Technology: Powerful New Opportunities for Nigeria
Nigerian tech start-ups are generating
Sulaiman Balogun’s start-up journey began like many others worldwide: with a problem. His friends used to complain about how difficult it was to get access to good rental properties in Lagos, Nigeria’s humming commercial capital. Property listings gave little insight into the quality of places, fraud was a constant worry and agents demanded up front fees for each viewing. It was the kind of structural failure in a mainstream industry that was ripe for the right business to come in and solve.
In late 2013, Balogun and a couple of friends did exactly that. ToLet.com.ng was the first online property broker, and now has the largest inventory of rental properties in Nigeria.
“We’ve had more than 1,500 people who have rented our property through our website. We get more than 10,000 hits every day,” he says. “By European standards it may not seem significant, but in Nigeria that’s big.”
ToLet.ng was funded and hosted at Spark, an incubator founded and backed by the London-born Nigerian entrepreneur Jason Njoku and his business partner, Bastian Gotter. That pair were behind iRokoTV, the world’s largest online platform for Nigerian films, and have since sought out and developed some of West Africa’s most exciting online media and technology businesses.
Although it is at a very early stage, the Nigerian technology industry is showing signs of blossoming into one of the world’s most exciting centres of innovation. Buoyed by the sheer size of its population and the rapid growth of its mobile telecommunications industry, Nigeria is starting to attract real money into its web and mobile startups.
However, analysts and industry experts warn that there remain major constraints in infrastructure and skills development, and that amidst the excitement, the contribution of the sector to jobs may be limited.
On the surface, Nigeria is tailor-made for a technology boom. While other emerging market capitals have begun to create their own industries and incubators, and some—like Nairobi—have started to define their competitive advantage, few have the sheer scale of Nigeria. Rapid urbanisation and economic growth is creating a middle class of consumers who are increasingly acquisitive and technologically-savvy.
Penetration of cellphones in Nigeria is 68 percent; internet penetration is 28 percent. With a growing, urbanising population of nearly 170 million people and GDP growth predicted at more than 6.5 percent annually for the next four years, the potential commercial opportunities are enormous.
The new shopping malls being built around Nigerian urban centres are testament to the explosion in retail. Just as the country leapfrogged fixed-line telephony and went straight to mobile, the likelihood is that a large proportion of this retail demand will be fulfilled through online and mobile channels, rather than through bricks and mortar shops.
Many of the businesses being incubated in Spark and at other sites around Lagos are, like ToLet.com.ng, not entirely new technology. Instead, their innovation is in identifying or overcoming an existing challenge in the Nigerian economy and using their technology to skirt around it. Drinks.ng addressed the gap between Nigerians’ desire for high quality branded drinks with the difficulty in ensuring that products are the genuine article. Jumia, which has created one of the largest e-commerce platforms in sub-Saharan Africa and has been dubbed “Nigeria’s Amazon”, innovated to solve the problems created by the absence of payment and delivery infrastructure, taking orders, shipping them on motorbikes and collecting cash on delivery.
“Everything is starting to coalesce. The power of networking ignites ideas.” - Tomi Davies
“The advantage that Nigerian companies have is access to a very big market,” says Yemi Lalude, managing director of Adlevo, one of sub-Saharan Africa’s biggest technology investors. Adlevo has now invested in three companies in Nigeria, and has focused so far on the mobile ecosystem and payments, but sees opportunity in e-commerce, as well as the infrastructure that will underpin the continued growth of the industry.
Historically there has been a near total absence of small scale venture capital and angel investment, Lalude says, but now “You have ecosystems being built in Nigeria, with incubators and networks... We’re quite excited about that, because it obviously builds a pipeline of investable opportunities for us,” he says. “There has been money for big deals, but not for seed investment, so it’s quite exciting to see the growth.”
Speaking to start ups across Lagos reveals that, while many complain about the lack of available funding, there are other, more persistent issues. Sourcing talent is one, with highly-qualified Nigerians often preferring to seek careers in larger corporates. Infrastructure, too, is an issue. Just as persistent power shortages and the high cost of grid electricity hit other businesses, they impact on technology start-ups.
Access to bandwidth is a concern, even though large trunk infrastructure has now made landfall in Nigeria, with fibreoptic cables now connecting the country to international data networks. The great promise of these cables was that they would massively drop the cost of data and that the sudden oversupply would drive demand amongst consumers, allowing start-ups to capitalise.
As Austin Okere, the Group CEO of Computer Warehouse Group, one of Nigeria’s largest home-grown IT companies, says, the future of the media industry is in streaming and subscription services. It was the availability of fast, affordable, always-on broadband that allowed the rapid growth of media sharing websites, such as YouTube, and eventually video-on-demand services such as Netflix, and without the bandwidth, those services cannot take off.
Nigeria is already a massive centre for African media. Although it has rarely come onto the radar of Western consumers, Nigeria’s film industry is already among the largest in the world, pumping out a huge volume of low-budget movies, shipped around the world to Nigerian Diasporas on VCDs and DVDs and consumed across Africa.
The media industry is symbiotic with technology—platforms are nothing without content, while content needs new channels for distribution.
The benefits of the big cables are yet to be felt, Okere says, because the the so-called “last mile”—the infrastructure between the trunk cable and homes and businesses—remains under-developed. This means that rates are still high and consumption is still constrained.
“It costs three times as much to trunk data from Lagos to Abuja as it does from Lagos to London,” he says.
In some places, that is starting to change.
