While coronavirus, economic disruption and civil unrest have mired Nigeria in 2020, start-ups and technology companies continue to progress in Africa’s most populous country.

The West African nation of more than 200 million people has been a vanguard in the growth of technology hubs across the continent, with several high-profile start-up exits and success stories, such as pan African e-commerce platform Jumia, payments group Flutterwave and logistics platform Kobo360.

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“Nigeria’s [ecosystem] was more nascent five or six years ago, but now is just expanding and expanding, because a lot more people identify that this is a great pool of talent,” says Wambui Kinya, the vice president of partner engineering at Andela, a company jointly founded in Nigeria and the US that sources African engineering talent for global tech companies.

Lagos leads

A study into innovation hubs across the African continent by research firm Briter Bridges found that Nigeria had the highest number (90) of them, outstretching other African nations with booming tech scenes such as South Africa (78), Egypt (56) and Kenya (50).

An epicentre of activity is Yabacon Valley, a suburb of Nigeria’s commercial capital Lagos named after the US West Coast hub, that hosts hundreds of banks, educational institutions, technology and start-up companies.

“Nigeria remains one of the healthiest and most vibrant ecosystems on the African continent. In this context, Lagos is a vital hub not to be missed,” says Grégoire de Padirac, an investment manager at Orange Ventures Middle East & Africa.

While Lagos is Nigeria’s largest tech hub, other start-up cities include the capital Abuja, Ibadan, Kano and Aba, with the country being home to more than 500 active and viable start-ups, according to Startup Universal.

Estimates on start-up funding across Africa vary widely, owing to methodological differences, but Nigeria is among the top venture capital (VC) markets in terms of funding. Disrupt Africa figures (that use conservative criteria) find that between 2014 and 2019, Nigerian start-ups raised more than $600m.

In 2019 alone, Nigeria accounted for a quarter ($122m) of the total raised by African tech start-ups, beaten only by Kenya ($149m), according to Disrupt Africa figures. By other estimates from WeeTracker and Partech African, Nigerian start-ups raised between $663m and $747m in 2019, making it the largest VC market on the continent. 

Fintech flurry

Nigerian entrepreneurs have founded start-ups to solve a host of local problems in sectors ranging from agriculture and logistics to education and health. But leading the way is financial technology, as entrepreneurs aim to serve the 40% of Nigerians that are still unbanked and fill gaps in other financial services.

Tunde Kehinde, chief executive and co-founder of Lidya, a Nigerian start-up that has built a platform for SMEs to get loans and other financial services, said at a recent TechCrunch event that “fintech is really top of mind right now”.

Mr Kehinde added that now is a really exciting time for tech start-ups as they can “operate with a blank slate”, developing products and services for African consumers without being held back by “legacy infrastructure” or technology. Since being founded in 2016, Lidya has expanded to offer its services in four countries outside Nigeria.

Meanwhile other Nigerian fintechs are continuing to draw the attention of investors, including mobile money service Opay, payment app Palmpay and challenger bank Kuda, that have all raised large sums of money since November 2019.

Most notably, Lagos-based Interswitch received $200m of funding from US payments group Visa to value it at more than $1bn and become Nigeria’s first home-grown unicorn, while another start-up, Paystack, was acquired for a reported $200m by Silicon Valley-based payments giant Stripe.

Aaron Fu, the head of growth at Catalyst Fund, a fintech focused VC firm and incubator, says that companies can become “incredibly large and successful by only being in Nigeria”, making it the go-to market to expand operations for start-ups founded in other African countries and internationally.

“Nigeria is increasingly becoming the gateway into the African start-up world for most landing into the continent for the first time,” he adds.

The opportunity afforded in the financial services sector is also reflected in foreign direct investment (FDI) figures. Investment monitor fDi Markets tracked 44 greenfield FDI projects in Nigeria’s financial services sector between 2014 and 2019, making it the most active sector alongside business services during the period.

Domestic strength 

Similar to the world’s most developed tech ecosystems, the roaring success of a few Nigerian start-ups and serial entrepreneurs is spilling over into the broader ecosystem, bringing funding, expertise and inspiration to the next generation.

Interswitch, Nigeria’s ‘poster boy’ fintech unicorn, founded in 2002, decided to revive its VC arm in October 2020 to invest in Nigeria and other African tech hubs as they have matured. 

“The ecosystem means that the time is ripe to be in the space, due to the traction and value startups have created,” says Tony Idugboe, Interswitch’s head of ventures and M&A.

Big tech companies have also piled in to take advantage of the talent and bustling ecosystem, with Facebook, Google and Microsoft all opening offices or start-up community hubs in Lagos, while investment banks, such as Goldman Sachs, have also been hiring from Nigeria for several years.

“Those employees that are training and working with the best companies will hopefully filter into the ecosystem, adding valuable skills back into the broader market … creating a positive ripple effect,” says Mr Idugboe.

Challenges

Despite a thriving start-up ecosystem with investment pouring in, Nigeria’s regulatory and macroeconomic climate has room for improvement.

“The frequency and duration of recessions in Nigeria is contributing to concern for most general partners,” said Gozie Chigbue, the director of funds and capital partnerships at CDC Group, the UK’s development finance institution, at a recent AVCA (African Private Equity And Venture Capital Association) event.

On top of Nigeria entering its second recession in five years, the business climate still lags its West African peers. In the World Bank’s 2020 Ease of Doing Business ranking, Nigeria ranked 131 out of 190 countries, held back by poorly developed transport and energy infrastructure, and inefficiencies in both the judicial and dispute settlement systems. 

The rise of VC has also been counter to the decline in Nigeria’s overall FDI. Unctad figures show that FDI inflows to Nigeria totalled $3.3bn in 2019, having declined by 48.5% from a year earlier.

Data demand

Despite a challenging business climate, Nigeria’s growing tech sector has provided opportunities for digital infrastructure to serve rising numbers of internet and broadband users.

Ayotunde Coker, the managing director of Rack Centre, West Africa’s largest ‘carrier neutral’ data centre, says that there is a “real demand for very high-quality [data centres] and the ability to scale”. Rack Centre recently announced plans to double its campus in Lagos, following backing from UK-based private equity group Actis, that has plans to invest $250m into data centres across Africa.

“The success of ventures such as Microsoft’s development centre in Lagos is a signal to the international market that you can build successful technology businesses here,” adds Mr Coker, who points to the good growth dynamics in the market.

The number of internet users in Nigeria has grown massively, from about 90 million to 128 million between 2015 and 2019. This has been accelerated further due to the global pandemic, with figures showing 140 million Nigerian internet users in June 2020.

With positive growth dynamics and several successful home-grown start-ups, Nigeria’s ecosystem is likely to go from strength to strength.

“We’re starting to get more of an established, mature community. As much as Ghana, Kenya, South Africa and Egypt are the more mature [ecosystems] on the continent, Nigeria is quickly surpassing them,” concludes Ms Kinya.