When a poor person in Nigeria suddenly has a dozen different ways to make payments, courtesy of Fintech, they are said to have become more financially included. They are considered able to contribute through the digital economy and for many industry watchers, this is a win.
But, of what use are new and increasing payment technologies to a growing population of poor people that might prefer innovations and new ways that enable them to improve productivity and create wealth? Or, as this reporter put it to most people interviewed for this article; shouldn’t people make money first before they are then able to spend it?
Most reacted with a laugh, while nodding and uttering, along the lines of, ‘yes, that is true’. But the situation isn’t exactly straightforward as findings would show.
Creating ways to help people become more productive and generate wealth, would in fact, further give Fintechs opportunity to grow as there would be more people with more money to actually spend.
With 133 million (multidimensional) poor people, representing over 60 percent of Nigeria’s population, the country would typically be considered a viable location for innovations that would help more people create wealth (and escape poverty). Almost every direction one looks in Nigeria, like most parts of Africa, are bedevilled with countless challenges, which ideally should lend themselves to solutions that will solve those problems, while creating wealth.
“Nigeria is ripe for investment in many places. We have many problems to solve,” Adekunle Kunle-Hassan, founder/CEO, Summitech Computing Ltd, said in a previous interview. “Nigeria is full of problems, and that means it is full of opportunities as well. Tech doesn’t just power finance. It can power so many other areas.”
Over the years, the star attraction of funding in the African start-up ecosystem, and especially in Nigeria has been Fintech. No matter whose data is being examined, Fintech has been the top destination for investments in recent years. For 2022, Briter Bridges estimated that African start-ups raised $5.4 billion in over 975 deals, and more than one-third of this funding was captured by Fintech.
The African Private Capital Activity Report for 2022, also noted that out of $7.6 billion invested across 626 private capital deals, the ‘Financials’ sector attracted the most, getting 32 percent. This, it further said, was driven by investments into the sector in Nigeria.
Furthermore, for ‘Africa: The big deal’, which put start-up funding at $4.8 billion in 2022, it was noted that $1.8 billion went to Fintech, down from $2.5 billion in 2021. Even with the decline, Fintech was still the highest recipient of funds in 2022.
But, even though there is consensus Africa has a litany of problems that require innovation and funding, it has not been sufficient to attract needed investments.
“It all depends on the investors,” says Michael Mang, project director, Africa’s Business Heroes. “If they want high growth returns, a sexy business model, then maybe Fintech is one of the things they want to look into.”
But Mang, whose program is a philanthropic initiative of Chinese billionaire, Jack Ma, said with emphasis, that “there’s a wide spectrum of other businesses with potentials too.”
In five years of running the program in Africa, 40 businesses which the organisation calls ‘heroes’ had been funded, from 17 countries across 20 industries with $5.5 million. Of these, agriculture has received the most funding, according to him, but he didn’t say how much.
“What is the job of investment?” asked Tunji Adegbesan, founder & CEO of Gidi Mobile. “The job of investment is to generate returns,” he said, answering the question.
The average investment fund, he explains, is managed by employees of companies with assets under management. And it is the employee’s job to deploy this to where it will generate returns. For many investors, Fintech ticks all the right boxes.
But if it is an impact fund, for impact investment, then the job becomes generating returns while delivering impact. Even at that, it will not be deployed if there’s impact without returns, even for impact funds.
For Adegbesan, helping people to make money is harder than helping people to spend money they already have, and the choice for investors may not be hard to imagine. However, he says; the person who is able to crack the path of helping people make money, get a job, get education that will give them gainful employment, grow their farms, figure out how to do electricity profitably, will actually make more money than helping someone spend money (in the long run).
Every sector can have proof of the financial model and social impact, and this is what he says can attract investments (impact or not). Innovating profitable business models becomes a task that must be hacked by start-ups across the various sectors where investments are direly needed but hard to come by, despite potentials.