In a nondescript office building off the Herbert Macauley Road in Yaba, representatives from Nokia are making their pitch to around 30 app developers. The Finnish company has just released its new low-cost smartphone in Lagos - the first batch sold out - and is pushing the local start-up community at iDEA, a technology incubator, to take the apps they have developed and port them onto the Nokia X platform. Tomorrow they will go next door to the CCHub, another incubator, to make their case again. It is a further sign that the Nigerian technology industry is starting to attract real money. Venture capital companies and angel networks are holding pitching sessions and bootcamps.
Yaba, on the Lagos mainland, is emerging as a centre for the new industry, in part due to Tomi Davies, an entrepreneur and mentor, who convinced the Lagos State Government to waive the cost of obtaining right of way for fibreoptic cables from the coast. As a result, iDEA Hub has a fast, stable internet connection.
Davies, who also chairs the Lagos Angels Network, says he wants to create rockstars out of the independent developers who are working at iDEA. The buzz around the area is starting to build, and although there is a long way to go before Yaba matches Silicon Valley, or even Kenya’s “Silicon Savannah”, it is on its way.
“Way before we even started, the University of Lagos was down the road. The Yaba College of Technology was down the road. The International School of Design was down the road. What then started to happen? CCHub, Pagatech, TBC Labs, iDEA, Konga’s moving to Yaba,” Davies says. “Everything is starting to coalesce. The power of networking ignites ideas.”
SIDEBAR: Ten Tech Companies to Watch
Drinks.ng Nigerians consume vast quantities of alcoholic drinks annually, with major brands, such as Guinness, finding a huge market in the country. However, counterfeiting is still a problem, and retail options can be limited. Drinks.ng, founded by Lanre Akinlagun, offers an online platform for Nigerian consumers to buy any volume of verified authentic beverages.
ToLet.com.ng Nigeria’s urbanisation and economic growth have had some side effects. A shortage of high-quality rental property has been exacerbated by opaque and manual mechanisms for customers. In 2013, Sulaiman Balogun created Nigeria’s first and largest online property broker, helping urban consumers quickly find property.
Hotels.ng Casual visitors to Nigeria often have a shared complaint—that hotel rooms are prohibitively expensive, and it is tough to find a room. In truth, there are thousands of small, independent hotels across the country. Spotting that there was no centralised listing and booking service for them, Mark Essien created one.
Jumia For all of its consumer potential, the evolution of Nigeria’s online retail industry has been hampered by an absence of payment infrastructure and a relatively low penetration of credit cards. Jumia, “Africa’s Amazon”, solved this by sending out its products on bikes and collecting cash payments.
Konga.com Former soldier Sim Shagaya launched e-commerce business Konga.com in June 2012. After major investments from Swedish venture capital fund Investment AB Kinnevik and the South African media conglomerate Naspers, the company is moving to a huge new fulfillment centre in Lagos and launching a marketplace product for other traders to sell their goods.
Pagatech One of the first of Nigeria’s new wave of technology companies, Pagatech was founded in 2009 and allows users to perform a number of transactions through their mobile phones.
Jobberman Another of the old guard, Jobberman was founded by three Nigerian entrepreneurs in 2009 as a job search and recruitment website. Now the region’s most popular recruitment site, it has expanded into Ghana.
Solo Although software gets a lot of attention, Nigerian companies have also begun to develop hardware. Solo’s handsets and media platform are tailored to the domestic market, offering dual-sims and a huge library of Nigerian music.
Kuluya Mobile gaming has changed how developers think about game design, and created an industry away from big studios and big budgets. Nigerian studio Kuluya had a smash hit with Oga @ The Top, which led to a partnership with Nokia.
Autobox Getting hold of genuine spare parts for cars worn out by Nigeria’s battered roads is a constant battle. Autobox sources authentic dealers and delivers parts to customers’ doors, taking some of the stress out of repair work.
SIDEBAR: Interview: Funke Opeke, CEO of Main One
When the Main One cable made landfall in Nigeria in 2010, it was one of four fibreoptic lines that promised to unlock the vast potential in the Nigerian technology and media sectors. The idea that the sudden availability of bandwidth supply would drive an explosion in demand, just as the introduction of cellular networks unleashed a latent market in mobile telephony.
“With the availability of capacity into Nigeria a few years ago, we thought things would change,” says Funke Opeke, the CEO of Main One. “If you look at the environment today, we have companies like Konga and Jobberman and Jumia, so you’re seeing internet business models take off, you’re seeing banks putting in facilities for opening accounts on social media. You have cashless banking, where transactions are now being done online, and a lot of payments are migrating online... certainly it is getting interesting and it shows the potential of what can be done.”
However, the high cost of infrastructure and the slow pace of regulatory reform has not delivered the benefits that many expected. The cost of broadband is still prohibitive, in part because inland networks are not shared between operators and because the expense of obtaining the right of way from the government is high.
“Given the size and the population and the opportunity in Nigeria, I think we’re only just scratching the surface. If the distribution was a lot more competitive and more affordable then you would have a lot more uptake.”
Opeke says that the combination of the scale of the country’s market and its young, growing and tech-savvy population should be a fertile ground for bandwidth-hungry services, such as internet protocol television.
“If IPTV were available here, and the services to gain access were affordable, with the size of our youth population, I don’t know why you wouldn’t be talking about tens of millions of subscribers for those services. Clearly we’re nowhere near to that.”
As well as the international football coverage and movies that are already voraciously consumed by Nigerian audiences, the country is also a massive producer of media products. Nollywood, the second biggest film industry in the world by volume, generates an estimated $600 million per year. Adding online distribution to an industry that still moves in DVDs could be transformatively huge.