Top of Mind: Happy Sunday!
In 2022, diasporans sent $100 billion back to Africa.
While this powered economic growth, it presented an opportunity for asset managers and venture capital firms to turn remittances into investments for Africans in the diaspora.
It’s a short dive this week.
Let’s get into it.
One big thing:
- Remittance is king.
The short: Remittances from the diaspora have served different purposes over the years – powered education, covered medical expenses and sustained domestic life. Now, asset managers are exploring this $100 billion opportunity.
Seeking new pastures: Africa’s middle class was a force in the 90s and early aughts, resulting in families sending their children to the West for world-class education.
The trend spiked in 1960 when an estimated 1.83 million people emigrated from Africa. Two decades later, with self-determination and money in the bank, the number increased to an estimated 5.42 million people.
And in 2000, an estimated 8.73 million people emigrated from Africa.
The emigration launched a community of millions of Africans in the diaspora who built new lives and wealth in Western countries.
Today, this community fuels Africa’s economy through remittances.
Remittance is king: According to the UN, 200 million African families benefit from remittances – receiving over $100 billion in 2022 alone, more than the Official Development Assistance (ODA foreign aid) and Foreign Direct Investment (FDI).
The figure is consistent with immigration data, as people who left the continent in the 20th century experienced career progression and earned more money to support their families.
New opportunities: Asset managers have launched remittance investment services to tap into the $100 billion market. While it’s an emerging trend, it’s establishing a new era of investment capital.
The idea is simple. In addition to family support, you can build an investment portfolio.
A prime example is Volition Cap’s remittance service.
The company announced a few months ago that it had secured a fund management license from the Nigerian Securities and Exchange Commission (SEC) and launched a remittance investment service to transform remittances into African investments.
While it’s still in the early days, the remittance service allows Africans in the diaspora to grow capital and access investment opportunities.
But Volition Cap isn’t alone in leading innovation in this space.
Governments aren’t far behind in supporting remittance innovation in Africa.
PRIME: The European Union launched the Platform for Remittances, Investments and Migrants’ Entrepreneurship (PRIME) to help Africans send money home and offer vetted information on where and how to invest in Africa.
The fund creates development opportunities through partnerships, innovation, and investments in scalable products and businesses.
These are some examples. But here’s the interesting part:
In addition to asset managers and initiatives like PRIME, startups are emerging as a hotspot for remittance investing.
Friends and family: Africans in the diaspora form a significant part of funds raised by venture capital firms. In the last five years, diasporans have powered cap tables and become limited partners (LPs) in startups. Founders turn to friends and family in the diaspora when raising pre-seed or seed funds.
However, this limits the pool of investors as this process is driven by word of mouth – without the benefit of being channelled through a dedicated fund.
This gap presents an opportunity for asset managers like Volition to target individuals who don’t have direct access to startups and deal flows.
In a sense, it democratises investments from the diaspora by supporting people curious about investing on the continent but don’t know where to start.
Final thoughts: In the last decade, remittances have sustained families and promoted economic growth. Today, with more Africans migrating to the West, there’s ample opportunity for asset managers and VCs to build lasting structures to channel remittances to support local investments and raise capital for startups and businesses.
Thanks for reading! We’d love to hear your thoughts about this week’s issue.
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