Tech: The Now, The Future

Introduction

It has become an interesting time in Nigeria. There are apps on which you can order food, open a bank account, get a loan, shop for groceries, book cabs, and order for deliveries to be made right at your doorstep. The tech sector in Nigeria has gone from attracting $49.4 million in 2016 to attracting over $1 billion in 2022. According to Dr Bosun Tijani (who is now the Minister of Communication, Innovation and Digital Economy), the Nigerian tech sector has gone from struggling to get funding, to being able to get over $1 billion in funding technology businesses in Nigeria in 2022. 

The boom in the tech sector has earned it the phrase "tech is the new oil money". This is to show that more people want to work in the tech space". The reason is not farfetched. A web3 designer (what Gen Zs call a tech bro/sis), who has worked with companies such as Index Coop, Nestcoin, Polygon, and Bundle, in an interview, when asked how much web3 designers earn, stated that web3 designers earn between $7,000-$15,000 a month. This is more than the annual salary of doctors, accountants and even lawyers in Nigeria. 

Tech - From Bottom to Top

Nigeria's Information Communication and Technology  (ICT) sector has grown from less than 1% of GDP in 2001 to one of the highest contributors. The National Bureau of Statistics(NBS),  in its Q2 2023 reports, showed that the ICT sector contributed 16.06% to Nigeria's GDP in Q2 2023, making it the third highest contributor, beating crude petroleum and natural gas. This is higher than 11.39%, which the ICT sector contributed to the second quarter of 2019, and higher than the second quarter of the year 2018, in which it represented 10.43%.

Disrupt Africa, a platform for all news and information on African tech startups – and investment – ecosystems, stated that the growth in the total investment secured by Nigerian startups has been phenomenal.  According to the platform, Nigerian startups have raised a combined US$2,068,709,445 between January 2015 and August 2022, a total higher than any African country as of 2022. This showcases Nigeria as a choice destination for investment in the tech space.

According to Disrupt Africa, as of August 2022, the Nigerian tech startups had 19,334 employees. The report explained that fintech was the biggest employer, accounting for 8,653 jobs. While the number of Nigerian startups raising funding grew steadily over the first few years of tracking, the real spike started in 2020. That year, the number of startups securing funding shot to 85 from the previous year's 48. In 2021, the figure almost doubled again, to 161. By August 2022, 107 Nigerian startups had raised funding – well on track to beat 2021's figure.  These 107 startups also account for almost a third of the total number of African companies (341) to have secured investment statistics far beyond any other country on the continent.

The Tech Startup Syndrome

It is no longer strange to see a person resign from a 9-5 job in other sectors to join a tech startup or for a person to decide to start up a tech company. This is the background of the success story of many tech companies in Nigeria. Why suffer in a job when you can join the cool kids and even become the next big thing and maybe appear on Forbes? This idea is no longer farfetched as Nigeria houses seven out of the ten unicorns in Africa, namely Jumia, Flutterwave, Andela, Chipper Cash, Airtel Africa, OPay and Interswitch.  One common thing amongst these unicorns is that four, more than half, are financial technology (fintech) companies. Financial technology is any technology that helps companies in financial services to operate or deliver their products and services or helps companies or individuals manage their financial affairs. According to Ade Bajomo, the president of the FinTech Association of Nigeria, fintech operators accounted for 63% of the funding raised in Nigeria in 2021. 

The conception is that fintech companies have been shown to attract more funding from investors. In 2022, Flutterwave raised $250 million in its Series D round, Interswitch secured $110 million, and TeamApt (now Moniepoint) raised US$50 million in a pre-series C funding round. The success of these companies has made the sector more attractive for new entrants. Many founders wish to start a tech company with dreams of becoming the next Interswitch, Flutterwave or Paystack.  This has led to the birth of more tech startups (mostly fintech). Nigeria is home to over two hundred fintech startups, and the oversaturation of the sector may be a harmful factor, leaving consumers with the job of having to choose between different companies all offering similar services. This is far from viable, even for a growing market.

In February 2023, Fluidcoins, a Nigerian-focused crypto startup, was sold to Bitfinex after it failed to raise funding. In April 2023, a Nigerian crypto and web3 company launched in 2021, Lazerpay, shut down after being unable to raise funds. Before then, in 2021, Lazerpay had laid off some of its employees in a bid to continue operations after a sudden withdrawal by their lead investor. 

As a result of this large pool, investors may not always have the patience to stick through 'thick and thin," especially where they have done their analysis and can clearly see a higher rate of potential growth in a similar startup. They would rather target and invest in companies that have demonstrated an ability to manage capital efficiently. A report by Disrupt Africa predicts that the year-on-year funding looks set to decline by more than 50%. The report went on to state that in this half of 2023 so far, only 87 startups have secured funding of US$649,303,000, less than half the number— which was 175—of the same period of 2022, which got funding of US$1,515,556,000. 

It is important, however, to point out at this stage that this funding draught is not peculiar to the Nigerian tech market as it is also being experienced globally. According to KPMG,  there was a decline in investment in the global venture capital market in the first half of 2023 as against 2022. While global venture capital investments in the first half of 2022 were at $331.1 billion, they fell by 50% to $163.6 billion in the first half of 2023. This almost reached the low level of 2020 ($156.6 billion). The decline was mostly greater in Europe (which was down 61% to $27.9 billion), Germany (which was down 53% to $3.95 billion) and the VC stronghold of Berlin (which was down 65% to $1.82 billion).

