Kenya ranks among the top three markets with the highest rate of start-up closures in Africa on the back of operating challenges, stiff competition, and funding hitches.

The three markets – together with South Africa and Nigeria – control over 85 per cent of total start-ups in the whole continent, according to Disrupt Africa 2023 data. The firm which tracks the fintech start-up ecosystem in Africa, says South Africa led as some 36 start-ups, representing 31.3 per cent, closed their doors in the past two years.

In Nigeria, which has the highest number of start-ups in Africa, 24 or 20.9 per cent went under while in Kenya, some 25 (21.7 per cent) closed down. Payment and remittance companies had the highest failure rate, followed by invest-tech startups, lending and financing firms, and the business administration category.

Overall, 115 startups, 20 per cent of the 576 startups active in 2021, ceased operating by July 2023 though this is a reduction when compared to a failure rate of 22.2 per cent in 2021.

Many pitfalls

“The closure rate appears to be slowly falling but remains high, something which is to be expected in a popular yet cluttered space that has so much potential but so many pitfalls,” says Disrupt Africa in the report named Finnovating for Africa: Reimagining the African financial services landscape.

In Kenya for instance, the likes of Kune Foods, Notify Logistics, WeFarm, BRCK, Sendy and Sky-Garden have shut down either fully or partially since 2022, highlighting the deterioration of the venture sector.

Start-ups heavily rely on external funding but the unpredictable nature of the business environment, worsened by the current biting economic hardship and taxes, has wiped out chances of making a significant breakthrough in the riskier frontier markets like Kenya.

Kenya is the third in Africa’s fintech investment, with Disrupt Africa indicating the country attracted $174.245 million (Sh24.57 billion) in funding in the past two years to July 2023. Logistics startup Sendy, which had raised over Sh2 billion in funding, started the process of asset liquidation this month after restructuring attempts to resuscitate it flopped since last October.

“We are in the middle of an acquisition. We will issue a formal joint statement in two weeks,” Sendy CEO Alloys Meshack confirmed the situation early this month.

Disrupt Africa suggests that with firms closing, mergers and acquisitions (M&A) activities are likely to hot up in the near future, which will serve as positive news for investors and entrepreneurs hit by funding drought.

The strengthening of the dollar against the local currency and the rise in interest rates have delivered a devastating impact on local firms that have been competing for tech talent with giant multinationals.

 “It suggests there is a desire to “buy in” innovative services on the continent, and also signals consolidation is finally happening within the wider financial services space, as many of these deals are ‘startup-on-startup’,” says Disrupt Africa.

A total of 26 fintech start-up acquisitions were recorded in the past two years, up from the previous seven. South Africa has generally led the way, accounting for 10 of the M&A while Nigeria had nine similar deals.

Kenya, Morocco, Ivory Coast, Egypt, Rwanda, Zambia and Tunisia have all experienced one start-up acquisition in the last two years.

For Kenya, the fate of Sendy, with its pending acquisition, is sending a signal that the ecosystem needs to navigate challenges carefully and maintain agility as competition heightens.

The company, which has been in operation for nearly a decade, has been battling sustainability challenges after several lay-offs and business decisions that forced it to abandon some of its products.

Cost-saving measures

It laid off 10 per cent of its workforce last year, according to a statement it shared.

Subsequently, Sendy’s workforce has been further streamlined through additional cost-saving measures, including discontinuing a product line and withdrawing from a market.

In 2022, the startup secured “bail-out funds” from MOL PLUS, the venture capital arm of Japanese transport company Mitsui OSK. Lines, Ltd. (MOL) but it seemed this was not enough to keep its doors open. It had targeted about $100 million.