Ecosystem Deep Dive #7: Nigeria - African Giant
Just like Burna Boy in music, Nigeria is the giant of African start-ups.
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Just as Nigerian artist Burna Boy is the (rigthfully) self-proclaimed "African Giant" of modern African music, the Nigerian start-up ecosystem deserves the title of "African Giant" when it comes to African start-ups. While not necessarily the most efficient ecosystem on the continent, Nigeria is undoubtedly the largest, as a result of its 210 million people population, 140 million internet users, and relentlessly entrepreneurial youth. The country's most populous city, Lagos, ranked first in the 2021 Global Start-Up Ecosystem Report for top African start-up cities, ahead of Nairobi.
The Nigerian start-up ecosystem is a complex one, powered by its tech-savvy young workforce yet still hindered by systemic problems in infrastructure, regulations and overall ease of doing business. However, as we will discover in the article, that hasn't stopped Nigerian founders from creating some of the most impactful, renown and profitable African start-ups to date.
"In the World Bank’s 2020 Ease of Doing Business ranking, Nigeria ranked 131 out of 190 countries, held back by poorly developed transport and energy infrastructure, and inefficiencies in both the judicial and dispute settlement systems." (FDI Intelligence)
I'd like to start this article with a rundown of already existing Nigerian start-up successes in order to illustrate two main points. First, to showcase the incredible innovation coming out of Nigeria, which in most cases are truly revolutionizing sectors and areas long-left stagnant by inefficient government policies. Second, showcasing the incredible successes that took place in a relatively hostile ecosystem are a testament to the incredible growth and impact potential of the Nigerian start-up ecosystem, should more supportive policies be instated.
Here is a quick list of the top 5 most funded Nigerian start-up to date:
Jumia: Basically the Amazon for Africa. It does have the specificity of having two Europeans in its founding team. It was officially the first African unicorn, in March 2016 following a $400 million Series C. It is currently listed on the NASDAQ.
Flutterwave: Founded by Iyinoluwa Aboyeji and Olugbenga Agboola, Flutterwave is "a fintech company that provides a payment infrastructure for global merchants and payment service providers." They've raised a total of $225 million, including a monster Series C of $170 million. It also attained "African unicorn" status earlier this year.
Interswitch: An Africa-focused integrated digital payments and commerce company. They've raised a total of $200 million ever since their creation in 2002.
Andela: An outsourcing startup that trains developers across Africa for contract work with mainly American employers. They've raised $181 million since their creation in 2014.
OPay: A payments startup launched in Nigeria by the global search engine and browser Opera. They have more than just payments infrastructure, and it seems they're really building a consumer-facing product geared towards facilitating all of their financial transaction needs. They've raised over $170 million.
As you can see, many of the most funded African start-ups are in the area of payments, as is the case with many other ecosystems in emerging markets. This a trend that is definitely set to continue, as the number of unbanked people in emerging markets remains huge, and the advent of cryptocurrency will bring even more efficiency to fintech start-ups in the near future. Some exciting acquisition, such as the acquisition of PayStack by Stripe for $200 million, is also boosting the African fintech scene as a whole.
The list of Nigerian start-ups that have raised more than $10 million is extensive, and I encourage you to check out the full list on Crunchbase.
"Entrepreneurs aim to serve the 40% of Nigerians that are still unbanked and fill gaps in other financial services." (FDI Intelligence)
Before we get into many of the difficulties the Nigerian ecosystem is facing, let's look at who makes up the ecosystem and how it is distributed across the country. While a dominant start-up activity is focused in Lagos, other cities such as Abuja, Ibadan, Kana and Abo are also claiming their share of the pie with start-ups such as Sigma Pension (Abuja) and initiatives such as Start-Up Kano distributing entrepreneurial opportunities countrywide.
The country benefits from a very active ecosystem, with a large number of hubs, co-working spaces and accelerators available to start-up founders. From my personal observations, the Nigerian ecosystem differs from other emerging market ecosystems with a number of local incubators/accelerators sporting their own investment vehicles. This can be seen in incubators such as Co-Creation Space, with its own Growth Capital Fund, or Leadpath Accelerator, which has Spark Capital as its investment arm. There are a multitude of other Nigerian-based incubators, which I encourage you to check out here.
Nigerian start-ups innovate in a multitude of sectors, but three in particular stand out in terms of funding, impact and growth potential (e-commerce aside). As expected, Nigerian founders find the best opportunities to innovate in severely under-digitalized sectors such as the one listed below.
