Nigerian startups are beginning to explore local options for some of the foreign-denominated services their operations require.
This is in response to the rising cost of these services in naira terms following the drastic fall of the local currency since a June 2023 Central Bank of Nigeria directive. The naira, the currency in which most startups generate revenue, has tanked since the apex bank removed its rate cap. The naira has fallen from N471/$ before the CBN’s move to N1571.31/$ as of February 22, 2023.
This has increased the cost burden on already stressed startups that rely on foreign cloud services such as Amazon Web Service, Microsoft Azure, and more. $1000 for cloud services that would have cost N471,000 in early 2023 is now about N1.57 million, a 233.61 percent cost increase.
Services like Slack, Google Workspace, and others that are crucial for internal communications and operations of startups have also recorded a significant rise in naira costs.
As Babatunde Akin-Moses, co-founder of Sycamore, recently said on LinkedIn, “If you run a Nigerian business that is technologically driven (like a startup, dev shop, etc.), your costs have shot up in the last few months, particularly those denominated in FX.”
Ebun Okunbajo, the chief executive officer of Bento, a digital payroll platform, also on LinkedIn, stated, “I love the credits on AWS and Google etc. and Bamboo… and all our dollar stuff, but guys, we have to de-dollarise.”
Okunbajo and Akin-Moses listed how their firms have de-dollarised to adjust to the current reality. For Akin-Moses, his firm has switched hosting services, uses internal IPs, and optimised its overall resource use.
“We ended up reducing our annual technology infrastructure operating costs by up to 69 percent,” he noted.
Okunbajo’s firm has reduced cloud hosting costs from N6 million per month to N4.9 million per year. “We have moved to Nobus Cloud Services – a Nigerian cloud company. N4.9 million a year (AWS would have soon been 6 million a month). We kept E3, our APIs, and load balancers – some stuff on AWS but minimal. Fellow builders –move to local clouds.”
These two are not alone. In January 2024, when conversations of tech firms switching to naira-denominated services started to gain ground, Muyiwa Matuluko, co-founder and editor-in-chief of Techpoint Africa, an online tech media platform, said on X, “Everyone is switching to Zoho Mail now? Way ahead of you guys. I recommend the ZohoOne all-employee plan, though. 40+ apps for the price of (less than) 1…”
Chinedu Onuoha, CEO of Mzuri, a fintech company, disclosed that the most significant cost increases his startup has recorded recently have been infrastructure-related, as its cloud hosting and infrastructure are hosted on AWS.
“You have a Nigerian guy billing you in naira and a foreign guy billing you in dollars. Before you even hear the pitch, the foreign guy is at a disadvantage. We don’t want to have these conversations because anything dollar now, we don’t want to see it except you’re the only one who can provide those services. If there are alternatives, we’ll go with them,” Onuoha said.
In January, Abolore Salami, a founding partner of Business Lab Africa, polled on LinkedIn to ask founders how they are affected by rising cloud costs. 57 percent of those who answered said the costs were very worrisome and a death sentence.
Many startups are now substituting their dollar-denominated services with naira-denominated alternatives. For many, these cost-saving measures are the difference between surviving and shutting down, especially now that investors’ dollars have dried up.
Adedeji Olowe, founder of Lendsqr, said, “Any startup (company, for that matter) that can’t proactively and intelligently reduce its cost and technology waste may not see the end of 2024.”
Uche Azubuike, managing director of ARM Academy, would corroborate this in a conversation with BusinessDay. “The best way to go about what we are doing now is to ensure that we have local solutions because we will never be able to compete with the exchange being in dollars,” she said.
There is a possibility that this shift will also create new opportunities for local startups who can make substitute products for their peers, experts who spoke to BusinessDay disclosed.
“This will present opportunities for other startups to start building local alternative solutions for those provided by international vendors now. It is already happening in the hosting space. Many local companies are now creating local hosting facilities as alternatives to international hosting companies,” Ina Alogwu- Group Director, Digital Transformation at ARM HoldCo, noted.
Olowe, founder of Lendsqr, believes that if local solution providers serve the Nigerian market, they can also serve other markets. “If we local guys can serve and save ourselves, isn’t that a template for us to serve others worldwide? Suddenly, our cheap currency may become a bigger advantage in the long run,” he added.
