Currently, the technology sector is one of Nigeria's few sources of joy. Already the country's largest employer of labour, Nigeria's digital economy continues to blossom despite the broader challenges plaguing the rest of the economy.

Source: Jobberman

How is Nigerian Tech Doing?

Right now, there is no one accurate way to measure the performance of the technology ecosystem in Nigeria today. Only the telecommunications and ICT sub-sectors are captured in Nigerian GDP reports. Other sub-sectors like fintech are classified as financial services, with the role of technology limited to that of an industry enabler. Also, elements of the digital society such as governance, identity, security and regulation, which must be accounted for as they create economic value, are not reflected in any economic metrics. Digital media, tools like Google, and internet services that tell a broader story aren't measured. As a result, we're limited to what the National Bureau of Statistics (NBS) publishes as telecommunications and information services. Insufficient as this might seem, it still is enough to show the trajectory we're on.

Last year, Nigeria's telecoms and IT services grew by 7.3%, more than double the overall economy's (3.4%) growth rate. This disparity is even more palpable once we consider the base effect of 2020's recession (annual GDP = -1.9%), particularly due to the COVID-19 pandemic. Unlike the rest of the economy that needed to rebound, technology was already enjoying a 16% boost, making it the second best-performing sector behind quarrying. The technology sector's further growth in 2021 from an already elevated position in the economy shows its excellent performance, especially in relation to a rebounding economy.

Since 2017, the telecoms and IT services sector has grown by 54%, compared to the GDP growth of 6%. Comparing it to major sectors further highlights technology's dominance.

Figure II: Five-year GDP growth across key sectors • Source: NBS

Tech Investment Vs. Traditional Investment

To compare investment in tech with other sectors in general, we will analyse venture capital (VC) funding in Nigeria compared to traditional investments in the real economy.

Venture Capital Funding

Tech in Africa has been getting attention recently, with Nigeria leading the charge as expected. As Nigeria is the largest economy in Africa, contributing around 18% of its total GDP, it will likely receive the largest share of funding. In layman's terms, Nigeria's economy is about the same size as South Africa's and Kenya's combined. But even after we adjust the data to reflect this, Nigeria still surpasses both countries in receiving and attracting venture capital funding.

In 2021, the Nigerian tech ecosystem raked in $1.8 billion in investments, accounting for 34% of Africa's total funding accounting for nearly twice the Nigerian GDP ratio. We were also responsible for 27% of all investment deals. In the emerging area of venture debt, we stand out even more. Last year, Nigerian startups received $345 million (45%) of the $767 million in venture loan financing across Africa.

Below is a table on how we compare with the rest of the Big 4 (Egypt, South Africa and Kenya) in African tech.

Table 1: Venture Capital Funding and Deal Count in Africa's Big 4 • Source: Partech

34% of total funding is no mean feat, especially in a year where Africa's VC grew by 3.6x. South Africa and Kenya combined to bring in $1.4 billion, while Nigeria brought in a generous $1.8 billion, 28% more. Nigeria raised all this money in 185 deals while the rest of the Big 4 raised monies in 215 deals combined. As for venture debt, Nigeria received more than double both countries. In 2021, Nigeria increased its funding by 6 and its deal count by 2.6. Between 2017-2021, funding has gone up sixteen times. Compared to its peers, Nigerian tech is attracting impressive funding, showing that the nation is one of the best investment locations globally.

Table 2: Six-year growth of VC funding in Africa's Big 4 • Source: Partech

Traditional Investment

Nigeria's traditional investment analysis paints an abysmal picture compared to VC funding in Nigeria. Nigeria's total capital import for 2021 was $6.7 billion, the lowest since 2016—$5.1 billion—when it experienced its first recession in 25 years due to a considerable drop in oil prices. Genuine commercial investment (foreign direct or foreign portfolio) accounted for 61% of the $6.7 billion, the lowest amount since 2016. (56%). The remaining capital imports are primarily from dollar-denominated loans such as Eurobonds. This distinction is worth noting because it demonstrates that not only is less cash entering the country, but even less of it comes in as independent commercial investment (government funding does not count in the same way). Overall, foreign commercial investment as a ratio of total investment is declining.

Figure III: FDI & FPI Ratio to Total Capital Imports • Source: NBS

Foreign Direct Investment (FDI) indicates international confidence in a nation's economy. Analysing FDI trends over the past decade paints an even grimmer story.

