Forces Preventing Nigerian Startups from Being Global Businesses

From the north to the east and west to the south, business creation is not difficult as management in Nigeria. Various issues and challenges remain the clogs in the wheel of sustainability of many startups. A recent report indicates Nigerians have the strong sense of spotting opportunities around them for starting businesses, but access to capital, talent and customers have been some of the major obstacles preventing growth of their companies in the last decade.

The prevention has led to non-recognition of the country’s startup ecosystem globally. The country is only getting a mention in Global Startup Ecosystem Report and Ranking despite the claim that the  startup ecosystem is the most valuable in the African continent. The recognition gap might not be a serious issue among the stakeholders, most importantly the policy makers, considering the recent upsurge in capital flow into the country’s startups.

In 2018, 148 Nigerian startups raised $178m in various rounds during the year. Available information indicates that over $17m was raised in Q1 2019, 8.5% higher than they did in Q1 2018. Investigation has also revealed that tech startups raised $110.9m from local and foreign investors between January and June 2019. This has once again established the leading role of the tech startup in attracting significant FDI and Capital Inflow, and the tech as the most preferred investment destination for investors.

There is no doubt, Nigerian startup economy is growing, but not in line with the global peers. Beyond fund attraction, natural and artificial frictions are preventing the sustainable growth of the startup ecosystem and benefiting from over $2.8 trillion value being created within the global startup economy.  This piece examines factors impeding Nigerian startups from being on the global map. The argument is that stakeholders need to contribute to the startups growth beyond providing tax incentives, passing ecosystem friendly laws and establishing capital support programmes.

What’s lacking?

Answers to this question lies with the Global Competitiveness and Entrepreneurship Indexes perception of the country in 2018. The two indexes, according to their proponents, rank countries across the world, considering certain indicators at individual and aggregate levels.

To support the earlier positions and understand the veracity of the issues affecting global placement of the Nigerian startups, startup skills, cultural support, product innovation, process innovation, risk capital and internalisation were the indicators selected from the Global Entrepreneurship Index for analysis along with the selected indicators from the Global Competitiveness Index.

Within the startup skills indicators, among other factors, GEI believes that startups performance depends on the extent to which entrepreneurs have access to tertiary education. The most corresponding indicators in GCI are the tertiary education and quality of the education system.

Prevention and reduction of pervasive corruption are the factors GEI expects policymakers to work on before meaningful and effective cultural support could emerge in Nigeria. This is clearly complemented by the GCI’s measurement of the country’s competitiveness within burden of government regulation, diversion of public funds and irregular payments and bribes. Though, there are policies and programmes helping startups, but it appears that GCI wants the government to address the complexity of regulations and bribes among the agencies responsible for business registration and management.

Apart from the elimination of the systemic corruption, the two indexes expect Nigerian government and other stakeholders to provide an enabling environment for venture capital and private equity financing. GCI specifically emphasises equity financing through local market. These are their indicators within risk capital indicator which must be addressed to pave ways Nigerian startups to reach global status.

Being global requires having the right processes and sustainable products that offer the real values to the users. The two indexes have realised over the years that Nigeria is lagging behind in the areas of product process and product innovation.

To right the wrongs within the process innovation, GEI asks Nigeria to work on the quality of scientific institutions and availability of scientists and engineers. Adding to the discourse, GCI believes that Nigeria must ensure availability of research and training services to the startups to enable them create the right processes for products or solutions creation and delivery.

Innovating the right and better products or solutions, according to the two indexes, depends on collaboration in research between universities and industries, protection of intellectual property. The expectation of the duo is that Nigerian startups globalisation would be realised when the issues in the indicators are addressed in addition to the facilitation of interaction of individuals in increasingly complex networks in order to make products and control of international distribution.

This is imperative because analysis shows that the identified indicators connected negatively. One point in Nigeria’s business environment competitiveness (among other countries) reduces the competitiveness of the startups by 47.3%. The poor ranking of the identified indicators in the GCI remains the significant factors contributing to the negativity.

Using 2018 as the base year, analysis reveals that the negativity would continue till 2021 before showing positive linkage in 2022 and 2023. Failure to solve issues in the indicators would continue to impact the GDP growth. Already extrapolation analysis of the select GEI with the GDP growth between 2015 and 2018 indicates a 35.1% reduction in GDP growth.