Communiqué 49: How to invest in Africa’s creative economy, Part 1

Africa's creative economy is generating investment interest, but its growth is hampered by misaligned funding models and infrastructure gaps.

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1. The blitz

Earlier this year in May, CEOs, government officials and policymakers, investors, and thousands of other businesspeople gathered in Kigali, Rwanda, for the latest edition of the Africa CEO Forum. It is perhaps the biggest business conference on the continent, often attracting presidents, prime ministers, billionaires, and business leaders. The conversations usually cover traditional business themes and sectors: financial services, manufacturing, infrastructure financing, hospitality, etc. But this year’s edition was different: it was the first time that the creative economy took center stage.

An invitation-only roundtable at the conference featured guest speakers such as Mohammed Gouled of the International Finance Corporation (IFC), Ferdy Adimefe, founder of Magic Carpet Studios, one of Africa’s foremost animation studios, and Jocelyn Muhutu-Remy of Spotify. This roundtable explored how investing in the creative industry could create competitive advantages for African countries, what innovative funding models could help creative businesses in the long term, and how partnerships could help plug existing gaps in the market.

This, in many ways, typified how stakeholders had come to think of the creative industry: it was now an asset class to consider, and anyone with the capital and interest was invited to the table. This realization is also marked by significant action.

Earlier in the year, for instance, Nigeria’s Ministry of Arts, Culture, the Creative Economy, and Tourism secured a $200 million investment from the African Export-Import Bank (Afreximbank) for the creative sector. Later in the year, the ministry also got approval for a creative economy development fund. Afreximbank itself already launched a $1 billion African film fund under its CANEX (Creative Africa Nexus) program, an initiative to finance creative and cultural industry enterprises on the continent and in the diaspora.

In September, during the United Nations General Assembly in New York, HEVA Fund and Next Narrative Africa announced a $40 million fund for African filmmakers and creatives. This fund will allocate $30 million in equity funding and $10 million in grants. Then in November, the U.S. government, through the U.S. Agency for International Development (USAID), announced a partnership with Ascend Studios, a creative industry organization, to invest $3.5 million in training about 3,500 young Nigerians in TV production.

A few years ago, in 2019, private equity firm Volition Capital created the Volition Entertainment Media and Arts (VEMA) Fund to invest in African creative projects. The first iteration of the fund put $250,000 into the production of The Black Book, Netflix’s highest-grossing African movie to date, and that returned the principal plus 50% interest. Following the success of VEMA I, Volition launched VEMA II, a $20 million fund, and plans are in the works for a pan-African fund.

All of these signify increased investment interest in the continent’s creative industries. However, as with many things, challenges abound, and gaps persist.

2. The gaps

Many investors have approached the creative industry with a Silicon Valley mindset. They often assume that since the sector is an emerging asset class with promise, then surely it could benefit from the venture capital model that has proved successful in driving growth in the technology sector. This assumption, though simple and tempting, is flawed and has created a misalignment of expectations, reality, and possibility.

“The concept of the Creative Economy as an investable asset class is very new,” Marie Lora-Mungai, creative economy analyst and CEO of Restless Global told Communiqué. “Investors only started looking at the space a couple [of] years ago. One key mistake that the investment community made early on was to assume that venture capital would be an appropriate tool to finance the creative sector, because of its emerging nature.”

The fundamental error in this approach became apparent as investors realized that creative businesses typically follow different growth trajectories than tech startups. While venture capital thrives on the potential for exponential growth and outsized returns, creative enterprises often develop more linearly, building sustainable value over time rather than achieving hockey-stick growth curves. There are a few exceptions to this rule, like Carry1st, a gaming company that combines creative content with technological infrastructure. But the vast majority of creative businesses – from fashion houses to film production companies – operate on fundamentally different principles.

According to Lora-Mungai, this mismatch between the investors’ expectations and the nature of creative businesses led to some early failures, which, in turn, has fuelled the perception that the industry is too risky.

The misalignment creates a gap, and this gap necessitates the existence of dedicated creative economy investment funds and vehicles run by people with a deep understanding of the industry balanced with a proper grasp of financing principles.

This is where firms like HEVA Fund come into play.

3. The “Happily Ever After” story

In 2013, a group of Kenyan creatives banded together to form an organization to plug the funding gap for creative businesses. They considered a variety of models, like a Sacco (cooperative) or credit union. The goal was to build something that catered specifically to the needs of creative entrepreneurs who for many years had little to no funding access. All members of the founding team had experienced this crunch in one way or another, so they knew where the shoe pinched.

Eventually, they settled on a fund and accelerator model built on three pillars: research and insights, technical capacity building, and investments. They knew that funding creatives wasn’t enough to achieve the level of growth required, there had to be significant business and technical support attached. When it was time to name the company, they opted for “Happily Ever After” (HEVA), a nod to their aspirations for the creatives they would come to invest in.

Since it began deploying capital in 2015, HEVA has poured over $10 million into media, fashion, music, and gaming ventures across Africa. The company says it has directly supported over 100 businesses.

HEVA takes a hybrid approach to funding—investing for equity and offering grants—but never outside the creative industry. It has also invested in films, games, live theater performances, fashion accessories, arts, and crafts. It sometimes finances projects at the ideation stage. But at the core of its strategy is infrastructure and capacity building, and investing across the entire value chain. “HEVA is a catalytic fund, we think of investing in the creative economy as an accelerator for the businesses in the sector,” Pamela Mutembei, investment director at HEVA, told Communiqué. “So, I can see success stories, whether it is in studios that are doing productions that we’ve invested in, [or shows that have] been able to employ people…from pre-production, script writing to production.”

Beyond putting money into the creative industry, HEVA has also helped set policy frameworks with its research and advisory services. For instance, its work has been instrumental in shaping Kenya’s Creative Economy Support Bill 2024.

4. The outlook

Despite the growth that the creative economy has seen in the last few years, despite the increased investment and attention, despite the work that firms like HEVA have done, there’s still so much more to do, many more adjustments to be made, much more funding innovation to happen, and a lot more infrastructure to be developed.

Think about it: A drawback for the creative industry in Africa has been the lack of the underlying infrastructure and a developed ecosystem to support it. Say you want to make a film, do you have enough skilled talent to produce it? And when you produce the film, are there enough cinema screens to make your cinema run commercially viable? If you decide to go the streaming route, is internet penetration incisive enough for people to stream your film consistently? How many people have the purchasing power to buy internet data bundles and still pay several dollars in subscription fees? Therefore, investments in the creative sector have had to first address these challenges.

There have been some success stories, like Universal Music Group’s acquisition of Mavin Global and Canal+’s acquisition of Ethiopia’s Kana TV a few years ago. But there aren’t enough. At least not yet. And this points to the fact that there must be new ways of thinking and new ways of approaching problems.

There’s obvious potential here. But potential is never enough.

Update: The essay has been updated to reflect the correct list of speakers at the Africa CEO Forum’s creative economy roundtable.