What can the Nigeria startup scene look like? With this candid question, and a few recommendations and contacts from friends, we decided to explore Africa’s biggest country and economy entrepreneur & tech ecosystem. What triggered our trip was also the reputation of Mobile West Africa, West Africa’s most prominent tech event, where it’s easier to get an understanding of the local scene in a few days time.
If you want the short version, here it is. Nigeria is too big, with too many problems, a demographic time-bomb in the making, and too little support from government, investors to give its entrepreneurs a chance to make it. But because we love long stories and hours of travels, listening and reading, come with us and follow these lines to get the long version, where you will be as stunned as us by positive trends and amazingly courageous and creative startups.
Nigeria’s demographic time-bomb: 10m new jobs per year needed
Since we travel on the spot, get our hands dirty, we can be frank and direct with you. Nigeria is not yet an eldorado for startups. It’s going to be extremely hard for anyone to succeed there for a few reasons we can summarise here (don’t forget to read the positive points in our second part below!)
- Population growth is not manageable. Nigeria already has the continent’s largest population, with 170m people, which gives a density slightly bigger than China’s, and slightly smaller than Switzerland’s. The population is expected to grow by 10m each year until 2050 at least, when it will reach almost half a billion people. The different estimations anticipate a small billion by 2100. Population growth in the context of job creation is a huge driver for economic growth, unfortunately, it will not be the case in Nigeria. Recent GDP growth (6.8% in 2011, 6.5% in 2012) are not enough in hugely populated countries, which must target a minimum of 7.5%-8% to get a significant share of the population into the middle-class. People without jobs rarely make a country more stable.
- The state in Nigeria is broken, and can difficultly be worse than what it is. Corruption is widespread and makes any improvement unlikely. People are not keen to innovate or create something new when the result of it is to be stolen or confiscated. Nigeria is ranked 139th out of 176 countries in Transparency International’s 2012 Corruption Perceptions Index. Another sign of a broken government is the lack of decent infrastructure, with most Nigerians getting an average of few hours of electricity per day. In the heavily guarded compound we were staying at, it reached 16h per day with the back-up of huge, oil-guzzling generators. These chronic shortages can add up to 40 per cent to the cost of doing business (Financial Times).
- Moreover, over the last few years, the country has been facing a dangerous split between its northern, mostly rural and Muslim populations and its southern, more urban and Catholic populations. Terrorism is a daily concern, and as we went to Mobile West Africa in May 2014, Boko Haram, a terror group, did just kidnap 250 young girls to convert them by force and threaten to sell them as slaves (check the Facebook Page of “Bring Back our Girls”. Just after our departure, a bombing in the administrative capital, Abuja, killed 20 and injured more than 60. It’s hard to see the beginning of a solution to this crisis.
- Inequalities abound, which is typical of frontier markets – the category “below” emerging markets in global institutions rankings. And, if it were not sufficient, things are getting worse every year. For instance, between 2004 and 2012, poverty rate jumped from 52% to 61% of the population. Overall, 140m Nigerians live with less than $2/day. Illiterate adults have increased by 10 million over the past two decades as per World Bank.
At least you’ve been warned, but let’s see why the country is also amazing and changing fast, and how the Nigeria startup scene could gather the players taking advantage of it.
Nigeria startup-scene: if there’s no middle-class, target the very poor and the very rich
As we saw during our exploration of the startups from the BRICS countries this month, one of the main strengths of the emerging markets is the growth of middle-class. In China, Brazil, Russia, South Africa and even India, it’s obvious, big, and it creates millions of new customers with a desire for everything, from fridges to movie tickets, up to travels for the most lucky of them.
Is there a middle-class in Nigeria? Well, nobody seems to be able to give an answer. As this insightful article from Business Day Online explains, the different ways to calculate who is in the middle-class are not reliable enough.
- On one hand, YES, “per capita income increased close to 75 per cent to US$1,541 in 2011 from US$390 in 2000, reflecting the dividends of rapid economic growth over the past decade”...
- …but we know that 140m Nigerians still live with less than $2 per day, and that to be middle-class, one should be able to spend $4-$20 every day. Even in this large estimation, continues the journalist of Business Day Online, “in the Nigerian context, the daily spends on all the essential needs including accommodation, food, transportation, health and education works out to be over US$12 a day. Thus, the middle class has to spend anything above that”.
So, who to target? Let’s begin with the very poor. As Femi Longe, the founder of CC Hub, Lagos’ main tech center, told us, startuping in Nigeria is not so much about raising a lot of money or creating the next Facebook, but about solving issues of the bigger number, then see how to make a business out of it.
For instance, Wecyclers is a social business which has an amazing model. First, they give an incentive to households to sort their trash with points they can convert into useful purchases. Then, they collect the sorted trash with a network of bicycles. Last but not least, they make money by reselling sorted trash by the kilogram to local recycling plants, who have a lots of hardships to get their raw materials.
On the other side of the spectrum, e-commerce startups address the elite and people with either credit cards or simply a budget for online purchases and a payment with cash on delivery. Rocket Internet’s Jumia (equivalent of Amazon), Kaymu (equivalent of eBay) and Jovago (equivalent of Booking.com) are aggressively trying to dominate this upper part of the market. Local contenders, such as Konga (generalist e-commerce) and Hotels.ng also record strong positions, but may not have the same marketing power than the three former.
After a few days in Lagos, it’s hard to find a middle-ground between the social business model on one hand, and e-commerce startups on the other hand. Of course, there are lots of other startups, although we’d like to focus on the ones we know record some success.
More to come in the next few days to wrap-up (lately) our tri to Nigeria. Until then, you can already read our wrap-up of Mobile West Africa’s conference here!