Nigeria’s technology scene has received a lot of attention recently due to the growing technology ecosystem, increased investor interest, and a youthful population eager to use technological solutions to address the many challenges in Nigeria that are plaguing the country’s economy. However, this growing interest comes with unique technology challenges in Nigeria.
For any firm looking to tap into the growth of the technology industry in Nigeria, it is important that you understand and prepare your company to address these technology challenges in Nigeria to increase your chances of success as a new entrant. Highlighted in this article are the main technology challenges in Nigeria’s tech sector.
Difficulty Accessing Capital
You need a good amount of capital for your staff to hit certain milestones, such as user acquisition targets, revenue targets, and product-market fit. The capital gives your team the ability to show those investing in your company the possibility of future returns. However, access to capital to fund new ventures is minimal, which is a major limiting factor in Nigeria’s technology industry.
Venture financing can be done in exchange for debt or equity. In Nigeria, venture debt is almost a no-go since banks offer loans at an interest rate of 17-25 percent. Therefore, those operating in the business sector typically opt for equity financing.
Over the years, the amount of equity financing has grown in Nigeria’s tech ecosystem, as local business owners are raising more funding from African venture capitalists. Also, with the many opportunities cropping up in the Nigerian tech space, there is an uptick in the number of foreign venture capitalists interested in investing in Nigeria businesses. In 2016, Nigeria led the way attracting 30% ($109 million) of the total VC investments ($367 million) in African startups. Investments in Nigeria-focused startups increased in 2017 by 5 percent to $115 million, coming in third after total amounts invested in South Africa and Kenya.
However, founders that are in the very initial stages of setting up shop are still finding it difficult to secure funding. Besides the larger funding rounds that are currently trending in Africa, founders often find it challenging to raise Pre-Seed or Series A locally. This difficulty in matching early-stage investors with entrepreneurs has thwarted the growth of early-stage ventures. These investors can provide expertise and guidance, along with their capital, to help entrepreneurs successfully get to their next stage of growth and funding.
Limited Access to Qualified Human Capital
When someone thinks about the ideal tech ecosystem, they usually reference Silicon Valley because of the characteristics the environment has, which enables technological innovation. The combination of vast access to capital, an investor pool that is familiar with the process of technological innovation, an efficient and enabling business environment and infrastructure, and a pool of talented and highly-skilled workforce, make Silicon Valley a frontrunner in the tech arena.
In Nigeria, a lot of the aforementioned conditions are not developed enough to facilitate the creation of a collaborative tech ecosystem. In fact, the limited access to skilled labor is one of the main drawbacks in Nigeria’s tech scene. Even if you are a bright, highly skilled entrepreneur who has convinced investors about your vision, you will most likely find it difficult to build a team here because the bulk of the workforce lacks the skills required.
With that said, there has been a focus on developing software engineers in Nigeria through initiatives, such as CodeLagos and Andela. However, to build a world-class team, the talent pool you hire from must have a variety of skill sets besides software development, such as marketing, product development, and sales experience. Unfortunately, these skills are not easily accessible in Nigeria.
Limited Internet Access and Developing Infrastructure
As we move towards a more connected world, countries must ensure that their citizens have easy access to the Internet to remain competitive globally. The telecommunications companies in Nigeria, such as MTN, are the main industry drivers of internet and data access to mobile devices. Currently, the Internet user penetration in Nigeria is 40 percent, which is better than the average for African countries (19.4 percent) but less than the global average of 47 percent.
However, there is still a lack of proper infrastructural development and investment, which is slowing down the growth of internet access for Nigerians. Without the proper laying of fiber-optic cables or the use of modern transmission equipment that would allow Nigeria’s internet speed and data to keep up with new technological advancements in telecommunications, there will always be a high cost associated with accessing data.
American tech giants, such as Google and Facebook, are among the companies that see the advancement of telecommunications through updated equipment as an opportunity to advance their presence in Nigeria’s tech market. By investing in infrastructure that reduces the cost of the internet access, these companies hope to acquire more African consumers who are looking for easy access to the Internet on affordable mobile phones and other devices.
In fact, mobile device manufacturers, such as Tecno and Infinix, are already making more headway in the market because they supply more affordable smartphones that are more pocket-friendly to the average Nigerian consumer.
The Use of Inadequate Devices
Aside from data and internet accessibility, another one of the technology challenges in Nigeria is the type of phones and devices the average Nigerian consumer uses. Although mobile phone penetration is high at 84%, there are only 21 million smartphone users in the country – approximately a 12 percent penetration. This presents a major problem for technology and media companies who are constrained by the devices used by their target consumers due to the devices limited functions and capabilities, inherently limiting the current addressable market for technology companies in Nigeria.
However, many Nigerians do use smartphone devices. It is just that the use of smartphones is more pervasive in the cities, such as Lagos, Port Harcourt, and Abuja, which is why new market entrants usually focus on targeting the populations in these cluster cities initially.
Privacy, Security, and Trust
Security and trust are one of the biggest technology challenges in Nigeria on the consumer end. The market still has a long way to go to make more people comfortable with using technological solutions. This lack of trust began during the early years of internet usage as Nigerians developed a reputation for using the Internet for email scams. This occurrence permeated people’s perceptions of Nigeria in other countries so that many international firms are still hesitant about conducting business with Nigerians.
However, trust issues are not limited to perception, they also involve security concerns. Consumers in Nigeria still do not trust companies to safely handle sensitive consumer data. Furthermore, the proper handling of sensitive consumer material is also not a big priority for tech companies in Nigeria as it is in other parts of the world. There is also a need for service trust, which involves a company building up trust with their consumers by consistently providing a quality product or service.
Finally, businesses should also take into account how government policies are currently shaping the responsibilities technology companies need to adopt to ensure consumer trust. A lot of government officials around the world are making an effort to keep up with the ever-changing technology scene.
Recently, a major issue dealing with matters of privacy, security, and trust has come up, as the political consulting firm Cambridge Analytica and the social media platform Facebook are currently under fire for using end-user data to influence the outcome of elections around the world, including past Nigerian and Kenyan elections. If anything, the scandal has further emphasized how important maintaining end-user security is in the tech arena and how important it is for technology companies to build responsible solutions for their user base. Not only does doing so help maintain consumer privacy, it also helps establish consumer trust and, ultimately, loyalty.
As a new entrant interested in Nigeria’s tech scene, there are several technology challenges in Nigeria that you will have to navigate if you wish to engage in the country’s growing tech ecosystem. However, by choosing to collaborate with the right business partners who can help you navigate the rough terrain, while simultaneously working to build and maintain the trust of Nigerian consumers, you should have an easier time setting up shop in one of the world’s biggest consumer markets.