3 Aug 2016

The Nigerian telco investment landscape examined




By Com Series staff writer Valentine Gachambi, @First Communications

Africa is widely considered to be the poorest continent in the world in terms of cumulative GDP, despite huge natural resources and being one of the top fastest growing economies globally. 


However, this narrative has begun to change, especially in Sub-Saharan Africa - a region that has gained recognition for its efforts in the implementation of business and regulatory reforms to encourage foreign direct investment (FDI).

The lay of the land


The World Bank’s Doing Business 2014 report found that Sub-Saharan African countries were amongst the top 20 reformers globally, with Rwanda recording the best performance. Though most Sub-Saharan economies are on the fast-track to greater stability and economic growth, some countries in this region still experience moments of volatility and unrest, and though they have the potential to grow, they are yet to reach their full potential.

Case in point, Nigeria - Africa’s largest economy. Nigeria has over 170 million citizens and a Gross Domestic Product of over $500 billion. The country possesses vast mineral resources, with its main export being oil - producing over 2 million barrels a day, as well as a growing consumer class that has attracted considerable investor interest.
Nigeria's telco sector has grown vastly sinces the 2000s
Technological advancement, in particular, has put Nigeria in the sights of the global investment community, with the country’s telecommunications sector having grown vastly since the 2000s. According to the Nigerian Communications Commission, there are 140 million telephone subscribers, including mobile and landline, representing a 100.6 per cent teledensity. The telecommunications space has largely been dominated by four private companies - MTN, Airtel, Globacom and Etisalat. It is estimated that 38% of Nigerians have access to the internet and most access it through mobile phones, while 6% of the population have broadband internet.

In addition, a report published by Venture Capital for Africa states that Nigeria and Kenya are now leading in Africa in terms of fundraising and startups. The report highlights that Nigeria currently lays claim to the highest number of startups raising the most funds, on the continent.

Nigeria and Kenya are now leading in Africa in terms of fundraising and startups
Another report, this time by Disrupt Africa, shows that 125 tech startups raised funds in 2015 around the African continent, to the tune of US$185,785,500; with South Africa, Nigeria, and Kenya the top favoured destinations in 2015. South African startups raised in excess of US$54,568,000 throughout the year. Nigerian startups received over US$49,404,000 and Kenyan startups brought home over US$47,365,000.

Despite the huge appetite for technology, the price of bandwidth is yet to come down to affordable levels for many Nigerians. The arrival of four large fibre-optic cables, including the huge Main One and Glo-1 cables that connect Nigeria’s coast to global communications infrastructure is changing that. The dramatic increase in bandwidth could, analysts say, release the latent potential in Nigerian technology.


The challenges


However, as the country continues to advance technologically, a few challenges deter Silicon Valley investors from investing resources into the Nigerian technology sector. High taxation on broadband access to businesses and residences serves as a major barrier to investment. In conjunction with this, existing network operators that have built fiber-optic backbones are seemingly unwilling to share their infrastructure with outside competitors. Compounding this problem is the lack of proper existing infrastructure to harness, to begin with. But probably one of the biggest challenges facing investors is the lack of proper regulation and human capital in Nigeria. Granted these challenges may put off global investors, but they also present unique opportunities for large tech companies, with ample resources and ingenuity.


The opportunities


Tech companies benefit massively from the Nigerian investment space by the support offered by its burgeoning startup ecosystem.

One such local startup is Andela, a talent producing engine which sources software developers and trains and equips them with skills to meet global standards. Mark Zuckerburg and Priscilla Chan, through their Chan Zuckerberg Initiative (CZI), have invested $24 million in Andela to enable the startup to open a third office in Africa. The start-up currently has two offices in Nigeria and Kenya.

Telecommunications is the infrastructure of the emerging global information society
Initiatives such as these encourage the growth of tech companies in the region, through locally tapped talent. Companies needn’t contract expensive experts from other continents, with local knowledge and skills so readily available on the ground. There is evidence of this already, with global companies taking it upon themselves to invest and seek out human capital in the country. IBM has created innovation hubs in Lagos and Calabar, joining search engine giant Google.

Telecommunications is the infrastructure of the emerging global information society. As we enter the 21st century, the challenge that faces Nigeria is growing telecommunications as a way to empower its citizens economically and away from reliance on crude oil. The challenge for the Nigerian government lies with drafting policies that will rapidly build Nigeria’s capacity to compete effectively with other economies. Without a solid telecommunications infrastructure, the country will not attract the right level of urgently needed local and foreign investment to build the economy.


Savvy investors can actually capitalise from a lack of proper infrastructure. One good example is Fairwaves that provides a device to integrate existing mobile networks, to deliver network signals to mobile phones. This greatly reduces costs in the supply value chain. Operators can expand their networks and get wider coverage at a lower cost and therefore needn’t pass on the high operating costs to the consumer. Products from Fairwaves mainly aims to penetrate rural areas, giving existing entrepreneurs and developers in those areas an opportunity to build and develop applications and develop software.

Despite efforts by start-ups to find various innovative methods to generate revenue, they still require capital injection. Local investors have a crucial role to play in building investor confidence in the tech scene in Nigeria. Thus industry players must ignite initiatives to mobilise local capital. Such drives and initiatives will encourage foreign investors to commit to investing alongside local investors, and in doing so, demonstrate confidence in this growing sector.

Nigeria’s big population and increasing access to technology and payments makes it an
attractive market
500Startups, a venture capital firm, is currently seeking its first investments in Nigerian technology companies as the country continues to encourage industries that will reduce its reliance on oil. The firm “would like to invest in at least one to two Nigerian tech companies in the next year,’’ said Andrea Barrica, venture partner at 500Startups. Nigeria’s “big population and increasing access to technology and payments makes it an attractive market.”

The future of Nigeria’s information, communication and technology scene is bright. There is a presence of strong demand that exists for new innovations and increased mobilisation of local capital. The government of the day is also putting in place regulations to create a friendly investment climate in the country. Foreign investors need to do their homework and find a way to work with local human resource in order to customise technologies to fit within the Nigerian market and address gaps that exist. Investors that provide innovative technology and drive down huge prices have a potentailly huge market ahead of them.
 

To discuss, network and learn more about these, as well as other pertinent issues and topics in the Nigerian tech and telco space, join us in Lagos for Nigeria Com - the largest dedicated digital event in the region.

https://tmt.knect365.com/nigeria-com