Money Meets Mess: How Governance Gaps Are Choking African Investment
Capital wants in. Bottlenecks keep it out.
Africa has long been praised as the world’s next frontier. With a population projected to hit 2.4 billion by 2050, and more than half of that being under 25, the continent presents both a massive market and a deep pool of talent.
Investors are taking notice. In 2024, African private capital markets recorded 485 deals with venture capital and private equity driving nearly 86% of deal volume, reflecting growing investor appetite.
A sea of startups, billions in investment capital. Foreign capital is circling, and African leaders state the continent is ‘open for business’.
But behind the optimism lies a hard truth: Africa remains the hardest place in the world to move money, scale a startup, or close a deal.
Not due to a lack of ideas or a lack of talent, but instead due to a system that kills momentum before it even starts.
Africa in the Global Context
Despite significant market headwinds across the globe in 2024, Africa stood out. While private capital activity slowed, Africa posted gains on all fronts:
Fundraising doubled to $4.0 billion across 22 funds, despite global private capital fundraising falling 19% compared to 2023.
While most regions saw declines in deal volume, Africa defied the trend with an 8% increase. Only Latin America performed better, at 24%.
Private capital exits grew by 47% year-over-year, the highest annual growth globally. This marked a surprising resurgence given ongoing global liquidity challenges and Africa’s exit-to-investment ratio trailing at just 0.13x.
On paper, the numbers look strong. But beneath the surface, momentum is faltering. Since reaching a record high $7.6 billion in 2022, investment values have crashed by 27.6% to $5.5 billion in 2024, a testament to the governance gaps choking African investment.
The Informality Trap
The vast majority of African businesses operate within the informal sector, meaning they lack registration, audited financials, and governance frameworks. Let’s take Kenya, for instance, where micro, small, and medium enterprises (MSMEs) account for 98% of all businesses, contributing over 40% of GDP and employing nearly 30% of the population.
These businesses are everywhere in the economy, yet nowhere on paper. To investors, that’s a dead end.
Private equity and venture capital thrive on structure: predictable returns, scalable models, clean exits. What they often find in Africa is high potential with low transparency. Capital chases a tiny pool of startups while the rest of the market, the real economy, remains out of reach.
A Swamp of Bottlenecks
Even where structure exists, other hurdles emerge. Rather than unlocking capital or supporting promising ventures, Africa’s investment landscape too often repels both.
Regulatory Fragmentation
Comprised of 54 nations, each with its own investment regulations, approval processes, and tax codes, Africa is a regulatory nightmare. Investors navigating cross-border deals face inconsistent rules and a legal maze that results in constant uncertainty, inflated costs, and frequent delays.
Currency Volatility and Capital Controls
Weak, volatile, and difficult-to-convert currencies are tough enough. Add capital controls that trap profits and delay exits, despite being designed to stabilize economies, and even the most patient investors start walking away.
Deal Flow Obstacles
Mergers and acquisitions are facing growing regulatory complexity. In countries like South Africa and Kenya, approvals now hinge not only on competition concerns but also on public interest factors such as job creation and diversity. Noble causes, but a significant drag on deal activity. Worse yet, blocking today’s deals further increases investor uncertainty for tomorrow’s.
Bureaucratic Red Tape and Corruption
Ease of doing business is a significant limitation when it comes to investment. In many African markets, securing permits, licenses, and approvals can drag on for months. In countries like Somalia and Eritrea, among the worst globally in terms of ease of doing business, make that years. Layer this with entrenched corruption from the top down, ‘facilitation payments’, and bribery, it’s no surprise investors are unsettled.
Redesigning the System
Africa doesn't need more capital, it needs systems that let its existing capital work. These fixes aren’t perfect, but they’re a start:
Unified Regional Regulations
Africa has plenty of regional blocs: ECOWAS in the west, the EAC in the East, the AMU in the North, and SADC in the South, amongst many more. These organizations should prioritize regulation harmonization that will not only benefit individual countries but also entire regions as a whole. Shared tax and investment protocols will significantly simplify and amplify cross-border growth.
Reduced Currency and Capital Controls
Replacing stringent capital controls with structured, transparent regimes allowing scheduled profits repatriation may provide much-needed clarity to investors and stabilize currencies. In the long term, coordinated regional monetary policy or even the adoption of a common currency (Ex. CFA Franc in West Africa, Euro in Europe) may reduce volatility and improve liquidity.
Streamlined Deal Flows
Implementing standardized timelines and transparent criteria for deal approvals will limit delays and facilitate easier mergers and acquisitions. Joint regulator-investor platforms would enable the consideration of public interest issues earlier in the deal-making process and avoid unexpectedly blocked deals.
Digital Transformation and Transparent Reporting Mechanisms
Aggressively digitizing public services, such as what Kenya has achieved with its eCitizen digital platform, will help support formal business registration, shorten approval timelines, reduce discretionary power, and limit opportunities for bribery. Complementing this with independent, anonymous digital reporting platforms monitored by neutral entities could help expose corruption, but ultimately, sustainable progress depends on African countries electing accountable leaders committed to transparent governance.n
Beacons of Possibility
Despite the challenges, some startups have found ways to win.
Twiga Foods built physical and digital infrastructure to connect smallholder farmers to urban markets. In doing so, it didn’t just raise over $160 million in capital, it formalized an entire value chain, turning informal trade into investable scale.
Leta went after logistics, not with an app but with systems. By optimizing fleet management and delivery networks with its technology platform, it’s tackling one of Africa’s most stubborn inefficiencies: last-mile delivery.
mPharma tackled fragmented pharmaceutical distribution by centralizing procurement and distribution for pharmacies across Africa. Cutting costs and increasing access while bringing structure to a disorganized pharmaceutical sector, it's raised over $90 million in the process.
These aren’t unicorn chasers. They’re system-builders solving real structural problems, prioritizing execution over narrative, and substance over story.
The Path Forward
Private equity and venture capital in Africa are at a crossroads. With a booming young population and returns already outpacing much of the world, the stakes couldn’t be higher. The challenges are steep, but the upside is steeper.
Reform isn’t a fantasy. Coordinated market frameworks, free capital flows, and greater transparency are within reach. The potential is there. The question is, will the system evolve fast enough to unlock it?
Or better yet, can Africa shift from dependence on foreign capital to a future built on financial self-determination? After all, no one understands Africa better than Africans themselves. As the saying goes, give a man a fish, and you feed him for a day. Teach him how to fish, and you feed him for a lifetime.