“There is a lot of cash; ready, willing, and waiting to drive many sectors in Africa and Nigeria if we figure out the hard work to make those sectors investable,” says Adegbesan, who also holds a PhD in Strategic Management. “Funding never goes to a place where it will not come back. Finance comes if there’s profit”
Even if it is agriculture (an important but popularly mentioned sector among those underfunded), models must exist to show the path to financial returns when investors come in. The underlying factor in where funds go remains sectors and/or ideas with proven financial models that can generate returns.
Frans Ojielu, CEO, Hesset Africa says “Fintech is democratising payment systems and improving the velocity of money so that these funds can go to other sectors,” but the problem remains access to the pool of funds to drive investments into those other sectors.
“Yes there’s a lot of focus on Fintech and there needs to be focus on other sectors as well,” says Anna Ekeledo, executive director, Afrilabs. “We’re poor so we need to create wealth.”
Through Afrilabs’ work with the Global Centre for Adaptation at the African Development Bank, it was found there is a correlation between solutions such as agritech and wealth creation in communities, but also solving climate problems like soil erosion and others that lead to poverty.
“Fintech is important but in itself, it’s not enough. We need ecommerce solutions, healthcare, energy and others” she says. If for example, digital marketplaces are created to help farmers sell their goods after investing to produce on their farms, they will then need a facility or payment solution to receive the payments so as to reinvest back to the farm, feed their families and create wealth.
Invariably, this means that creating ways to help people become more productive and generate wealth, would in fact, further give Fintechs opportunity to grow as there would be more people with more money to actually spend. But if people are limited to all the income they currently have, that remains the threshold for Fintech too. But as more people can make money, then they are able to spend through any of the multitude of new and emerging ways to spend it.
“We definitely need to look at other sectors when it comes to wealth creation and Fintech shouldn’t be a standalone,” Ekeledo says. “It should complement other sectors that are being developed as a means to expand markets, facilitate transactions and trade.”
Also, in discussing wealth creation on the continent, it becomes important to talk about the ability to trade across borders, she says. On its own, Fintech is not enough, because what goods and services will be traded? Those sectors need to be developed because if they are not, the Fintechs are not going to be able to do anything, says Ekeledo, whose Afrilabs has provided multimillion dollar funding to several start-ups across Africa, including 1.2 million euros under its Catalytic program.
While Somachi Chris-Asoluka, CEO, Tony Elumelu Foundation (TEF), thinks Fintechs play an important role in wealth creation already, she says, “As Africa continues to attract investments in Fintech, it should not be at the expense of other sectors.”
“We still need a lot of money in agriculture,” she says. “African entrepreneurs are telling us agriculture is a lucrative sector for them, but we need to mechanise it. We need to make it more large-scale, invest in storage, warehouse infrastructure, transport etc. We should not have Fintech monopolise all the investments.”
The Tony Elumelu Foundation, she says, has disbursed over $100 million since 2015, as seed capital to over 18,000 young Africans from all African countries and trained 1.5 million young Africans.
“But let me tell you, over 50 percent are in agriculture,” she says. “Agriculture is our most popular sector by far. And they’re not just going to agriculture the same way their fathers did at subsistence level. They are bringing technology and investments into it.”
Mang, at Africa’s Business Heroes, also notes that out of 27,000 applications received this year across Africa, the top five industries were agriculture, ICT, healthcare, business service, and education. “Africa has great opportunities and that’s why we are here,” he says.
As Ekeledo says, technology at the end of the day, is a means to an end towards improving lives, developing the African continent and sectors that will create wealth and make people’s lives better.
But to achieve this, start-ups must innovate not only solutions, but viable financial models that will make their ideas financially attractive and investable. After all is said and done, if Nigeria had 99 problems today, would Fintech still be one of them or even at the top of the list? Yet, it continues to dominate the inflow of investments.
This article appeared in the print edition under the headline; Nigeria’s fintech success overshadows innovations to everyday problems, wealth creation
