Exploring EdTech’s Ability to Alleviate the Unemployment Crisis in Sub-Saharan Africa
Bridget Duru, Senior Associate, Rethink Education and Peter Wamburu, Vice President, VestedWorld
Venture capital (VC) funds Rethink Education and VestedWorld researched education technology (EdTech) opportunities on the continent throughout 2023. Bridget Duru (Rethink Education) and Peter Wamburu (VestedWorld) share their reflections on EdTech’s ability to alleviate the unemployment crisis in Sub-Saharan Africa (SSA).
Context
Sub-Saharan Africa (‘SSA’) is at a crossroads. By 2035, the number of African youth joining the labor force is expected to exceed that of the rest of the world. Additionally, while 11 million Africans join the labor market each year, only 3.7 millions jobs are created within the continent, implying that every year, 7.3 million new entrants into the workforce will be unemployed, underemployed, or forced to find an alternative means to earn an income in the informal sector — a sector which contributes to 85% of all employment in SSA.
Limited access to education and skills training, inadequate job opportunities (often a result of a lack of investment in key employment sectors such as agriculture and manufacturing), and slower economic growth have been key contributors to the African youth unemployment crisis. As education technology (‘EdTech’) and workforce investors, we will focus on the role that workforce training startups can play in alleviating this crisis, as they have the potential to accelerate employment.
When we look at venture capital funding for the EdTech and workforce segment on the continent, we see that it is still nascent. Partech reported that in 2023, only ~1% of the $3.5B of venture equity funding going to African startups was allocated to EdTech, totaling around $27mm. (Note: While the percentage of total VC funding going to EdTech is similar to that of the U.S., the magnitude in Africa is notably smaller, with U.S. EdTech companies raising $2.8B in VC funding in 2023.)
Map of Workforce Startups in SSA
We mapped out ~100 workforce training companies in SSA:
As evidenced above, there are a significant number of companies operating in the workforce segment. Using current VC funding as a proxy for startups that have the potential to increase employment on the continent (acknowledging the imperfections of this metric), there are three key segments we should explore: Software Engineering Upskilling / Reskilling, Software Engineering Outsourcing / Freelance, and Digital Skills Freelance / Outsourcing / Recruiting. In each of these segments, numerous companies have raised $1mm+ in VC funding. We will do a deep dive into each of these categories and share our perspectives on their potential to increase employment on the continent.
Software Engineering Upskilling / Reskilling
In the software engineering upskilling / reskilling space, below are the companies that have raised $1mm+ in VC funding.
Software Engineering Upskilling / Reskilling Companies That Have Raised $1mm+ in VC Funding
Many of the companies listed here are teaching valuable software engineering skills to Africans (and in some cases, data science, digital marketing, product design skills, and more). Not only are these skills important, they’re in high demand — the U.S. has a shortage of software engineering talent with 1.4mm unfilled computer science jobs in 2020 compared to 400k computer science graduates that same year (note: this shortage may decrease with the proliferation of coding co-pilots). Additionally, individuals who attain these software engineering skills have the potential to earn meaningful salaries.
Although these companies are equipping Africans with the skills necessary to enter and succeed in the tech market, scalability remains a challenge, as they are currently reaching only a small segment of SSA’s vast population. These upskilling and reskilling companies primarily operate on a business-to-consumer (B2C) model, which limits the number of participants due to high enrollment fees and limited laptop penetration across the continent. In contrast to the U.S., where corporations and governments assist in alleviating the cost burden of workforce training, corporations in SSA have not yet made substantial investments in training junior employees. Additionally, government processes in SSA remain long and complicated for startups trying to get contracts or access to public funding. Increased financing options for workforce training programs can help to reduce the cost barrier for participants who lack the disposable income to pay for these programs upfront. For example, Rethink Education portfolio company Decagon has partnered with a bank to enable its students to finance their software engineering program, making it more accessible to those who otherwise would not be able to afford it. For this segment to scale, more players will need to find ways to help students pay for courses through partnerships with traditional financial institutions and upcoming edu-finance companies across the continent.
