Taxes, high octane politics spook venture capital investors in East Africa

Zawya

09-04-2025

East Africa recorded subdued venture capital (VC) activity in 2024, weighed down by a volatile sociopolitical climate and increased business taxes in Kenya.
Latest data by the African Private Equity and Venture Capital Association Ltd (AVCA) shows that the region recorded 112 VC deals valued at $472 million, from 114 deals valued at $480 million in 2023.
The pan-African private capital lobby says in its report Venture Capital in Africa report dated March 2025 that a volatile sociopolitical climate in Kenya and regulatory changes related to the proposed Finance Bill 2024 (including a rise in capital gains Tax from five percent to 15 percent and a new six percent digital services tax) led to a 7.6 percent decline in new business registrations, weighing heavily on deals flow.
The report says while East Africa ranked second by volume in 2024, largely due to the padding of debt valued at $114 million, the region's overall performance was somewhat 'disappointing.'The region ranked fifth by deal value, partly due to the absence of super-sized deals, according to the report.
Super-sized deals are those equal to or exceeding $100 million.
The report flags an 88 percent drop in venture funding to Rwanda, which weighed on deal value, 'compared to its exceptionally strong 2023, which had included two deals valued at over $20 million.'The report cites Tanzania as a standout performer during the period, with its share of East Africa's capital rising to nine percent from under one percent in 2023.
According to the report, Tanzania's improved performance in terms of VC deals reflects the government's proactive support for start-ups, including a proposed Start-up Policy and Act in 2023, regulatory and tax reforms in 2024, and plans for a Tsh100 billion ($37.13 million) Tanzania Venture Capital Fund in 2025.
Read: Why East African companies prefer private equity, venture capital fundraising to IPOsSeychelles also emerged as a hub for venture capital, particularly in the blockchain and fintech sectors, reflecting its growing appeal to digital-first investors and start-ups, the report says.
But ti notes that with tech penetration at 71 percent, East Africa has a strong but relatively smaller technology footprint, compared with other parts of Africa, which has shaped regional investment patterns, with non-tech funding in 2024 being concentrated in consumer-oriented sectors — consumer discretionary (durables and apparel) and consumer staples (food and beverage) companies, which received 61 percent of investment.
Kenya dropped to the fourth and fifth position from third position in terms of the top 10 investment destinations by VC deal volume and value in 2024 respectivelyFor instance, Kenya ranked fourth with 60 VC deals, after Nigeria (70), South Africa (65) and Egypt (64).
On the other hand, Nairobi ranked fifth with VC deals valued $318 million after South Africa ($589 million), Nigeria ($417 million), HQ Outside Africa ($362 million) and Egypt ($353 million).
West Africa topped the regions in deal volume for the fourth consecutive year.
According to the report, financials have long stood as the titan of venture capital in Africa, consistently attracting the largest share of investment. Its dominance persisted into 2024, as financials remained the only sector to record annual growth in deal volume, inching up by two percent.
Although total deal value contracted from $1.7 billion in 2023 to $1.5 billion, the sector still commanded a dominant 59 percent of overall venture funding in 2024—equivalent to nearly three out of every five dollars deployed across the continent.
This impressive share marks a decade-long climb in the concentration of capital towards this sector (financial), from 23 percent (2015-2017), climbing to 32 percent (2018 to 2020) and later 50 percent (2021 to 2023).
Although early-stage ventures focused on consumer financial services remain the mainstay, the banking sub-sector is steadily gaining traction.
Read: A tough and rough year for East African startupsNot only did the volume of banking deals triple from just six in 2020 to 19 in 2024, but the average deal size also surged from $2.2 million to $26.4 million over the same period.
This trend mirrors the global rise of digital-only banks, which have gained widespread adoption following their success in Europe.
In 2024, African digital banks not only demonstrated strong regional appeal but also held their own on the global stage.
Financials and utilities were once again frontrunners by both deal volume and value in Africa in 2024, reinforcing their perception as stable and high-growth sectors during economic uncertainty.
More specifically, the financial sector cornered the venture debt market by volume with 25 transactions (42 percent of total deal count), while the Utilities sector led monetarily with transactions amounting to $367 million (39 percent of total deal value).
Other sectors, including Consumer Discretionary & Staples (17 percent) and Industrials (12 percent), also received venture debt in 2024, but their share of the overall distribution was significantly smaller.
Materials and Information Technology rounded out the list with one deal apiece, illustrating the diverse but narrowing footprint of venture debt across the continent's economic landscape.
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