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Thursday, Feb 27th

Start-up funding to dip in build up to Nigeria's election: report

Start-up funding to dip in build up to Nigeria's election: report

Nigeria's startups can expect fewer opportunities to secure financial backing as the country's February 2019 general election draws closer.

This is according to the authors of Deloitte's Invest in Nigeria report released this week.

Simon Schaefer, Manager in the Africa Services Group at Deloitte said Nigeria's start-up community, which the report claims attracted US$63 million in 2017 (approximately one third of the total start-up investment in Africa for the year), is likely to be under pressure over the coming months.

"Typically, in the run-up to elections investors become a bit more cautious and hesitant to invest due to the uncertainties around elections. In the past few years Nigeria has taken measures to improve its investment climate, albeit from a low base. We might see further improvements in the investment climate in order to diversify the economy and attract much-needed investments outside of the oil sector. However, there is a risk that the government becomes a bit more inward looking in the run-up to elections and adopts more populist measures as it tries to lure voters to the ruling party," said Schaefer.

Growing confidence

The report points to growing confidence in the Nigerian start-up scene over the last few years, as evidenced by the launch of software development training firm Andela, backed by Facebook founder Mark Zuckerberg in 2016.

There is evidence of increasing support for Nigerian start-ups, according to the report, with the average amount of investment increasing from U$57 000 to US$73 000 in 2017.

"It seems that Nigeria's Vice President, Yemi Osinbajo, is driving the government's strategy for start-up support,' said Schaefer. "His office recently introduced 'Startup Nigeria', which aims at supporting entrepreneurs and fosters innovation through incubator programmes. From a finance point of view, we see more support/funding for start-ups coming in from big tech companies such as Google and Facebook."

Research also confirms that Nigeria's start-up sector is focused on solving everyday challenges faced by consumers. This allows for "rapid commercialisation of innovation and increases the attractiveness for the investors."

E-commerce boost

According to the Report, Jumia predicts that Nigeria's e-commerce sector will reach about US$13 billion in 2018.

However, Schaefer asserts that Nigeria can learn from other regions in Africa when it comes to e-commerce.

"Nigeria has a number of well-known e-commerce players such as Jumia and Konga. A key challenge for these operators is the choice of payment channels. In a market where access to bank accounts and in particular credit cards remains insufficient, 'payment on delivery' is the most attractive payment channel in the e-commerce space.

"Looking at East Africa, mobile money (think M-Pesa) provides a viable alternative to traditional bank transactions for payment in the e-commerce space. Fostering and developing the mobile money environment in Nigeria might be a way to further boost e-commerce."

The World Bank's open access development data portal Open Data shows that less than 40% of Nigerian adults have access to formal bank accounts.

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