Nigeria’s tech community was booming – now it’s in shock – The government’s sudden ban on Twitter could jeopardise one of the country’s most promising industries.
Alexander Onukwue in Lagos
Africa’s biggest startup story in 2020 was the acquisition, by US company Stripe, of Paystack – an electronic payments processor that started in Lagos in 2015.
Valued at around $200-million, it was a landmark deal for Nigeria’s booming tech community. A hunt for more Paystacks has ensued among local and international investors. They are worried about missing out. With broadband penetration rising from under 20% five years ago to above 40% since May 2020, Nigeria’s ICT sector is the fastest growing in the country, rising 6.31% in the first quarter of 2021.
Such metrics, including the fact that 81% of Nigerian adults own mobile phones, encourage investors to part with even more unprecedented million- dollar checks, like the $10-million raised by digital bank Kuda at seed stage last November. The appetite and tolerance for tech enterprise in Africa’s most populous nation has never been so high.
But this burst of energy and innovation is facing a familiar foe: the Nigerian government.
Last week, the federal government banned Twitter – one of the biggest social media platforms in the world. The ban came after Twitter deleted a tweet that came from President Muhammadu Buhari’s account, saying that it amounted to a threat of violence. Businesses and media organisations in Nigeria have now been instructed to delete their Twitter accounts, and ordinary citizens risk arrest for using the app.
The Twitter ban comes just six months after another major shock to the local tech industry, when the Central Bank of Nigeria ordered banks to stop enabling cryptocurrency transactions.
Suddenly, Nigeria is losing its appeal for tech investors.
“The truth is that regulatory risk has been the chief concern for us investors for a while,” Tokunboh Ishmael, a former board chair at the Africa Venture Capital Association, told The Continent. Through Alitheia Capital, an investment firm, she has helped fund Nigerian startups like Paga, MAX and Lidya. In each case, “regulatory risk has factored high in our risk matrix”.
For Nigerian startups, this means that they need to offer investors a higher return on their investment than in more stable markets, Ishmael said.
The Twitter ban comes just six months after another major shock to the local tech industry, when the Central Bank of Nigeria ordered banks to stop enabling cryptocurrency transactions.
Tayo Oviosu, who founded Paga in 2009, says a handful of investors have mentioned regulatory risk as their reason for not investing in the mobile payments company, but such occasions have been rare in the past. “That said, all investors consider the macroeconomic situation of any country they invest in, particularly if investing in a regulated sector.”
Operating costs
The Twitter ban will not just make it hard for Nigerian tech companies to raise money; for some of them, it will also make it difficult to operate. With its estimated two million users in Nigeria, Twitter is an important platform for businesses.
Eloho Omame, founding CEO of Endeavor Nigeria and co-founder of a new firm aiming to fund female- focused startups with $25,000 seed money, said Twitter has been “essential as a touchpoint” with the founders and startups they serve.
Her firm, FirstCheck Africa, is essentially a startup in need of a platform to tell its story and gain traction with the women who could found Africa’s next big thing. “A not-insignificant part of our investment pipeline relies on outreach on Twitter and a lot of our hiring is done via Twitter. The ban has disrupted all of that. None of the alternatives are as efficient.”
Twitter has become a customer service management platform for new startups looking to be lean and nimble. Part of the success of Piggyvest, a popular savings app, is that it went from zero to 450 users in a year with next to nothing spent on marketing, relying on Twitter for customer acquisition.
With the ban, startups have pushed notifications explaining that Twitter support is now deactivated.
An email from Fairmoney, a digital bank, offered a phone number, an email and a Facebook page as alternative customer service channels. Risevest, a stock-trading app, included Instagram among its alternatives. Henry Mascot, founder of Curacel – which provides fraud detection technology for insurance companies – says they have had to hire a new team outside Nigeria to manage their Twitter feed. That means more spending.
Staying hopeful
Mascot says it’s too early to know how bad the impact of the ban will be. His investors, who helped Curacel raise $450,000 in March, are in for the long run, but he is concerned about the message to the broader ecosystem of investors.
Oviosu, the Paga CEO, is optimistic and says investors will observe the Twitter ban as an isolated issue and won’t be deterred from the market.
Victor Basta, managing partner of Magister Advisors which has advised on multimillion-dollar deals in Africa, sees the negatives of a social media ban but doesn’t expect spillovers to fundraising work.
“We have multiple deals ongoing with Nigerian companies and we see no backlash from this step,” he says.
“A government that is consistently hostile to technology sends a message that its economy is less credible as a destination for important future-focused investments of time and money.”
But in the present, founders and investors agree that a continued pattern of arbitrary regulatory changes is a wrong signal to people considering Nigerian startups as a destination for their capital.
“A government that’s consistently hostile to technology sends a message that its economy is less credible as a destination for important future-focused investments of time and money,” Omame says. “We’re competing for talent and capital with ecosystems all over the world and we’re even further on the back foot.”
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