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NIGERIA’S TECH STARTUP ECOSYSTEM AND ITS PERTINENT CHALLENGES

Nigeria joined the tech startup scene relatively late, unquestionably behind the likes of South Africa, Kenya, and Egypt.

What Nigeria might have lost in coming late, it has gained in the pace with which the local startup ecosystem has grown over the last decade.

In the year 2018, significant funding rounds of Andela (USD $40M), Flutterwave (USD $10M), Terragon Group (USD $5M), Cars45 (USD $5M), Resource (USD $3.5M) Paystack (USD $1.3M), just to mention a few pronounced the feasibility and viability of the ecosystem.

In 2019, there were several indications that African startups raised a lot of money. A report by WeeTracker also confirmed it. According to the report, African tech startups generated a total of $1.34 billion in 2019, its highest figure yet. The report shows that in all, Nigeria attracted the largest funding compared to other countries to record the largest funding amounts. Startups from Nigeria raised $663.24 million which represents a whopping 50.5% of the total funding raised on the continent.

Unsurprisingly, Nigerian-focused startups; Interswitch, OPay (USD $50M), Andela, Palmpay, accounted for most of the top venture deals on the continent in 2019. Startups like Kobo 360 (USD $30M), Team apt (USD $5M), Farmcrowdy (USD $2M), Kudi (USD $5M), MAX (Metro Africa Express) (USD $7M) also raise large capital equity in the course of the year.

This large capital raising rounds by a growing number of tech companies signals a ‘coming of age’ of the ecosystem.

As the Nigerian tech startup ecosystem continues to develop, new startups emerging out of Nigeria remain the favorites of venture capitalists who are ready to invest heavily.

Research shows that some of the promising sectors of the ecosystem are: edtech, aritech, fintech, Agritech, and healthtech among others. We expect that 2020 will even exceed prior indexes with the injection of foreign currency by the already infatuated venture capitalist community.

The Nigerian tech scene has had an impressive 3 consecutive years of funding from investors. The ecosystem’s growth has been immense. Startups received record-breaking funding rounds, churned out a youthful and vibrant developer community eager to forge technological innovations, and made giant strides.

 

However, these growths came amidst several challenges that have bedeviled the space. These challenges have come from various segments of society; government, socialites, elites/bourgeoise, masses. The effects have been devastating to some startups while others have experienced stunted growths, which do not encourage aspiring Investors looking to create value through the ecosystem.

 

Here are some of the major challenges that the Nigerian tech ecosystem continues to encounter to this day;

 

  1. Inadequate Infrastructural Development:

Infrastructure is the bedrock of the economy. A well-developed infrastructure is not only essential for attracting foreign investment, it is vital for the long-term growth and competitiveness of countries worldwide.

The poor infrastructural situation of Nigeria, Africa’s most populous nation, without a doubt, has a very severe effect on peoples’ lives. The perennial electricity shortages, housing problems, lack of proper water and sanitation infrastructure are making Nigerian a hostile economic environment for businesses to grow.

  1. Slow and unreliable broadband internet: Nigeria is yet to roll out 5G mobile technology, with telecommunication companies like MTN already had a trial launch in Abuja and Calabar; the NCC, the regulatory body, lately announced that the technology will be available from 2020.

In a Jumia Mobile Report, it was stated that: just 44 percent of mobile subscribers use 3G, while 4 percent use 4G, way behind other African countries. The rollout of 5G will, for example, make it possible for cars, phones, and fridges to connect faster and seamlessly than currently possible to a network. It will usher the Internet of Things (IoT).

  1. Unreliable power supply: According to a survey of 93 Nigerian tech startups released this December 2019 by the Center for Global Development. The survey found that 57% of startups, most with fewer than 10 employees, find electricity problems to be a “major” or “very severe” obstacle to their business, beating out other challenges such as corruption, taxes and government red tape.

Chris Oyeniyi runs a small tech startup in Lagos, Nigeria. It’s a smartphone app called KariGO that he says is “like Uber but for trucks.” He started it in 2016 and now has 11 office staff members, and he owns a few dozen trucks. Oyeniyi says he pays about $800 every month to keep the lights and computers on in his small office. The reason for the high cost? Power from the government-run electrical grid is cheap but unstable, going off multiple times a day, he is forced to rely on a loud, fume-belching, diesel-sucking generator. It’s too expensive to fuel and maintain.

  1. Access to good financing still an Issue: Although there was a growth in the amount raised by startups in funding rounds last year, there is still an issue of access to credit especially early-stage startups. Most of the funding raised this year was by already established startups from foreign VCs, a huge percent going to Chinese backed startups like Opay and Palmpay. This leaves out the early-stage startups, the ones that are yet to achieve a product-market fit. Access to loan, even though more prevalent, is usually a last resort for most entrepreneurs because of the high Interest rates and Payback conditions most creditors provide.

 

  1. Paralyzing government policies: 2018 was the year ride sharing services got disrupted in Nigeria with the entrance of the Pioneer—Gokada. They introduced motorbike transportation to Lagosians, making it so cool and easy to hail a motorbike and get ahead of the traffic situations currently plaguing the city. Their innovation was lauded as a genius move.

After Gokada’s successful launch, other investors took this as a cue to go all out into the sector. Entrants like OPAY and MAX Investment bet big!

Today, that business model is being threatened by volatile government policies whose effects are still quite unknown; although, this might just be the beginning of the end of motorbike sharing in Nigeria.

 

Opay and MAX’s investments are currently under considerable threat with the Lagos state government policy of banning the activities of Motorcycles and Tricycles in Ikeja, Surulere and 13 other local government, including 10Highways and over 25 bridges.

  1. Societal misconceptions; There is a common stereotype in Nigeria that teenagers and youths with laptops and fancy gadgets are internet fraudsters. There is also the issue of the illicit arrests, attacks and illegal extortions of young individuals seen with laptops and other sophisticated tech gadgets, all under the guise of apprehending internet fraudsters.

Several players in the tech community have fallen prey to this stereotype, creating fear and uncertainty within the space.

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