Furthermore, the return on investment (ROI) — a job in this case as we are focusing on the unemployment crisis — varies for these programs. While some companies match their graduates with jobs (e.g. Decagon and Moringa School), others do not guarantee job placement, sometimes leaving graduates to find employment on their own.
Software Engineering Outsourcing / Freelance and Digital Skills Freelance / Outsourcing / Recruiting
For program graduates or others who have these technical skills and are seeking employment opportunities, its recommended to look to marketplaces in the following segments: software engineering outsourcing / freelance, and digital skills freelance / outsourcing / recruiting. Below are companies in these segments that have raised $1mm+ in VC funding.
Software Engineering Outsourcing / Freelance, and Digital Skills Freelance / Outsourcing / Recruiting Companies That Have Raised $1mm+ in VC Funding
Andela appears to be the market leader in outsourcing African software engineers to global companies, scaling within and outside of Africa (note: Andela started as a tech training company and pivoted to an outsourcing company due to scalability challenges). Andela has played an instrumental role in employment as the income generated through software engineering jobs are life changing for most people in SSA. However, Andela is currently focused on senior engineers which leaves a substantial gap in the market for companies focused on junior engineers. These more junior-facing companies like Gebeya, Pariti, and Meaningful Gigs have the potential to increase employment for youth in SSA but remain in smaller scale today.
However, there are macroeconomic factors that increase the viability of success for these earlier stage training companies and marketplaces. As we enter more recessionary economic times, large companies will be looking to cut costs and therefore outsource more roles. Additionally, as Western nations’ populations age, they will have no choice but to look to other countries for labor to support their economies. These factors could result in major tailwinds for the smaller freelance / outsourcing companies as well as the training companies that place graduates in jobs. Therefore, although many of the upskilling and outsourcing companies are smaller in scale today, with the right conditions, they have the potential to connect a significant number of Africans to employment, just as Andela is doing today.
Also, it’s worth reiterating that nearly 85% of employment in SSA is in the informal economy, so these previously mentioned upskilling and outsourcing companies will most likely be unheard of by many Africans. There have been some attempts by startups to begin to formalize certain segments of the informal economy, such as online marketplaces for gig workers for tasks like appliance repairs, plumbing, house cleaning, and more. Examples of these marketplaces include: Ziada, Letawera, Fundis, Mon Artisan, and others. These marketplaces, however, are still early and have not raised significant VC funding. While it makes sense for platforms to try to formalize the gig economy, at the current state, these platforms seem to be moving jobs from offline to online, as opposed to creating net new jobs and a large economic impact. Net new jobs will be created when the middle and upper classes in SSA expand and there is more demand for these types of services.
Not all Gloom & Doom: Lessons from India
India’s Economic Development: The Case for Workforce Training & Outsourcing in Africa
Given India’s structural similarities to countries on the African continent, such as GDP per capita of $2,000 and a large, growing, youthful population, there is a valid basis for comparison between the two markets.
First off, it’s important to provide historical context to paint a clearer picture of why we believe there are some great insights to glean from the evolution of the Indian economy. In the 1950s, over 50% of India’s GDP was attributable to agriculture, with the services sector contributing only 30% to the country’s GDP. However as of 2020–2021, agriculture only accounted for 15% of the economy’s GDP with the services sector contributing 54.3% to the country’s GDP, a remarkable transformation.
Now, let’s look at EdTech funding in India and explore its contribution to India’s service economy. The Indian EdTech venture ecosystem has grown by leaps and bounds over the past decade, becoming the second largest EdTech ecosystem in the world, behind only the U.S. Cumulatively, the sector has attracted over $11B in venture funding between 2014 and 2022. As evidenced by the graph below, India raised $95m in EdTech in 2015. We can then use this point to imply that with Africa’s EdTech funding of $97m in 2022, the continent is seven to eight years behind India in terms of ecosystem maturity through a venture funding lens. Moreover, as the chart shows, over 64% of India’s EdTech funding has come over the past two years (2021–2022), coinciding with the COVID-19 pandemic. Globally, 2021–2022 saw the record highest investments in EdTech, so these two years were a funding anomaly.
