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.
According to Jimson Olufuye, Chairman of the Africa Information and Communication Technology Alliance (AfICTA), the government needs to provide extended tax holidays to enable the growth of tech startups in the continent which will in turn grow the economy and.
This he says will create an enabling environment and significantly reduce the challenges faced by these businesses which already struggle with lean funding options.
“Creation of enabling environment to the tech startups, could be achieved by providing toolkits for would be start-ups, providing extended tax breaks, providing financing tied to different categories of contract works and deliverables, affirmative action on bids for different categories of firms and removal of visa restriction for Africans especially ICT business people to enhance investment and trade,” he said while speaking at the 2016 AfICTA summit in Namibia.
Reiterating that funding is a big challenge for startups in Nigeria, 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.
Experts however, say that there are massive potentials for economic recovery and growth in Nigeria with the large saturation of tech –startups with the potential of propelling the nation with innovation.
Speaking at the Indo-Africa ICT summit held in Lagos recently, Adebayo Shittu, Minister of Communications said;
“The Government recognises ICTs as one of the key drivers of the economy. To this end, ICT has been factored in all national long-term development blue-prints that aim at transforming Nigeria into a knowledge economy by 2020.
We have developed a National ICT strategic Roadmap whose aim is to provide a systematic approach to harnessing the power of ICTs across all sectors of the economy, Shittu said.
