Innovation ecosystems for climate tech in Africa: seizing opportunities to place local context at the heart of investments focused on climate change
This blog is based upon the findings of a research project undertaken by Sam Unsworth, from Chalmers University of Technology, between October and December 2023. The blog draws upon interviews conducted by Sam with investors based outside the African continent, investors based within Africa, technical assistance providers to the innovation ecosystem and founders of active startups, with a focus on the networks surrounding Katapult Africa. This research was produced in collaboration with Katapult Africa, with support from the UK-Funded RISA Fund.
By Sam Unsworth, December 2023
Innovation to tackle the climate change challenges facing African countries
The value and opportunity of spurring innovation to address societal challenges such as climate change across the world is widely recognised (OECD, 2023). The African continent is recognised to be particularly vulnerable to the effects of climate change, with the IPCC recognising biodiversity loss and ecosystem disruption, mortality and morbidity from heat and infectious disease and reduced food production from crops, fisheries and livestock as key risks for African countries (Trisos et al., 2022). Against this context, “climate technology” is a term increasingly discussed in relation to possible solutions to these challenges, particularly amongst the technology and startup-oriented investor community looking for productive assets to allocate finance towards (PwC, 2023; Temple, 2023). Nonetheless, the gap between current financing available and the volume required for African countries to respond to the challenges presented by climate change remains substantial, with USD 2.8 trillion required between 2020-2030 and current annual flows standing at only USD 30 billion (Meattle et al., 2022). More specifically, there is growing recognition of the need for – and diverse benefits associated with – investment in both climate mitigation and adaptation (Dicker et al., 2021).
What is less clear is how and where the innovation will take place which is needed to tackle the climate change challenges facing the African continent. Observers note that Africa has been framed by some more as a recipient than a generator of innovations, implying a risk that local contexts and demands are deprioritised in favour of technology-oriented interventions designed elsewhere (Mavhunga, 2017; Unsworth et al., 2023). Conversely, the continent is framed by others as harbouring an innovation ecosystem and testbed which can domestically develop technological solutions to challenges like climate change for both Africa and the world (Adesida, 2023; Molla & Birru, 2023). This is understood to have the potential to generate jobs and wider economic development for the next generation of Africans (Fox & Signe, 2022), leading to calls for increased investment into African technology innovation systems (Gurib-Fakim & Signé, 2022; Yongabo & Göransson, 2020).
As volumes of finance to tackle climate change increase to match the urgency and scale of this challenge (Bennett, 2023) – and before lock-in to a particular technological pathway and ecosystem structure is reached – it is valuable to reflect over a series of questions:
- How is the innovation ecosystem for climate change-focused technologies in or for Africa understood to function by those within it?
- How does the arrival of finance actually change the circumstances of recipient organisations?
- On a practical level, what does “careful” or “context-sensitive” investment and technical assistance into this ecosystem look like?
These questions have motivated the recent research project which this blog is based upon. The remainder of this blog summarizes the perspectives of ecosystem actors in relation to these questions, and proposes a possible pathway forward for investors and technical assistance providers to seize the opportunities and navigate the challenges observable within the ecosystem.
Whose needs are served by the current innovation ecosystem?
Ecosystem actors see an innovation ecosystem for climate tech in Africa which serves the needs of many different players. These players have varying degrees of proximity to “local” contexts. There is broad consensus regarding the positive impact that well-designed investment into the ecosystem can bring. There is similarly broad consensus that innovations are highly valuable when they are tackling the concrete needs of end users, typically within sectoral production ecosystems such as agriculture or aquaculture. However there is recognition that innovations are often also designed to service the needs of other players (both within the ecosystem and from other systems) including the widely varying needs and priorities of external investors. Some ecosystem actors speak very positively about their experiences with investors who have a deep understanding of local needs. Others describe demands made by investors which may be burdensome; and critique the import of technologies and development of ecosystem infrastructure in Africa perceived to primarily reflect the expectations of overseas investors.
How do circumstances change when climate tech startups and founders receive investment?
Ecosystem actors describe how the experience of startup founders receiving investment is a complex process; containing a mix of clearly desirable changes (e.g. ability to hire more staff, invest in technology and leverage investor networks); alongside changes with a mix of positive and negative aspects (e.g. streamlining the business model to no longer serve the poorest customers); or less desirable changes associated with substandard investment practices (e.g. being pressured by investors, or the trends of the global tech innovation ecosystem more broadly, to use externally developed “flashy” technologies which do not fit the local context). Other concerns include that the ecosystem risks excluding potential entrepreneurs based on income level, gender and also geographic location (i.e. if an individual does not live in, or is unable to travel to, the regional ecosystem hubs of Rwanda, Nigeria, Kenya and South Africa). There is a sense that possible entrepreneurs may be deterred or unable to participate in the ecosystem if their backgrounds, daily lives and commitments do not fit the entrepreneurial archetype which some actors feel is signaled by the current funding landscape. Some ecosystem actors point out that many African citizens would struggle to participate in the current ecosystem as founders due to their lack of disposable income to take risks with, as well as day-to-day responsibilities (for example to their families) which limit their flexibility. End users may also be envisioned more as passive recipients of innovation as opposed to active agents.