Indian EdTech VC Funding by Year
Indian Edtech Market Map & VC Funding by Sub-Sector
It appears that historically, specific EdTech verticals (K-12, online certification, and test preparation) have received the lion’s share of funding with $9.3B in venture capital allocation between 2014 and 2022. Within the same period, skill development received only $277m in venture funding, significantly less than the other EdTech segments. However, when we evaluate investor appetite post-pandemic, skill development was the leading EdTech sector by deal count in 2022, which is an indicator of future deployments in the sector as early-stage companies mature and attract growth capital.
Growth of Skill Development VC Funding by Deal Count (2021–2022)
While EdTech funding in India has grown significantly over the past few years, India has been transitioning to a service economy for the last few decades, long before the country saw a boom in EdTech funding. Thus, it’s the outsourcing of skills and services that has been instrumental in the transformation of India’s economy, not EdTech funding. In 2022, information technology (IT) and business process outsourcing (BPO) solutions contributed 7.5% to India’s GDP. Moreover, when we look at BPO specifically, India controls 65% of the global BPO market, making India a world leader in outsourced services. The key factors that seem to have contributed to this are: high levels of English proficiency and literacy, a large presence of in-person learning centers, enabling regulation (e.g. friendly tax structures, a geographic location that accommodates time zone differences between India and developed markets), and strong telecommunications infrastructure.
India had the basic infrastructure in place to become a global outsourcing hub. The country initially started out with a large presence of lower skilled jobs (e.g. outsourced call centers) but expanded to include more jobs with technical skills like software development and data analytics. Both in-person learning centers and skill development startups, such as Masai School, NxtWave, Newton School, and Scaler Academy, have played an instrumental role in upskilling the population in-line with shifting domestic and global demand requirements. However, these upskilling programs alone were not enough in India and thus won’t be on the African continent. SSA needs the enabling infrastructure and policies to attract global demand for talent and enable outsourcing at a large scale.
Takeaways
So, where do we think VC funding has a part to play? The structural inefficiencies may be too difficult for VC dollars to solve alone. As aforementioned, there are multiple VC-backed upskilling platforms and marketplaces emerging in the continent that can play a key role in ensuring that Africans are up to date on in-demand digital skills. Meanwhile the marketplaces can fill the gap for more freelance work, much like Upwork and Fiverr do in the U.S. However, we will also need to see an emergence of large outsourcing companies that can employ entire teams to make a larger impact on unemployment in SSA.
For Africa to become a major player in global outsourcing we need to support the development of the underlying infrastructure with participation from all players, including governments, the private sector, and the nonprofit sector. Education is the foundation of a skilled workforce — thus we need to ensure high quality outcomes at the K-12 level. As evidenced by India, basic English proficiency is a competitive advantage when it comes to labor and talent. While we understand that governments are resource constrained and deploying as much as they can into education, it’s important that outcomes are prioritized and tracked when allocating funding. We recommend that governments and policymakers create enabling environments for capital allocation into the workforce (e.g. tax-friendly structures, special economic zones, etc.). Additionally, telecommunication infrastructure and data costs need to be subsidized to enable as many people as possible access to online upskilling opportunities and remote work.
The success of a mature EdTech startup will be measured by its ability to improve the life outcomes of its users. Not all business models in EdTech are venture scalable, and therefore some education and upskilling platforms require patient philanthropic capital beyond VC dollars. Potential instruments that decision makers could explore include impact-linked bonds tied to long-term outcomes, formation of investment vehicles with a longer-term time horizon (15–20 years), and government matching to private sector investments.
EdTech and upskilling isn’t easy. We applaud the founders who continue to build in this impactful space and remain optimistic about the future. Youth in Africa will be instrumental to the future of the global economy.
If you’re focused on educating and training this population, please reach out, we’d love to hear from you. Get in touch:
Thanks to VestedWorld for their collaboration on this report.
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