with funds going into fintech, renewable energy and agritech.
Japan and US governments have been unable to outwit China in lending to Africa due to their heavy debt and mediocre growth for decades but their companies remain influential far and wide.
The pivot towards startup lending comes after African governments started struggling with repaying loans issued to especially China.
China has for instance pulled the plugs on Kenya’s largest infrastructure project the Standard Gauge Railway (SGR) making it stall.
The construction of the 969-kilometre SGR from Mombasa to Malaba was to cost Sh1 trillion. But China funded it to a tune of about Sh450 billion. It stalled before reaching Naivasha with Kenya experiencing serious cash flow problems.
China has financed projects in 112 countries including 203 roads, bridges and railways, 103 power plants according to a New York Times report, sparking concerns that China is building the world.