• Thursday, June 13, 2024
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Innovation benefits elude Nigeria as tech funding gap widens


Lean funding options available to tech start-ups in Africa’s largest economy may be making it difficult to replicate innovation trends rapidly redefining the global economic landscape.
As the world transits to a digital economy, start-ups, which are leveraging technology to offer innovative products and services to a wider array of consumers, are increasingly contending with traditional businesses, which are struggling to serve a burgeoning digital savvy populace.
However, this trend may be subdued in Nigeria, as the challenge of sourcing start-up capital keeps technology driven businesses at ground level longer than expected.
The local investment options open to tech start-ups globally, range from private equity funds to angel capital, “but Nigerian investors are used to property investments,” said Tomi Davies, the president of African Business Angel Network (ABAN), in response to questions.
Nigerian investors have grown over time to have a penchant for investments like fixed income instruments, at the detriment of ICT investments because, “they consider tech investments as risk-laden and do not understand that they can invest N1 million and in the near future get N100 million in returns,” Davies said.
PriceWaterhouseCoopers (PWC), a consulting firm, projects that Nigeria’s economy could rise through the world rankings to top 10 in 2050 with a projected GDP of US$6.4 trillion, surpassing Germany, the United Kingdom, France and Saudi Arabia.
To achieve this however, the firm noted that the ICT sector was one of four major sectors with dominant transmission links to the overall economy.
“ICT is a growth area and my projections are that its seven percent contribution to GDP in 2015 could rise to about 15 percent if it is well funded,” said Moji Olateru-Olagbegi, partner, Technology and entrepreneurship, Work Place Centre (TWPC), by phone.
“I would not blame commercial banks for their little exposure to the sector, given liquidity concerns,” Olagbegi said.
Raphel Afaedor, co-founder of Supermartng, an online grocery store, says banks are only alive to sectors with quantifiable collateral and are not convinced that tech firms are profitable enough.
Supermartng helps customers shop online for groceries from leading brick-and-mortar supermarkets, as well as the local market to avoid the traffic jam in Nigeria’s economic hub, Lagos.
It has now become Nigeria’s largest online supermarket and grocery delivery service, as a result of its convenient service offerings and the investment from iYa Ventures, a North-America based venture capital firm that invests in technology companies in Africa.
Another success story is Jobberman, which has grown into one of Sub-Saharan Africa’s most popular job search engines with more than 1.5million visitors monthly, according to information on its website.
It was 100 percent acquired recently by the $167million-valued One Africa Media, a portfolio of online marketplaces that is 30percent-owned by SEEK – the world’s largest online employment marketplace by market capitalization.
“Banks are bearish in extending loans to start-up Tech firms because there is no physical collateral, but nothing can tell the story that they ought to give more loans to us than growing our earnings,” Afaedor said in response to question
Growth in credit to the private sector, hit a five- year low in March 2016, data from the Central Bank of Nigeria (CBN), show.
Hard hit by rising non-performing loans (NPLs) and capital erosion, commercial banks are growing risk averse and cutting down on credit extension.
“Banks are not naturally wired to finance start-ups but given the peculiarity of our business terrain, we support some of them and engage them beyond funding, by aiding them to grow sustainably,” said Chuma Ezri, head of e-business at First Bank of Nigeria (FBN).
“We can also collaborate with other banks to talk to government and lobby as bankers committee, to create tax incentives for people that support start-ups. So it goes beyond funding,” Ezri added.
Jason Njoku, founder of IrokoTV, the largest legal digital distributor of African movies online says it is quite unfortunate that tech start-ups with potentials do not get financial support in Nigeria.
“Nobody in Nigeria wanted to talk to me about funding when IrokoTv started,” Njoku said.
IrokoTV, the world’s largest online catalogue of Nollywood movies is worth about $80million, according to Njoku.
“It hurts me to know that the value of such a company will not go to Nigerians because they refuse to invest. By implication, all our investors are foreign,” Njoku said.

“I would suggest that banks find start-ups that need help and get there early instead of sponsoring programmes like ‘African start-ups’ on CNN when Nigerian start-up companies are looking for just 1 or 2 million Naira to get their businesses rolling,” he added.