Why Nigeria lags behind SA, two others in fintech investments

Nigeria lagged behind Egypt, South Africa and Kenya in terms of funding raised by fintech startups in the first six months of 2023.

According to Afridigest, an African data and research platform, Africa’s biggest economy raised ($90 million) behind South Africa ($304 million), Kenya ($304 million) and Egypt ($402 million).

Experts say poor macroeconomic conditions, election crisis and investor preference were the reasons why the country fell behind.

The first half of the year was basically an election period, and so many investors were just being careful around that time, according to Oyindolapo Olusesi, co-founder of Mustarred Crest.

“Investors were just being careful on what the macroeconomic policies of what the new administration might be. Also, some fintechs were facing hiccups in fund loss, sell-outs, and some were literally shutting down their operations,” he said.

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Davidson Oturu, managing partner at Nubia Capital, said the low funding may mean more matured fintechs in the country, which would typically look for larger cheques for their funding rounds, have stabilised and are not raising funds, having had a productive year. “Consequently, the smaller fintechs may be the ones raising funds.”

“Also, factors such as inflation rates, currency stability and overall economic health can influence investor confidence and the willingness to invest larger sums. With the recent devaluation and other challenges faced by the naira, this may be impacting on the market confidence from the investors,” he added.

According to Oturu, competition among numerous fintechs and timing can impact funding levels, with larger rounds in the country sometimes overshadowing others.

In 2022, Nigeria outperformed four other countries that made the top list to account for 22 percent of the 853 investment deals worth about $6.5 billion on the continent.

“Africa’s largest economy and most populous country maintained its status as the most funded country in 2022, while Egypt (15 percent) rose in rank to second place, eclipsing South Africa, which drew 14 percent of Africa’s VC deal volume last year,” a report by Africa Private Equity and Venture Capital Association, said.

Last year, the economy was stable as investors could predict the outcome of the market, compared to this year. The volatility of the market is a result of currency devaluation, exchange rate rise, inflation, and others.

The new administration under President Bola Tinubu introduced the unification of the naira, causing the exchange rate to be determined by the forces of demand and supply in the market.

Investors were at edge when it came to funding not to lose their funds in the process and this has impacted the financial performance and valuation of fintech startups.

A breakdown of the Afridigest report shows that Nigeria’s fintech startups raised a total of $90 million through 31 deals monitored during the period.

Read also: Nigeria lags as African peers lead in fintech investments

“This is the highest number of deals reported in H1. Followed by Kenya with 13 deals, South Africa with 11 deals, and Egypt recorded seven deals,” it said.

Responding to why Nigeria’s deal size outshines other African peers, Oturu, said although Nigeria had a large volume of deals, the size of individual value may be smaller compared to those in Egypt, South Africa, and Kenya.

“These other countries may be attracting larger investments per deal, resulting in higher total funding despite a lower number of deals,” he said.