‘Nigeria’s high cost of doing business is holding back acquisition of startups’

Nigeria’s recession should have made the acquisitions of startups more affordable for foreign firms — but instead the creation companies and building of new products has slowed because of the high cost of operating there, says Nigerian tech expert Emeka Okoye.

“Unfortunately most startups are centred in Lagos which is one of the most expensive cities in the world,” said Okoye in an interview with Ventureburn.

The city is ranked at number 13 out of 209 cities by Mercer in its 2016 Cost of Living rankings. Much of the high cost of doing business is down to expensive internet and firms having to pay for diesel to run generators (as electricity off the grid is unreliable).

Read more: Tackle infrastructure, skills challenges to boost tech sector, say Nigerian experts

Nigeria’s tech sector has been in the spotlight ever since Facebook founder Mark Zuckerberg’s visit there in September last year. Yet 20 years ago the country had a flourishing home-grown software sector even exporting to the US and Europe.

‘Most startups are centred in Lagos — one of the world’s most expensive cities’

Okoye says with the boom of the personal computer and the need for SMEs and large corporates to consume information technology products and services Nigeria became a technology leader in the early 1990s.

“Lots of entrepreneurs created software companies that built made-in-Nigeria software that beat the foreign ones in the local market even though they were more expensive at times.

“By 1995 when Nigeria had 89 banks, about 30 of these banks were running locally developed banking software. One of the companies that developed these banking software, Tara Systems, had already started exporting their banking software called Autobank to the US as well as Europe (read about it here).

“Also software companies like CSA Systems, from where Neptune Systems came out from, and Systemspecs whose flagship product is a Human Resource Software, were also exporting within Africa and beyond.

He added that at the time the local assembly of computers from knocked down parts had grown to become a significant industry in Nigeria too.

But he says software imports and the lure of big salaries paid by banks and telecommunication companies lured talented developers away from the tech sector.

Poor support

The poor support from the government has also not helped.

“Some of the governments and agencies are giving grants mostly on the basis of SME and not on technology or innovation. Our government does not fully understand how technology or innovation can boost the economy and how they can fuel it,” he explained.

Okoye mentioned in an interview last month with Techpoint that Nigeria could learn from India which set up technology institutes to train students.

He added that other countries also hold lessons from Nigeria.

He points to Brazil, which built the tech sector from academia; Israel, where the government supported entrepreneurship, innovation and inventions; the UK, where there is a flourishing tech ecosystem and where universities have clusters at institutions such as Oxford and Cambridge; and Canada, where local ecosystems were built on industry-academia relationships such as the University of Waterloo and other universities.

Tap into expats

In addition, he said while Nigeria has a significant expatriate community startups are not tapping into this.

“Some of us have links with the expat community due to our business relationships with them over the years but unfortunately the young ones have refused to tap into the experience of the older techies.”

A lack of mentoring is also a challenge: “A lot of the young techies are being mis-advised or misled. They believe they know better and they can do it on their own.”

Despite the challenge he believes the Nigerian tech startups to keep an eye on are Hotels.ng (hotels), Iroko (entertainment), Flutterwave (fintech) Paystack (fintech) and Paga (fintech).