Africa’s start-ups are building on Chinese AI

African technology start-ups are increasingly building their products on Chinese AI models, and American investors’ retreat from the continent is making that shift easier, according to Lexi Novitske, general partner at pan-African venture capital firm Norrsken22.

“If you take a look at what technology companies locally are building their systems on today, it’s open source, it’s Chinese-based AI models because they’re cheaper and they’re more available,” Novitske said in an interview on the TechCentral Show. She pointed to Alibaba Cloud’s AI tools and its Qwen family of models as examples that have done well in the market.

Novitske, who has lived and invested in Nigeria since 2012 and was an early backer of Paystack and Flutterwave, said the US was leaving “a huge vacuum” in African tech. But she framed it as a failure of private capital rather than of government. “I think US private capital especially is missing out. I don’t think it’s as much of a government policy story as it’s a private capital one,” she said.

The cost, she argued, goes beyond missing out on the spending power of a young, digital-first consumer base. US companies that stay away also risk losing access to a new source of data as AI products are built around African users.

Novitske said the pullback was not unique to Africa. Venture capital globally is being “reallocated to a few very large venture firms in the US and doubling down on the AI space within Silicon Valley specifically”, she said, and large international investors have retrenched to their home markets as a result.

She expects that to reverse in “maybe one or two years” as companies go looking for growth in under-penetrated markets. In the meantime, she said, US investors were “acting a little bit short-sighted” by ignoring a young population whose digital habits, formed now, will stay with them for life.

Chinese companies have already shown how that plays out, Novitske said. Their first wave in Nigeria was hardware, with handset maker Transsion and Huawei rolling out phones and telecoms infrastructure. The second was fintech.

OPay built a daily habit with Nigerian users through ride-hailing and logistics before converting them to financial services, she said. It is now one of the country’s largest agent banking platforms, offering savings, microloans and wealth management. PalmPay, whose seed rounds she said were led by Chinese investors, built payments infrastructure across Nigeria and has become one of the market’s biggest incumbents.

“A lot of these Chinese players are extremely well funded. They can afford to take a loss-leading position for three, four years until they really build out the network effects,” Novitske said – a luxury most local founders, generally short of cash, don’t have.

She credited them with building an adoption curve that also benefited local players such as Moniepoint and Flutterwave. But they have “swept up so much of the market that it’s actually a little bit, I would say, uncomfortable for Nigerian regulators”.

Regulation, rather than Nigeria’s notorious power cuts, is the biggest challenge facing start-ups in the country, she said.