Bank of Tanzania Admits to Dollar Shortage, Blames Global Factors including U.S...

Startups raising their first round of venture financing accounted for 37% of VC deal volume in 2022, a new report by the African Private Equity and Venture Capital Association (AVCA) says.

This came amid a 1% decrease in venture capital investments in Africa to $6.5 billion in 2022 even though the continent fared much better than the rest of the world, which saw a 32% contraction in global venture capital.

Africa raised $5.2 billion in venture capital across 786 deals in 2022, representing 3% of the total volume and 1.2% of the total value of global venture funding in 2022, the report says.

“While the global venture market experienced significant contractions in startup funding to varying regional degrees, Africa’s venture ecosystem was relatively stable and only experienced a funding drop of less than $50 million compared to 2021.”

The majority of deal-making in 2022 was follow-on (i.e., repeat or subsequent financing of companies) rather than first-time financing, with 62 unique companies (8% of total) recipients of more than one round of deals in 2022 specifically. 409 unique companies that each raised follow-on venture capital funding had raised previous rounds before 2022.

Amongst first time recipients of capital, 52% of transactions were at the seed stage, with only a small cohort (4%) of first-time capital recipients doing so at the early-stage (i.e. Pre-Series A or Series A transactions).

Deals at the seed stage were also the largest-growing market segment in 2022, demonstrating YoY growth of 45% to stand at 355 (up from 245 deals in 2021). The median value of deals in this category also rose to $1.5 million in 2022 from $1.0 million in 2021, the report found.

“The sheer breadth of pre-revenue startups seeking early-stage development capital has created a demand for seed financing in Africa. Considering there were well over 900,000 new business registrations in Africa in 2020 alone , the predominance of this investment stage shows no sign of future abatement.”

The financial sector was a key driver of investment activity in Africa, accounting for 42% of transaction value and 31% of deal volume in 2022. Although 15 significant investments in firms drew a total of $2.2 billion, the median deal size across all investment phases was $2 million.

In terms of the number of deals per country:

• Nigeria tops with 172 deals
• Egypt (117)
• South Africa (110)
• Kenya (102)

Nigeria also tops with 22% of the value of funding arriving into companies headquartered on the continent.

You can find the full report here.

Follow us on Twitter for the latest posts and updates

_______________________________________

_______________________________________

The Bank of Tanzania (BoT) has acknowledged a decrease in foreign exchange reserves. However, the bank has stated that the situation is not considered critical.

Foreign exchange reserves had decreased to $4.9 billion by May 2023 from $5.5 billion in May 2022.

“I first of all admit that there is a shortage of foreign exchange, but this has been caused by external factors, which are beyond the control of many countries,” BoT Economic research and Policy Director, Suleiman Misango, said.

The official further emphasized that the current foreign exchange reserves are deemed adequate as they can cover approximately 4.4 months’ worth of imports which meets the country’s benchmark requirement of having at least four months of import coverage.

“The central bank is aware of the decrease in the supply of dollars and is taking measures to address and mitigate the situation. There is no need to panic as we have not reached the level of calling it a crisis,” Dr Misango said during a meeting with local journalists at BoT headquarters.

The decline in foreign exchange reserves can be attributed to global factors which include:

• The effects of the Covid-19 pandemic
• The ongoing conflict between Russia and Ukraine
• The decision of the US Federal Reserve to raise interest rates, and
• The impacts of climate change

Dr. Misango explained that the global challenges mentioned earlier, such as supply chain disruptions, have resulted in increased commodity prices in the international market. As a consequence, a larger amount of dollars is required to import the same quantity of goods compared to previous circumstances.

The value of imports increased from $10 billion in 2021 to $14.2 billion in 2022, while that of exports increased from $6.7 billion to $7.2 billion during the same period.

“Available foreign exchange reserves are being utilised carefully to stabilise liquidity,” Dr Misango said, adding that the central bank is selling at least $2 million to commercial banks daily as part of measures to regulate the supply of the greenback.

Dr. Misango stated that typically, the central bank engages in the purchase of dollars. However, in recent months, the central bank has resorted to selling dollars in order to enhance liquidity in the market. From January 2022 to May 2023, the central bank has sold a total of $376 million through the Inter-Bank Foreign Exchange Market (IFEM).

According to the official, the decrease in dollar supply in Tanzania is relatively smaller compared to what other countries are currently facing. Despite the challenges, he expressed optimism that the situation will normalize in the near future. The hope is that the dollar supply will improve, alleviating the current constraints being experienced.

Dollar availability is expected to increase from July to September 2023 which is the peak tourist season and the time when cash crops are harvested with the availability of foreign exchange expected to improve in the next few months.

“Prices of some imports, especially oil, are now going down and therefore easing the pressure on foreign exchange reserves. We expect foreign exchange reserves to start rising soon.”

The central bank has recently issued new directives aimed at increasing the availability of the dollar. One of the directives stipulates that all foreign exchange transactions in the retail market exceeding $1 million should be traded at the prevailing quoted prices in the inter-bank foreign exchange market. Previously, this limit was set at $250,000.

pic.twitter.com/P2CHgIqCcO

— Bank of Tanzania (@BankOfTanzania) May 31, 2023

Follow us on Twitter for latest posts and updates

_____________________________________

_____________________________________