Nigerian tech start-ups have a number of obstacles in their way

Nigeria Africa

Nigeria is considered to be one of the top destinations in Africa for start-up investments. Alongside the country’s natural resources, the country has a thriving tech industry, accounting for nearly 10% of the country’s GDP. Nigeria is also Africa’s biggest technology market and accounts for approximately 23% of internet users in Africa, recording 123m people online in September 2019.

The online presence in Nigeria presents several opportunities for start-ups to provide the population with web-based services, such as e-commerce. However, Nigeria, like many other low- and middle-income countries experiences frequent power shortages. The power shortage issues are not solely confined to rural areas but also impacts cities and can have a detrimental effect on the economy and hinders the growth of tech start-ups.

Becoming a successful start-up company is no small feat regardless of where in the world it is based when taking into account the range and scope of larger, more established companies. However, this is a much greater challenge in countries such as Nigeria. A survey conducted by the Center for Global Development reported that 58.2% of start-ups experienced an average of 30 power outages each month. Frequent power outages put companies in danger of losing any important digital work, interrupt any software updates and wastes staff members time. As a result, power shortages have inhibited SME growth by forcing them to invest in backup generators rather than staff or equipment. Some have estimated that businesses spend almost $14bn a year on imported, expensive and dirty diesel for their onsite generators, creating smog in major cities like Lagos, Abuja and Port Harcourt.

It is clear that these issues need to be resolved in order for the country to benefit from everything tech start-ups have to offer. However, until recently, the power sector was wholly state-owned and operated. As a result, there was little spent on maintenance and investment in new power plants, or in transmission and distribution infrastructure. To address the problem, the government has attempted to tackle the problems by partially liberating the power sector. It has also established a new national regulatory body, the Nigerian Electricity Regulatory Commission (NERC), and divided the power sector into separate components, namely state-owned grid operators but with contracted-out management. Additionally, the distribution network has been privatised into regional distribution companies and created six fully privatised independent generating companies.

It is clear from these relatively recent developments that the Nigerian government has made the tech sector a priority. However there is still more to do to improve the basics of the business environment. Improvements to the energy sector alone are not enough tech companies have cited political instability, corruption and poor internet quality as inhibitors for growth.

The tech sector could provide multiple opportunities to create skilled, high-paying jobs for young people, and diversify the country’s economy away from its reliance on oil and gas. However, this may prove to be a challenge. Nigeria’s energy system problems have gone unresolved for years. Despite having one of the largest gas and oil reserves in Africa the country struggles to supply its power plants with adequate gas to generate electricity, and regularly experiences petrol shortages.

Given its rising urbanisation, a growing middle class and young, tech savvy population, Nigeria presents a strong, attractive opportunity for e-commerce start-ups to take hold. These companies have the potential to transform its logistics market too. Nigeria is dominated by informal retail structures, which require little in the way of value-added logistics operations. However, e-commerce brings the potential for companies to create formal structures online, which require more advanced warehousing and distribution networks. e-commerce providers also heavily rely on strong last mile capabilities and start-ups that offer strong routing software, or even ETA communications for parcels can help improve the quality of the consumer experience. This could in turn lead to a stronger logistics market.

However, unfortunately, the country does not yet have the appropriate infrastructure in place to support these demands. Unless the issues surrounding infrastructure and power outages are resolved they will continue to be a headache for companies and deter others from investing in the country.

Source: Transport Intelligence, November 26, 2019

Author: Beth Poole