I may have committed a faux pas in my first article. I assumed that all readers know what a digital economy is. The phrase‘digital economy’ was coined by Don Tapscott in 1995 in his book; The Digital Economy: Promise and Peril in the Age of Networked Intelligence, in which he described how the internet would change the way we do business. I wonder how many people believed him then?There have since been a number of definitions of the term and I will choose the simplest and most descriptive one I have come across. A digital economy is the result of economic activities enabled by information and communication technologies (ICTs).To underscore the importance of the digital economy, an empirical measure to estimate the contribution of the internet and ICTs to GDP has now emerged and it is called internet GDP or iGDP. iGDP of developed economies range from 5% to 8% while in developing or emerging economies the figure is closer to 2 – 3%. So there is scope for growth in emerging economies such as Nigeria.
Building a digital economy can significantly boost our iGDP, and in turn GDP, but it can have an even greater impact on the underlying indices of job and wealth creation if we drive an agenda with local content creation at the fore. In other words, ensure that economic activities on the internet deliver greater benefits to Nigeria and Nigerians. So in our brave new world of ‘Buy Naija’ we must be creators of our own internet content and not just consumers of content produced in other parts of the world. This is what this second musing will examine more closely. How do we drive a local content creation agenda, which is one of thebuilding blocks I introduced in my last piece, in order to boost our iGDP and the underlying and strategically important indices of job and wealth creation?
Here are some facts that are before us today:
– 83% of Nigerians are covered by a mobile signal
– there are 92 million internet connections in Nigeria
– 45% of Nigerians have access to electricity from the grid
– there are 70 million bank accounts in Nigeria
The import of these statistics, in the most simplistic of terms, is that more Nigerians have access to a mobile signal than have access to electricity. Also without discounting for multiple bank accounts and multiple internet connectionsattributable to a single individual, more Nigerians are connected to the internet than have bank accounts. Think about this for a moment and the opportunities it presents.The opportunity to deliver through the internet and other ICTs, products and services that Nigerians really need and in the process of doing so creating businesses, jobs and wealth. The opportunity for domestic growth and economic empowerment through an internet connection.
Let me take a well-known example from Kenya to illustrate how these opportunities are being captured in other economies. Kenya is home to the most advanced and most successful mobile money market in the world due to a high mobile penetration and a low formally banked population. Safaricom’s M-PESA service accounts for approximately 38% of Kenyan GDP by value in 2016 and 52% of the adult population are active users of MPESA. However, despite its growing popularity for money transfer and mobile phone airtime purchase, fewer than 0.01% of businesses in Kenya had an M-PESA merchant account. This meant there was a latent opportunity to enable enterprises capitalize on the increasing familiarity customers had with mobile money when doing business with them. Lesser known than Safaricom and M-PESA is Kopo Kopo, a company that is focussed on merchant payments that enable small and medium businesses to accept mobile money payments from their customers. Having reached over 20,000 merchants in East Africa, Kopo Kopo is now expanding to Ghana, Uganda, Tanzania, Rwanda and is working with mobile money providers interested in rolling out merchant payments. In addition, Kopo Kopo has launched a cash advance business leveraging on their payments platform. Kopo Kopo is offering East African small businesses financing, allowing them to grow and filling an ‘access to capital’ gap that exists in the market. Essentially, Kopo Kopo is in the business of improving the productivity, efficiency and visibility of SMEs in these countries and their own bottom line too – a classic win win.
The Small and Medium Enterprise Development Agency (SMEDAN) estimates that there are about 17 million SMEs in Nigeria. Given the coverage and internet penetration statistics quoted above it would be reasonable to venture that at least 50% of the CEOs, owners, sole proprietors of these SMEs have access to a mobile signal and/or an internet connection. Easy to use technology based solutions that increase the customer base beyond geographical proximity through an online presence; that facilitate mobile payment acceptance which inadvertently builds a cash flow audit trail and a basis for small scale lending/cash advances; will contribute in no small way to the efficiency, growth and increased contribution to GDP of SMEs, Nigeria’s largest employers of labour. Several Nigerian tech enterpreneurs are already addressing this opportunity – Flutterwave, Paystack, Paywithcapture, Vconnect to name a few. They are yet to reach the scale that this opportunity portends, but with the right mix of technology, capital and business building support there is no doubt in my mind that they can.
Here is another example. In many African countries, diaspora remittances have surpassed foreign aid and have in a sense become the social safety nets that successive governments have failed to provide for the most vulnerable citizens.Unfortunately, Africans in the diaspora pay between 10%-12% in fees to send money to Africa, making it the most expensive remittance corridor globally.
Simbapay is a mobile-first money transfer service from Europe to Nigeria and Kenya. The platform allows anyone living in Europe to (i) send money to any bank account or mobile phone within seconds, (ii) undertake bill payment to African service providers, and (iii) open bank accounts in Kenya and Nigeria. Simbapay, being a technology platform, is more convenient (there is no need for sender or receiver to travel to find an agent), faster, and costs a fraction of what the traditional remittance firms charge. Mobile first money transfer services in a country like Nigeria with diaspora remittances in excess of $20bn per annum could release at least $1bn into the economy just from savings on commissions and charges.
The solutions I have described above are of little relevance, in their present form, to more advanced economies. And this is the essence of local content creation – using technology to solve some of the peculiar problems/challenges of the environment we live in.
So, the opportunities are clearly there andfrom where I sit as a partner in a VC firm, there is no shortage of tech entrepreneurs to take advantage of these opportunities and gaps in the market. There are over 200 tech related businesses in Nigeria – all largely SMEs themselves. In 2015 Nigeria attracted the lion’s share of the $200m in venture capital funds deployed in Africa. However, this is a small amount of money compared to the size of the opportunity. The challenge before us now is how to improve the enabling environment to attract larger pools of talent, capital and business building support that will facilitate the scaling up of these companies and deliver the benefits of a digital economy to the entire country.
Is this different from the enabling environment required to build a traditional brick and mortar company? I think it is, in some significant ways which need to be addressed:
– The propensity for accelerated scale is tremendous, Uber, Amazon, Facebook did not exist ten to fifteen years ago but they are all billion dollar companies with millions of customers.
– Barriers to entry are not significant which makes the tech space highly competitive and the propensity for failure higher than other industries.
– Because of the low entry barriers and the affinity of young people to ICTs, the average age of owner/founders is much lower than that of traditional companies implying less business building experience and expertise in the company.
Building an enabling environment that solves for these differences is what we must apply our minds to. A number of things come to mind. Nigeria needs to:
– Support innovation ecosystems that allow the best ideas and the best execution teams to ’rise to the top’, which means more incubators and accelerators to nurture these businesses and build a bigger pool of ‘investment ready’ entrepreneurs.
– Develop a deep and wide network of local and international senior executives in relevant industries to act as business advisers and mentors to these companies
– Ensure that market places are open and competitive for these businesses to thrive; this requires attentive and careful regulation in what is largely a ‘new’ industry to ensure that Nigeria attracts its fair share of global quality talent and capital
– Develop a strong, empirically based and compelling narrative to attract local and foreign investors into Africa/Nigeria focussed tech venture capital funds, especially those that will invest beyond the start up phase. When growth capital is lacking good scaleable businesses will die.
– Support the development of a local skill base for the digital economy – creators (software developers, data scientists/analysts) and consumers (digital awareness and digital skills development). This is a huge area and where we have the least competitive advantage and is perhaps worth elaborating on in another musing.
Omobola Johnson
