How Africa’s largest economy can protect the future of its promising tech sector

Figuring it out.
Figuring it out.
Image: Reuters/Akintunde Akinleye
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About 21.7 million Nigerians are unemployed—it’s a figure that is higher than the population in 35 of Africa’s 54 countries. That number will likely rise given Nigeria has also just suffered its worst quarterly economic contraction in over a decade due to the Covid-19 pandemic.

The lingering slump in the global oil trade has proven particularly costly, and dashes any hopes of a quick economic turnaround.

To its credit, Nigeria’s government has pushed social intervention programs amid pandemic, from cash relief for its poor to a $126 million credit facility for small and medium businesses. But so far, those plans have left out a promising, fast-growing business sector: tech startups.

Last year alone, Nigerian startups received nearly half of the total startup funding in Africa but with the record-breaking pace of investment inflows forecast to slow, coupled with the current negative macroeconomic factors, local startups are increasingly in need of tailored support.

In a new white paper Endeavor, the global entrepreneurship network, proposes what those government support programs should be, starting with a $50 million credit facility that allows startups access 75% of their six-month runway costs at a 5% interest rate. (Nigeria’s average lending rate in 2019 was over 15%, based on IMF data.)

The goal of the facility, the paper recommends, should be to keep startups afloat amid dire circumstances: a survey by the UK-Nigeria Tech Hub in May showed that 79% of local startups had less than six months of cash runway. Endeavor also recommends provisions for partial debt forgiveness if the funds are applied to employee salaries to slow the job churn that’s taking hold in the industry. Even larger, established startups like Jumia, IrokoTV, and Andela have jointly laid off hundreds of staff to manage costs in recent months.

As such, any funds should be applied to “protecting jobs and preserving capacity” of local startups, says Eloho Omame, managing director for Endeavor’s Nigeria division.

But the government could also look to make good on promises of an investment fund for startups in the long-term. Rather than disburse them through a government agency or organization however, Endeavor recommends investing the funds “in the most efficient way” through experienced local venture capital firms.

So far, in the absence of targeted government support, help is coming from within the ecosystem as venture capital firms are collaborating to offer equity-free, emergency grants as cash lifelines to local startups. Ultimately however, the onus will be on the government to live up to its promises of boosting its $2 billion tech ecosystem, Omame says. “If this segment is strategically important, then we cannot afford to move as nonchalantly as we seem to be.”

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