Strategies for Scaling Africa’s Green Ventures Africa has reached a critical point in terms of sustainability. As the 54 countries on the continent struggle to contain the pandemic-induced recessio
Africa has reached a critical point in terms of sustainability. As the 54 countries on the continent struggle to contain the pandemic-induced recession of the past 30 months—the worst in the past five decades—as well as recent stagflation, which has sent fuel and food prices surging, they also find themselves confronted by a foundational and fast-growing challenge in the form of the climate crisis.
Thankfully, African business can respond to this dilemma by developing and deploying green technologies and sustainable business models that create jobs and boost economic growth. In fact, there’s no dearth of green ventures—companies that minimize their impact on the environment and contribute to climate mitigation, climate adaptation, and environmental protection—on the continent.
“As countries globally prioritize conversations concerning climate change, there is a pressing need in Africa where the effects are projected to be more significant, due to its limited resources, to preempt the gloomy forecast. Corporate organizations in Nigeria need to re-think their business systems and models, they need to prioritise adaptation of green technologies and policies.
This year, when BCG’s Green Ventures team analyzed the investment portfolios of 90 large investors in Africa, we identified over 500 companies operating in green industries such as agriculture, clean energy, sustainable materials, e-mobility and transportation, and nature-based solutions. That number has grown exponentially, with a 300% increase in the number of green ventures across the continent in the past 15 years.
Africa’s green ventures face challenges above and beyond the barriers that all companies on the continent must contend with, such as low individual purchasing power, fragmented markets, and the scarcity of trained, highly specialized, and seasoned employees. In particular, three major barriers impede progress on the green ventures’ growth path: capital, policy, and industry structure.
As is evident from the inability of many of Africa’s green ventures to achieve vigorous growth, however, investors are missing something: they aren’t providing enough funding, and their funding isn’t structured to enable green ventures to scale easily and quickly. In 2021, only 11% of venture capital deals in Africa exceeded $10 million, and fewer than 5% were for later-round Series C and D financing, according to BCG analyses.
When green ventures do borrow from commercial banks, they must accept interest rates of over 20% in the case of local currency debt and, often, over 12% for hard-currency loans, with the borrower carrying the foreign-exchange risk. While top-performing ventures may be able to secure less expensive debt, the amounts they can access are limited.
Africa’s ventures in agriculture, alternative energy—particularly in applications related to clean heating, cooking, and fuel substitution—and nature-based solutions can take advantage of these revenue streams. They can structure their future revenues in such a way that they receive cash upfront to fund the expansion of their manufacturing and distribution.
Africa’s green ventures find themselves endlessly engaged in money-raising mode, mounting round after round of bridge financing to escape cash crunches. They need specialized investors that are willing to lead funding rounds. Investors must be able to better match business models with asset classes and ensure that Africa’s startups don’t have to part with equity in order to finance infrastructure development.
This department should be responsible for reducing tariff barriers, increasing subsidies, boosting procurement from green enterprises, and harmonizing regional standards. Depending on the country, the department might fall within the ministry of industry, trade and investment, or finance. To succeed, the department must possess a meaningful budget, a fair degree of autonomy, and the freedom to act.
The opportunity is exemplified by the aquaculture industry in East Africa. Tilapia, a freshwater fish, is the most affordable and sustainable source of animal-based proteins for East African households in Rwanda, Kenya, Tanzania, and Uganda. The fish has a feed conversion ratio—a measure of the efficiency with which it converts feed into meat—that is 16% better and a carbon footprint that is 72% lower than the corresponding ratios for chicken, the most efficient land-based protein.
If such ventures are to grow ten times bigger in, say, three years’ time, stakeholders must provide investment support to help them build capabilities to accomplish three strategies: strike partnerships, spur consolidation, and forge foreign alliances. Many green ventures on the continent are vertically integrated or operate many complex business models under the same roof.
Nevertheless, many multinationals have made only minority investments, so Africa’s green ventures need to find ways to take these fledgling alliances to the next level. Doing so will involve making the business case—supported by analytics and an understanding of multinationals’ current growth priorities—for global companies to invest more in Africa.
With the aid of an in-depth study that BCG recently conducted, we’ve identified the first steps that different stakeholders could take:
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