How Nigeria’s tech startups are defying daunting ecosystem

Nigeria may be missing in the list of the top five tech ecosystems on the continent, but it has the largest tech startups, which despite the difficult business environment they operate, have remained investors’ favourite.

A ranking compiled by fDi Intelligence in collaboration with Briter Bridges titled, the African Tech Ecosystems of the Future (2020-2021), puts South Africa, Kenya, Egypt, Ghana, and Tunisia ahead of Nigeria – the most populated country in Africa.

Nigeria beats the rest of Africa with the number of startups, many of which operate within the financial technology sector, taking advantage of the under-provision of banking services in the country.

While Lagos houses most of the startups in Nigeria, the report sees a deep disconnect between the tech ecosystem in Lagos, its surroundings, and the rest of the country, which suffers from “chronically poor infrastructure and education, and recurring political instability and security issues.”

South Africa, placed top on the ranking, was also first place for economic potential, startup status, and business friendliness. While the country is second to Nigeria in the number of startups, it is also home to Naspers, one of the world’s largest investor in tech companies. South Africa has also received the largest number of foreign direct investment projects in the software and IT services sector, according to data from fDi Markets.

The fDi ranking also found that South Africa has one of the most developed ventures capital networks and the oldest startup incubator in Africa, the Cape Innovation and Technology Initiative. The incubator has reportedly supported more than 3,000 entrepreneurs in its two-decade of existence.

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Following South Africa is Kenya, the home of MPesa, Africa’s most popular fintech service. Kenya wins in both overall and in economic potential. The East African nation has the largest number of coding schools in Africa, which experts say confirms the level of investment and interest in the country’s tech ecosystem. MPesa remains the biggest fintech export to Africa from the country. Its success launched Kenya’s tech ecosystem into the spotlight, with incubators, hubs, and venture capital (VC) subsequently flowing to the country.

The ranking also notes that Kenya had taken practical steps to improve business friendliness, like the partnership between the industrialisation ministry in Kenya and IBM in 2018. Both parties approached the partnership from a data-centric perspective and applied design-thinking methodologies, which enabled them to identify key delays and reduce unnecessary interactions.

“It is no longer enough for us to just be a big market. Next door is a very competitive neighbour, who’s doing all the right things to make itself the hub of West Africa,” Iyinoluwa Aboyeji, co-founder of Future Africa, a venture capital fund, said, saying, “With the AfCFTA they can sit in Ghana and extract endlessly from us. How do we compete?”

Ghana is ranked fourth because of its strides in human capital and lifestyle. In 2007, the Ghana education service formally introduced ICT as a compulsory subject at primary school, and the number of universities in the country has seen a drastic increase, from 10 in 1990 to more than 60 in 2021. This benefits Ghana’s tech ecosystem, with Google opening its first African AI research centre in the capital, Accra.

Nigeria’s ecosystem on the other hand has had little relations with the education system. Although ICT is offered as a course at the tertiary level, it is not mandatory at the primary level.

But Nigeria’s tech startups have mostly innovated and attracted a significant portion of the investments coming to the continent. In 2019, they led the continent in terms of the amount of money raised. In 2020, the country led the volume of startup funding with 85 deals in Africa but lost out to South Africa on value of investments. The year 2021 has already kicked off to a good start with funding in Flutterwave setting new valuation records.

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