The Potentials of the Tech Sector 

According to the NBS,  in Q4 2022, the total number of active internet subscribers stood at 154,847,901 from 141,971,560 reported in Q4 2021, showing an increase of 9.07%. An increase in active internet subscribers expands Nigeria's digital economy; as more people gain access to the internet, they explore more options online, making their lives more comfortable. The rise in e-hailing cab services like Uber, bolt, taxify and indrive can attest to this fact. Also, with more people having internet access, businesses have access to potential customers and an abundance of data to see the behavioural patterns of customers and tailor services to suit these behaviours.

Another factor is the growing youth population in Nigeria. If you ever doubted the strength and influence of the youth population, then you should read about the #EndSARS. It is estimated that 60% of Nigeria's population is under 25, making it the country with the youngest population in Africa. This increasing youth population will drive an increase in digital payment mechanisms, making Nigeria a hub for digital innovations. An innovation hub like Co-Creation Hub (CC-Hub) in Yaba Lagos has supported the growth of technology to solve local problems and transform Nigeria. These initiatives have attracted foreign investors like Silicon Valley's Y Combinator, an active investor in Nigerian startups like Cowrywise, Paystack, and Flutterwave.  CC-hub also hosted Meta founder, Mark Zuckerberg, during his visit to Nigeria on August 30, 2016. 

 According to the Nigeria Inter-Bank Settlement System (NIBSS), the volume of financial transactions performed electronically in Africa's most populous nation surged to the highest in five years in 2022. Digital transactions rose from 729.2 million in 2018 to 5.2 billion in 2022, a 613% increase. Its value also increased by 381.5%  from N80.4 trillion in 2018 to N387.1 trillion in 2022. This was attributed to the rising number of internet subscribers. 

The growth of companies like Interswitch and Flutterwave to become unicorns shows the potential of the Nigerian tech system. Interswitch is a digital payment and commerce company founded in 2022, which aims to make payments easy. Interswitch is the owner of Verve, an international debit card scheme which is said to account for over 25 million cards in circulation as of 2021. 

On August 29 2023, Dr Bosun Tijani, on X (formally known as Twitter), stated that the Federal Government is seeking top researchers of Nigerian descent from all over the world to join in co-creating a National Artificial Intelligence (AI) Strategy. The minister had shared a whitepaper titled 'Co-creating a National Artificial Intelligence Strategy for Nigeria'. According to the document, recent research by PWC showed that AI could contribute up to $15.7 trillion to the global economy by 2030, with $3 trillion from increased productivity and $9.1 trillion from new products and services. The document also stated that the International Finance Corporation projects that the strategic adoption of Al could add up to $234 billion to Africa's GDP by 2030. Nigeria, in this loop, is considered to have a fast-growing technology startup ecosystem (having attracted 25% of the $1.3 billion funding to African tech startups in 2021) and, with proactive leadership, is well-positioned to leverage Al for economic diversification and inclusive growth.

According to PWC, the economic impact of AI would be driven by productivity gains from businesses automating processes, productivity gains from businesses augmenting their existing labour force with AI technologies, and increased customer demand resulting from the availability of personalized and/or higher-quality AI-enhanced products and services. 

Capital-intensive sectors such as manufacturing and transport will likely see the largest productivity gains from AI as the processes in the sectors are susceptible to automation. This means automation of routine tasks, augmenting workers' capabilities and freeing them up to focus on more high-value-adding work. AI will allow businesses to tap into consumer preferences, tailor their output to match these individual demands and, by doing so, even capture the larger market size. As new technologies are gradually adopted, consumers respond to the improved products and services with increased demand.

Tech and Unemployment in Nigeria

The growth in Nigeria's tech sector has shown its potential to generate employment opportunities as industries, for example, that could look to step up the pace of their tech hiring include banks/financial institutions, agriculture, manufacturing, aviation, real estate, healthcare and government. Technology companies and government agencies can help bridge the unemployment gap in Nigeria by recruiting and developing talents, which would increase the quality of the Nigerian working population in terms of being marketable at the global level, contributing to the national economy and attracting further investments to the country. 

In an article titled by the International Telecommunication Union, it was stated that developing countries (like Nigeria) should implement policies to maximize mobile broadband adoption as the main digital technology contributing to economic development and addressing the digital divide. According to the World Economic Forum, conclusions from numerous nations support the favourable impact of technology on economic growth. In emerging nations, for instance, a 10% increase in broadband penetration is linked to a 1.4% boost in GDP growth. According to a report by Endeavor Nigeria, 44 million jobs could be created in Africa if Nigeria and other African nations' Internet penetration reaches 75%(43% in 2021). It stated that three million jobs in Nigeria and other African countries would be created by online marketplaces by 2025.

There is the fear that introducing technology could also drive unemployment, as it could displace many workers and make them redundant. According to PWC, the adoption of 'no-human-in-the-loop' technologies may make some workers redundant, but other jobs would be created by the shift in productivity and consumer demand which arise from AI. New jobs will be created, requiring creative thinking on how AI can be developed and applied, building, maintaining, operating and regulating new technologies. 

Looking Ahead

Tech can be the enabler for developing other critical sectors, including education, healthcare, agriculture, and manufacturing. Tech solutions are not limited to financial services. Areas such as Education Technology (Edtech), E-commerce, and Health Tech are beginning to receive massive recognition and attention from investors and Venture Capitalists (VCs). According to TechPoint Africa, in the first quarter of 2023 (Q1), Health tech startups raised $40.6 million based on the Q1 2023 report. In a report by PWC in 2022, it was stated that most companies, as of 2022, with the world's largest market capitalizations, are tech companies that generate much of their revenue from the digital ecosystem the companies created. Since 2009, tech-based companies have dominated the global markets, and the Nigerian tech sector is not so far behind. It is important to note that the tech sector should not be seen as a way to get rich quickly. A nuanced and multi-faceted approach is imperative to build a resilient and diverse economy, ensuring that the benefits of technological advancements are accessible to all and not just a select few.