Technology start-ups Success Creates fresh Impetus for New Investments

The success of a string of technology start-ups in Nigeria is creating fresh impetus for further investments in digitally-enabled businesses as more foreign venture capitalists (VC), private equity firms, and global technology companies position themselves to take advantage of the nation’s imminent internet boom. Online retailer, Jumia, has received $200 million in funding, and it operates in eight countries.

Konga is not far behind, with $100 million in VC funding and plans to expand outside of Nigeria this year. Jumia is owned by African Internet Holding (AIH), a joint venture between Germany’s Rocket Internet venture capital fund, Swedish telecommunications company Millicom and South African mobile operator, MTN.

Both online firms are already making significant strides in the online business space with scalable digital platforms strategically designed to meet the needs of Africa’s rising consumers. However, market observers are concerned about the lack of interest from domestic investors. “There are opportunities in Nigeria to put your money down in importing highly desired goods, where you get huge margins in oil and gas and property.

Most of the money in the country goes towards these things,” said Obi Ejimofo, managing director, Lamudi, an online real estate marketplace. Folabi Esan, partner at Adlevo Capital, which invests in technology firms in Nigeria, said, “When a foreign- backed company like Jumia does well from a financial performance standpoint, the lion’s share of that returns will not remain in the economy.”

Esan told ‘Africa Report’ that there were a lot of additional benefits to local investment in tech start-ups. “There are issues about who gets consultancy work and the support infrastructure.

A lot gets lost in the process when you don’t have local capital investing in the businesses.” As a result of a decade of rapid economic growth across the black continent, consumer spending is estimated to exceed $1 trillion annually by 2020, with $400 billion of the spending already occurring in Nigeria, according to McKinsey’s Global Institute.

Meeting the demands of these newly-empowered shoppers, whose needs were far outpacing Africa’s traditional marketplaces, would generate some $75 billion in e-commerce revenue by 2025, McKinsey further estimates. In addition to the continent’s larger discretionary spending, industry observers are of the view that Africa’s population is urbanising, Information Technology (IT) is improving, and the continent’s smartphone penetration is rising.

“The energy is already out there,” said Sim Shagaya, chief executive officer of Konga, which was founded in 2012. “Africa does not lack an abundance of people to buy things, sell things, or move them around. What Africa lacks is a 21st century operating system to make it all work,” he added. IDC’s quarterly mobile phone tracker has recorded a steady increase on the smart- phone shipments to Africa in every quarter and the African smartphone market is expected to double in volume over the next four years and account for close to a third of all handset shipments to the continent by 2017.

In view of this, device makers are into big bets on Africa’s smartphone future. For Africa’s ecommerce pioneers, Nigeria offers upsides and challenges. The country has record foreign investment inflows, high GDP (Gross Domestic Product) growth, and surpassed South Africa as the largest economy in 2014.

But Nigeria also has frequent power outages, poor roads, an outdated postal system, and about 10 percent broadband penetration.