Why Is Everyone Expanding into Nigeria?

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As someone who spends many hours looking at news rolling out of the African tech scene, it seems that hardly a day goes by without an African start-up from Kenya, Ghana, or wherever announcing plans to expand into Nigeria.

So the question that has been swirling around in my mind is, why? Are there reasons for this decision beyond the nakedly obvious, which is that Nigeria is a really big country? And by big, I mean 160 million people and $500 billion GDP big.

Big means opportunity, of course. But it also means bigger costs and challenges. And, finally, it means everyone else sees the same opportunity.

All Roads Lead to Nigeria

We’ll offer three recent examples of companies taking the plunge with Nigerian expansion. There are many others. But these three are among the latest in a long succession of startups launched in Accra or Nairobi or elsewhere that decided that their scale ambitions require putting Africa’s biggest market on their expansion roadmap.

M-Kopa is a Kenya-based fintech launched in 2010 that helps the underbanked finance purchases for “life-changing” products like solar panels, mobile devices, and appliances, as well as consumer loans, healthcare, and more.

The company recently hired Babajide Duroshola, most recently the Nigeria country lead for the ride-hailing service SafeBoda (another East African company that expanded into Nigeria), to lead its expansion into Nigeria.

Duroshola is widely credited for SafeBoda’s successful launch in Nigeria. In particular, Duroshola is credit for making the savvy decision to launch the motorbike ride-hailing solution first in Ibadan rather than the more obvious Lagos. The logic was that SafeBody would face less competition in Ibadan. And the unorthodox decision seems to have paid off.

Nairobi-based MarketForce recently raised a $2 million Series A round to bring its lifetime funding to $2.5 million. The company plans to use the funds to focus on building up its RejaReja marketplace and to take its concept to, wait for it, the Nigerian market.

MarketForce was co-founded in 2018 by CEO Tesh Mbaabu and CTO Mesongo Sibuti. It’s flagship product RejaReja is a marketplace that helps informal shops source, order, and pay for inventory at any time via interactive SMS and a mobile app. RejaReja then delivers the goods within hours.

And then there is OZÉThis Ghana-based SaaS company offers a business management tool for SMMEs and also provides small loans to businesses. The company raised a $700,000 seed round in January. Expansion into Nigeria was one of the announced purposes for the funding.

While Nigeria is by far continental Africa’s largest country, it’s worth noting that South Africa’s per capita GDP of $6,000 is more than double Nigeria’s $2,230. Yet we are seeing fewer fintech and other startups migrate from Kenya, Ghana, etc., into South Africa.

Chris Lister-James is a founder and director of Khulisa Investment Partners, a South African private equity firm that invests in fintech companies like SmartWageUkheshe, and others. He says that while South Africa may have a higher per capita GDP than Nigeria, there are other reasons why more startups add Nigeria to their expansion roadmap before South Africa.

He believes Nigeria’s sheer size is of course the biggest single factor. He also cites the presence of so many freshly minted unicorns in Nigeria (Flutterwave, ChipperCash, etc.) as a proof point that is attracting more companies to the market.

Chris also thinks South Africa is a somewhat less hospitable environment for fintechs entering the market from outside.

“The bureaucracy around starting a business is quite difficult. And also the regulation in financial services is quite strict. In world competitiveness rankings, we always ranked high for financial regulation and stock exchange regulation and auditing practices,” he said. “Regulation is a good thing in that it protects the consumer, but it also adds a massive cost.”

He sees signs of progress. For example, he said the South African Reserve Banks recently expanded its fintech team from two to six people. Chris interprets this as the bank asking, “Well, how do we embrace fintech? And how do we try and improve access to financial services for the majority of the population?”

As for Nigeria, in addition to being a large market, it’s also a startup factory. So any fintech from Nairobi has better assume it will likely face off again several homegrown competitors.

A May report from fDi Intelligence (part of the Financial Times), as reported in Quartz Africa, revealed the following about the 2020 African startup scene, also underscoring South Africa’s superior wealth.

“Nigeria had the highest volume of start-ups—over 750. South Africa came second, but its startups raised $241 million…in 2020, compared to Nigeria’s $64.1 million.”

Follow the Talent and Resources

We asked one startup founder who has been through this process if there are some deeper reasons for the intense focus on Nigeria.

We caught up with Meghan McCormick, co-founder and CEO of the aforementioned OZÉ, right before she boarded a plane for, you guessed it, Nigeria.

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