As seen previously, fintech start-ups are some of the most profitable and scaleable in emerging markets due to the sheer number of unbanked people. In Nigeria, the continuous rise of successful fintech start-ups is due to three main factors:
36% of Nigerians are still financially excluded, oftentimes due to physical distance from banks.
Amount of money transferred electronically is booming ($256 billion in 2019).
An increasing desire from the Nigerian population to have more profitable ways of saving and investing their money.
Agtech (agriculture technology)
The large Nigerian agricultural market, which is in dire need of digitalization in terms of finance, logistics and distribution is proving to be a goldmine for Nigerian "agtech" entrepreneurs. Some examples of these start-ups are:
Releaf: An agriculture company that develops novel industrial processing technology in Africa's sustainable oil palm sector.
Farmcrowdy: A digital agriculture platform focused on connecting farm sponsors with real farmers.
Farmspeak Technologies: Modernising Sub-Saharan agriculture through the use of IoT technology.
The advent of covid-19 has made the Nigerian healthtech sector a whole lot more interesting to investors. The fact that only 38.3% of its population has access to effective essential healthcare makes the sector all the more ripe for disruption and innovation. In 2020, funding for Nigerian healthcare start-ups exceeded 2019 funding by 404%. A telling example of an impactful Nigerian healthcare start-up would be LifeBank, which efficiently delivers critical medical supplies to Nigerian and Kenyan hospitals.
While being one of the most active, and "successful" start-up ecosystems in Africa, Nigerian entrepreneurs are often stifled by very hindering systemic, structural, and regulatory obstacles. These obstacles all slow down an ecosystem that could be ten times as efficient and impactful. Some of the most prominent hurdles Nigerian founders face are:
Regulatory: Nigeria is already a tough place to do business for starters, but running a start-up, which is basically an experiment in it of itself, can quickly turn into a regulatory nightmare. Two telling examples are the government's sudden restrictions of ride-hailing apps, which left start-ups such as Gokada to quickly pivot to logistics. Requirements also vary according to different Nigerian states, making the legal quagmire all the more difficult. In the crypto space, government bans have made start-up innovation difficult but haven't really curbed crypto usage amongst the Nigerian population.
Infrastructure: Poor internet quality, non-efficient identity management system, access to electricity all affect the work of Nigerian entrepreneurs. Important to note is also the disparity between the quality of these services in Lagos vs other parts of the country.
Talent: The already restricted tech talent pool, a byproduct of an outdated education system, is being further squeezed by the rise of remote work, and Nigerian talent wanting to get paid in dollars in order to avoid the effect of the Nigerian Nira's inflation. While well-funded start-ups can afford some top talent, smaller, leaner start-ups have a hard time convincing talent to join them instead of a well-paying corporate job in the US/Canada.
The Nigeria Start-Up Bill
In order to curb some of the regulatory pains mentioned above, the Nigerian start-up ecosystem has been working alongside the Nigerian government in the drafting and passing of the "Nigerian Start-Up Bill", referred to as "NSB". This development is exciting because different actors from the Nigerian ecosystem are actively involved in the process. As we've seen in the Tunisian case, intense involvement and collaboration from the ecosystem is key to any "start-up bill/act/law's" success. One of the main elements of this process has been the so-called "Big Tent approach", which aims to take the interests of all different parties into account.
In terms of concrete measures, the NSB seeks to bring a couple novelties to the way the Nigerian tech ecosystem functions. These include:
Regulatory certainty on key sectors
Streamlining of fundraising, taxation, incorporation rules
Clarification of IP laws
Young people have mobilized across the country to support the passing of the NSB, as it approaches its final stages in the legislative apparatus.
The Nigerian start-up ecosystem is a global superpower in the making, already raising impressive rounds while still facing important regulatory and infrastructural issues. I think that if the government can truly get behind the start-up sector, allow regulatory sandboxes in game-changing sectors such as fin-tech and crypto, as well as work to improve internet and electricity access throughout the country, Nigerian entrepreneurs will be able to fully deploy their potential. The lack of local talent calls for more local, digitally-focused education, but also recruitment of foreign talent, either through Nigerians in the diaspora or other countries. As Victor Asemota, a Nigerian tech investor, says "you can't incorporate in Delaware and restrict your hiring to Lagos or Accra".
You can find the sources for this article here.
See you next week, for an in-depth analysis about the Pakistani start-up ecosystem!
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