How Nigeria start-ups keep the lights on

Abolore Salami must keep the lights on in his expanding fintech start-up in Yaba, Lagos. Nicknamed Yabacon Valley, after Silicon Valley in the US, the colonial-era suburb is where many start-ups have their offices. Reliable internet is a major attraction.

Salami started Riby in 2016 to help cooperatives and trade groups access savings and loans through a seamless process. He now runs two offices with at least 60 staff members.

He wants to expand his operations but faces what so far seems an impossible obstacle. It is not a staff shortage, government regulations or software glitches.

“One thing that will not allow us to do that,” he says, “is electricity.”

Salami pays about $500 (N205,750) every month to keep the lights and computers on in his two offices. He spends that much because power from the government-run electricity grid is cheap but unreliable.

This could happen multiple times a day, every day, forcing start-ups to rely on a loud, fume-belching, diesel-guzzling generator. Sustaining this mode of power supply takes a toll on the company’s finances.

“It is too expensive to fuel and maintain beyond the bare minimum number of hours,” he complains.

If the government power grid worked all the time, he says, his electrical bill would be closer to $100 (N41,150).

Paul Olakunle, a tech start-up founder, says to combat the power issues, he depends on diesel generators for power backup, however, this significantly adds to the cost of service delivery.

“This in turn affects the competitiveness of the business since whatever is produced in the country is more expensive when compared with production costs in other regions,” Olakunle states.

In Africa’s biggest economy, small businesses are on death row as most Micro, Small and Medium Enterprises (MSMEs) are losing investments to power shortages.

A research, conducted by the Centre for Democracy Development (CDD) and SOAS University of London, reveals that SMEs in Nigeria get just 1 to 5 hours of electricity in a day, adding that the huge supply shortfall is ‘killing’ businesses.

Analysing the economic factor as a result of the shortfall of low electricity supply, PricewaterhouseCoopers (PwC) estimates that approximately 1 out of every 7 businesses exits the economy because of this.

To get round power shortages most start-ups are exploring the solution of co-working spaces, a development that allows them to pool their energy bills.

For instance, Olumide Ilo, another start-up founder who runs a tech co-working space in Lagos, says even a co-working space cannot fully surmount the cost of running a generator.

“Tech is an around-the-clock business,” he says, “But because of the high cost of power, you just cannot keep the office open 24 hours. So, it is an inhibition for business growth.”

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Plenty potentials, short of power

Power shortages are particularly a problem for Nigeria’s booming tech industry. It is the biggest on the continent and accounts for nearly 14 percent of the country’s GDP, according to a survey of 93 Nigerian tech start-ups released by Washington-based Centre for Global Development (CGD).

The survey found that 57 percent of start-ups, most with fewer than 10 employees, find electricity problems to be a “major” or “very severe” obstacle to their businesses, beating out other challenges such as corruption, taxes and government red tape.

Vijaya Ramachandran, the centre’s research manager and lead author of the report, says the electricity problem is kneecapping a sector that offers, perhaps, the most promising opportunity to create skilled, high-paying jobs for young people and diversify the country’s volatile economy away from its traditional reliance on oil and gas.

“This is a very significant burden for the local tech sector,” she states, noting, “It is a very basic business environment problem that needs to be fixed.”

Nigeria is struggling to produce enough electricity to power its growing urban and rural population. With fluctuations in power generation capacity over time, the highest power output the country could ever boast of is 4,000 megawatts (mw) of electricity.

In fact, at this rate, Singapore, a Southeast Asian nation, which Nigeria is more than 1,280 times bigger than in size and 33 times bigger than in population produces more than three times as much electricity as Nigeria.

Indeed, Singapore is so self-sufficient in electricity generation that it once reached its peak demand in 2007, averaging only 7,000mw that year that it left a spare capacity of electricity of 48 percent in the system.

To understand the range of this absurdity, Lagos, Africa’s largest city and Nigeria’s smallest state by size, is two times bigger than Singapore by size.

Among its peers in Africa, the scenario is the same, Ghana consumes over twice as much as Nigeria, Tunisia over 10 times, and South Africa almost 30 times as much.

Solar solution

Solar power is another potential solution and it is increasingly common on residential rooftops in Nigeria’s commercial capital.

But, according to Ilo, capital expenditures are too expensive for most start-ups and sometimes solar power cannot provide enough for a whole office of computers, lights and air conditioners.

But he believes bearing the power burden is worth it, considering the huge potential that 122 million Nigerians with internet access (one-fifth of all users in Africa) portend as customers for web-based services.

“Nigeria is the land of opportunity. Once you master the energy challenge, there’s a very large market, and you’ll make money,” says Ilo, a founder whose start-up solves the problem of locating a medical professional and hospital via their mobile device.

Emeka Uzodike, another start-up founder who recently launched his online grocery delivery start-up, complains about poor electricity to keep groceries fresh at all times.

“I was forced to switch to solar, which was expensive and nearly swept my business off its feet,” he notes.

Uzodike add, “The potential in the Nigeria market is huge but founders must innovate around challenges by experience short term pains for long-term gain.”

Nigeria’s start-up scene is one of the most vibrant on the African continent with over 90 tech hubs, the most on the continent. In the month of March 2021, five Nigerian start-ups found themselves $202 million richer, an amount that eclipses the record of the entire investment in 2020 when about 82 Nigerian start-ups could only haul in $170 million.

In the health sector, Medsaf, founded in 2017 by Vivian Nwakah and Temitope Awosika, developed a platform that aggregates trustworthy international and local drug manufacturers as well as hospitals, clinics, and pharmacies in Nigeria.

In doing this, the start-up creates a connection between these two parties, ensuring that health facilities have access to quality medication at an affordable price.

For the unbanked of Nigeria, Paga offers mobile payment/transfer solutions for both consumers and merchants. For the savvy users that need to cut out the clutter of shopping, the many ecommerce players such as Jumia, Konga and provide a solution.

For the unemployed trying to navigate the job market, Jobberman is leading the way and new players such as Naija Workman hope to do the same for smaller contractors and artisans. Lest not forget, which claims to be the country’s largest online supermarket.

“Despite the peculiar challenges, everyone is building apps with the hope of finding the next big thing by fixing different problems across the economy including the power sector,” Charles Akinbobola, energy analyst at Lagos-based Sofidam Capital, says.

Nigerians are innovating in many areas, chasing the next big thing in a country where the audience is abundant and the opportunities are endless.

For instance in the power sector, Lumos, a Nigerian start-up is helping to solve Nigeria’s power sector problems, by offering solar power as a service. Lumos offers homes and small businesses a simple and affordable way to pay for electricity in small instalments using their mobile phones.

Another Nigerian start-up, Arnergy builds and supplies 24 hours electricity to residential estates, universities/campuses, telecom operators’ infrastructures, commercial and manufacturing firms using renewable energy predominantly solar energy with no initial cost requirement to the clients who only pay them by the month to enjoy uninterrupted power supply in their homes and businesses.

Rensource, a start-up founded in 2015 with over 2000 customers is also rapidly disrupting Nigeria’s energy generation and distribution. The start-up partners with project sponsors to develop fund and manage decentralised energy projects to address the energy drop in Nigeria by providing reliable energy to consumers, growing businesses and industrial clients.