Africa’s most valuable startup ecosystem is also the least lucrative for software engineers

Yaba, Lagos’ startup ground zero.
Yaba, Lagos’ startup ground zero.
Image: Reuters/Akintunde Akinleye
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For startups, Lagos, Africa’s largest city, appears to be a land of promise with its huge addressable population of over 20 million peole and a tech ecosystem that’s bursting with energy and dynamism. In fact, the local startup ecosystem is valued at $2 billion, making it the most valuable on the continent, according to a new report from Startup Genome.

Lagos is the most valuable despite only having an estimated 400 to 700 active startups, much fewer than the up to 1,200  in Cape Town—the largest startup ecosystem on the continent.

The Africa section of the global report focuses only on Lagos, Cape Town and Johannesburg, with Nairobi conspicuous in its absence. Nairobi is recognized as one Africa’s major tech capitals with a leadership in mobile platform technology globally. Startup Genome did not respond to Quartz’s queries about Nairobi’s exclusion from its report.

Nairobi’s exclusion aside, the report does shed light on several metrics not often measured including ecosystem value, early-stage funding and average salaries for software engineers.

Asides from being the most valuable, startups in Lagos also receive the highest average early-stage funding, compared to Cape Town and Johannesburg. But, at $77,800, early-stage funding available to Lagos-based startups pales in comparison to the global average of $252,000. Although not included in the report’s analysis, Nairobi, Kenya, alongside Nigeria and South Africa, is regarded as one of the continent’s leading destinations for startup investment dollars.

But for the software engineers tasked with getting these startups to work and deliver on their promise, the reality is quite different. While being in Lagos can prove a fruitful for investors and startup founders, it’s not as lucrative for the software engineers. Compared with their counterparts in Johannesburg and Cape Town, software engineers is Lagos are paid more than $5,000 less.

Ismaila Sanusi, founder of CoLab, a Nigerian tech hub  for developers, suggests the disparity is linked “the size of the markets” where startups operate. “While we may have the numbers population-wise, South Africa actually has a much bigger market,” Sanusi told Quartz. ”The smaller market means that startups here don’t earn as much and as a result can’t pay as much.”

The market size for startups in Nigeria was put in perspective when  Kinnevik, the Swedish investment firm which owns a 34% stake in Konga, one of Nigeria’s largest online retailers, published its financial reports for the second quarter of 2016. After four years of operations and millions of dollars spent in advertising, Kinnevik’s report showed Konga’s active customer base was just 184,000—far less than 1% of Nigeria’s total population.

There might also be another reason for the salary disparity of software engineers in Nigeria, Sanusi says. “The very best ones freelance, because startups mostly can’t afford them and it makes more sense economically for them to freelance.”

More pointedly, Celestine Ezeokoye, a Lagos-based software engineer, says the salary disparity shows the premium historically placed on software engineers in Nigeria. “If software developers are not being paid well, it’s because people don’t value them,” he tells Quartz. “People see developers as disposable entities. That is why we see a situation where they don’t invest as much as they should in developers.”

Given the Nigerian market is still at an early stage of digital transformation, Iyin Aboyeji, co-founder of Flutterwave, a payments software company, thinks businesses are not putting the necessary premium on engineering skill. “The only way to bridge that delta is if engineers can build new business models to capture value they create,” he says.

Before starting Flutterwave last year, Aboyeji co-founded Andela, a company that trains and outsources software engineers. Andela is backed by the Chan Zuckerberg Initiative (CZI), founded by Mark Zuckerberg and his wife Priscilla Chan.

Aboyeji says Flutterwave started a developer program in February which allows selected local software development firms to build software for their clients on Flutterwave’s infrastructure. But rather than receive one-off fees for their work, software firms in Flutterwave’s program will agree revenue-sharing payment models. The long-term goal is to ensure that developers are better paid for their work, Aboyeji says. “We have some of the best developers in Nigeria but is their craft rewarded? Not all the time.”