Table 3 Nigeria Foreign Direct Investment - Historical Data • Source: macrotrends

Over the past fifteen years, Nigeria's FDI has essentially petered out.

In 2021, Nigeria brought in a paltry $700 million, about 10% of what was generated in 2007 when the NBS began recording this data before factoring in dollar inflation. From about 2.9% in 2009, Nigerian FDI now accounts for a paltry 0.2% of GDP in 2021. As a share of the economy, here's how our FDI compares to other members of the African Big 4:

Figure IV: Net inflows as a percentage of GDP • Source: World Bank

Over the past three years, we have dropped out of Africa's top destinations for foreign investment.

Table 4 Africa FDI Inflows by Country (in billion USD)

Essentially, investors are increasingly losing belief in Nigeria's long-term profitability.

The Why's and How's

Why is Tech Growing so Fast?

Nigeria today is in a similar situation, and perhaps growth trajectory as China was a few decades ago. There is a massive youthful population, and increasing technology development and adaptation means that the tech industry is a significant long-term investment. While manufacturing capacity was China's route toward economic growth, particularly in the 80s, investment and development success today is hinged on technology applications and the industry as a whole. A country like Nigeria, fraught with service problems around payment, credit, insurance, investments, and financial inclusion, needs technological solutions. And with a budding youth population accounting for over 60% of the total population in the country, incredibly full of great ideas, investment spending will find its way to the country. Cheap labour, rising education levels, and local economic problems are also perhaps underrated motivators for Nigeria's technology boom.

Why are Other Sectors Slacking?

Foreign direct or financial investment is imperative for any developing economy. These metrics represent an essential source of capital inflow and influence exchange rates and the balance of payment. Nigeria, for one, is in dire need of these resources, especially funds, technology, management know-how, skills and access to global production and market networks, as they are crucial for creating jobs, reducing poverty and overall economic growth. According to the African Development Bank, Nigeria needs an infusion of $100 billion annually for the next thirty years to close its infrastructure gap. But for the last ten years, Nigeria's FDI has declined. Currently, it is at less than 1% of the $100 billion annual target. Why?

Many answers come to mind here, the chief of which is corruption. A top oil-producing country should not have to import diesel, petrol and other refined petroleum products, but that has been the case since the collapse of the four state-owned refineries. Energy is sporadic as the nation generates only 4000 megawatts of electricity, less than 10% of its optimal 50,000 megawatts requirement. Tragically, the country has lost its sense of security, with entire local government areas being declared unfit for agriculture, mining, manufacturing, or travel by road, rail, boat, or air. The country has been destabilised by terrorists, gangsters, kidnappers, murderous herdsmen and religious rebels. These forces have also hampered economic operations and deterred domestic and foreign investors. According to the NBS, foreign investors are now shunning 24 states, namely Adamawa, Bauchi, Bayelsa, Benue, Borno, Cross River, Ebonyi, Edo, Enugu, Gombe, Imo, Jigawa, Kaduna, Katsina, Kebbi, Kogi, Nasarawa, Niger, Ondo, Plateau, Sokoto, Taraba, Yobe and Zamfara. Ten of these have not attracted any foreign investments in the last three years. Jihad Analytics ranks us as the most religiously terrorised nation in the world, ahead of Iraq.

Investors seek safety above all else, and a lot of work must be done to reverse this before money can freely flow in again. In its 2020 report on the ease of doing business, the World Bank ranked Nigeria at 131 out of 190 countries. Investors continue to face obstacles like multiple taxes, harassment from locals and trouble getting loans. These and other issues must be addressed if we are ever to return to our former status as Africa's king of FDI.

The Way Forward

Technology's outstanding dominance shows that it is the now and the future, and the sooner the right people realise this, the better for us all. One of Nigeria's more severe problems is high unemployment and underemployment. Our misery index rating (rate of inflation + unemployment) is over 50%. So, where best to run if not tech?

From the Jobberman website's analysis of job listings in Nigeria, the technology sector is already the country's biggest job creator. Add to that that tech-inclined jobs are currently the most sought after here and in the developed world. It is evident that we all need to support tech and Nigeria's digital economy on a governmental and institutional level.

A sector that can quickly and efficiently solve one of our most crucial problems deserves more attention and should be the economy's cornerstone.