Low incentives, government policies limit tech start-ups' economic potentials

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 somewhat subdued in Nigeria, as the challenge of sourcing start-up capital keeps technology driven businesses at ground levels 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,” Tomi Davies, the president of African Business Angel Network (ABAN), told BusinessDay a while ago.

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.

However, the global community understands the value of technology startups and once a startup proves that the business model works, then they start attracting global capital.

Seni Sulyman, Country Director at Andela, told Businessday during an interview that the start-up received only foreign capital.

“In the last three years, we have received funding from Spark who is also investing on Twitter, we also had input from Google ventures and the Chan Zuckerberg initiative which is Mark, the Facebook founder and his wife and we have also had money from people that are random like MBA players.

The issue startups are facing now is that in the initial stages, you may be lucky to get money from deep pocket Nigerians to start up, but the minute you grow to start needing a substantial amount of money, people are not ready to give up to a million dollars and that is the challenge. At the later stage, once you get big enough and you can prove to the world what you are doing, then you can attract the global market for more capital. I think India is actually easier to invest in than Nigeria because of its government and regulatory policies and also Nigeria’s reputation which is gradually becoming better but for a long time, we had a bad reputation,” Sulyman said.

PriceWaterhouseCooper (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.

Industry analysts say that the almost 10 percent contribution by ICT to the nation’s GDP could almost double if certain areas such as funding, creating extended tax holidays and easy exportation of ICT solutions are well considered.