Seizing opportunities to place local context at the heart of investments focused on climate change
There is almost total agreement amongst ecosystem actors that local contexts should play a central role in investments made into the African climate tech Innovation Ecosystem, and that context-sensitive financing represents a significant investment opportunity. However there is also consensus that it is not easy to get right, that there is no “silver bullet” to being context sensitive, and that historically it has often been overlooked due to imbalances of power weighted in favour of overseas investors who look for startups that resemble innovations in their home markets. Nonetheless, actors agree that many players in the ecosystem are working hard to overcome these challenges. Best practices highlighted include having investment teams with a strong mandate located within African countries; having finance flows which are tailored and sensitive to fit local contexts (including working with local capital providers); having founders who are embedded in, and feel encouraged to place emphasis upon, local contexts; establishing trusting founder-funder relationships which facilitate honest and open exchange; leveraging educational institutions within African countries as sources of innovations and entrepreneurs; and approaching founding and funding on a flexible case-by-case basis.
To help move towards an African Climate Tech Innovation Ecosystem which places local contexts and needs at the centre of innovation, the following areas of strategic focus and indicative recommendations for investors and technical assistance providers are proposed:
Directing finance towards systems change
- Increase finance available for climate tech innovation both in and for countries in Africa. There is broad consensus that funding flows which reach founders are driving material benefits for end users. While there are complexities and risks associated with investing – as there are in any domain – these should not deter investors from investing in what is recognized to be a growing, vibrant and impactful ecosystem. One of the strategic impact logics described by respondents in this report relates to the reallocation of finance in global capital markets towards founders innovating within African countries for African citizens, and investors can play a key role in making this a reality by scaling up finance flows.
- Describe the systems change you want to see as an investor (if applicable) in clear and unambiguous terms. If investors have an impact-related mandate, they can lead by example in the ecosystem through clarity and integrity in describing precisely which systems are envisioned to change through investment (i.e. primarily sectoral production systems) – and which stay unchanged. Create space for healthy and sensitive discussion around this, recognizing that the ecosystem recruits from a global talent pool are likely to have differing perspectives on which systems they think may need to change to achieve meaningful impacts.
Aligning investor priorities with end user needs
- Reflect carefully on the needs that investors may be communicating (explicitly or implicitly) to founders. There is a wide array of investment needs from current and prospective founders, and a similarly wide array of financing modalities required (including for example grants, equity, debt and guarantees). Different financing modalities understandably require different kinds of demands and expectations from the investor side. Some expectations may be explicit (e.g. an expectation of a certain rate of return) or more implicit (e.g. a right to offer advice on technology decisions) and will vary a great deal between investors. Investors can proactively and transparently engage in dialogue about possible demands and expectations to build trust in the ecosystem; and send a coordinated and coherent signal to founders that the needs of end users should not be in competition with investor demands.
- Work with founders to “localize” what climate change priorities can mean within the contexts that founders are working within, when investing specifically for climate change-related impacts. This is such that innovations have local needs as a starting point which then build in climate change considerations (while remaining rigorous in responding to the best available climate change science). Upstream investors can trust founders to deliver climate changed-related benefits through – rather than overriding – more localized priorities.
Bringing a wider range of founders and end users into the ecosystem
- Invest in building strong and inclusive networks within the ecosystem which can easily connect actors between scales (i.e. international-national-regional-local) and showcase context-sensitive startups and finance flows as best practice within the ecosystem.
- Seek out founders from communities of the end users who are ultimately intended to benefit from innovations, particularly founders working withing sectors such as agriculture who differ across categories such as income level, gender and age, including those whose needs may be overlooked by the current ecosystem. It can also be considered a strength that founders actively involve end users in the earlier stages of innovation, while keeping focused on developing viable products and services.
- Broaden the geographic footprint of ecosystem activities where possible beyond the current regional centres, as well as taking the ecosystem to excluded persons, to develop an ecosystem beyond European and American innovation system archetypes. This could include actively seeking founders from, and forging partnerships with, institutions across geographies which are accessible to a wider diversity of persons than the current ecosystem (i.e. technical colleges, cooperatives and informal institutions).
References
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