We, the entrepreneurs, in the Nigerian startup scene, make our governments look really bad. I get it, the government is not doing its own part. We have no electricity, cannot find great graduates, and cannot even find available air for breathing. The list goes on and on. Nigerian government is not assisting startups to excel.
Yet, we put our governments in tough positions, pushing them to make very stupid policies. They do really care for us and do believe they can help us. If not, how can you explain the plan by the National Office for Technology Acquisition and Promotion (NOTAP) to refuse the applications of banks to acquire foreign software.
Banks in Nigeria may not be able to apply for foreign software purchases as the National Office for Technology Acquisition and Promotion (NOTAP) says it will start refusing the application of banks for foreign software purchases because of the drain on the nation’s foreign exchange reserves. …
“We are already working in partnership with the National Information Technology Development Agency (NITDA) to have Nigerians develop banking applications. Once we are done, we will start refusing the application of banks for foreign software purchases,” Director-General of NOTAP, Dr. Dan-Azumi Ibrahim said
NOTAP is a very critical government agency which makes it possible for Uber Nigeria to pay license to Uber Europe or wherever the intellectual property that enables Uber Nigeria to operate. Coca Cola Nigeria will pay IP license to its U.S headquarters for the use of IP to make soda in Nigeria. only through NOTAP blessing. Without approval of NOTAP, most foreign companies cannot repatriate profit back home. MTN South Africa cannot be paid for the use of its trademark and IP by MTN Nigeria. This explanation may not be obvious in NOTAP’s website but that is one of the core components of what the agency does.
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So, practically, NOTAP is a powerful organization. It can refuse approving a transfer of money by a Nigerian bank to pay foreign software makers. It has the administrative power. Unfortunately, it does not have the moral power, if Nigeria believes in free enterprises.
Why Blocking Banks to Buy Foreign Software is Bad
No one will need to tell banks when they have seen good value within Nigeria. They are bankers and they understand value. Period. When software makers in Nigeria have risen to the standards they want, they do not need government to remind them they can save money, by using them. They will go for it. But making it a government policy by restricting what they procure to drive their businesses will be extremely unfortunate. I tell government: hands-off, it is not your money and it is not your bank that will collapse if the banks cannot compete globally because of the resource-restriction.
I understand the patriotism which every Nigerian government agency has to preach. However, getting the best possible value for your money is not really about hating your country. Banks hire Nigerians because Nigerian graduates offer the best value when talent and cost are traded-off. No one tells them you must hire locally.
Some Nigerian banks are already using local software where they see value and cost aligning. From SystemSpecs to AppZone, we see many local software in the back offices of Nigerian banks. They are using the local companies because in those specific areas, they see value.
Yet, there are some software components, no Nigerian company can create for banks to deploy, at scale, at the highest global standards. The core banking application like Oracle Financial (Flexcube), Finacle, Oracle DB, UNIX, Windows and more are critical infrastructure that any bank cannot find substitutes, locally, at the moment. In future, our entrepreneurs could make them, and I am sure banks will be the first to look for value and adopt them. But right now, we are not ready and we cannot deliver. This means government does not need to help entrepreneurs sell what they do not have.
What Government Needs to Do
While it makes sense for government to issue fiats on how banks can deploy their money on resources they need, a better strategy will be if government can ask banks to run a small sub-5% interest rate lending packages for technology companies in Nigeria. This will help these companies scale and grow to become companies that can deliver on the aspirations of government. Banks have fiduciary responsibilities and may be blind to the needs of the entrepreneurs, but government can make lending to technology companies easier. Ideally, banks should support local entrepreneurs, as they will become customers of the future. But they are many other ways to support, over buying software that does not add value in your business.
If Nigerian government has a specific initiative to deploy $100 million into technology companies with all the banks required to compete to participate under defined agreements that interest rate cannot exceed 5%, they will do. Government will guarantee loss of 75% of the loan. Government must not guarantee all the 100% to ensure banks think before they make the investments. The 5% interest will cover their operation costs since they get the funds free. After ten years, the banks will be required to return the principal to government.
If NOTAP puts this type of proposal before the government and government funds it, it will be possible that there will not be a need to make unnecessary threats to companies involved in legally free enterprises with rights to look for resources, with their capital, whenever those are located. If Nigerian companies make good software for banking, banks will not need to be reminded, to shop locally. They will use them because banks are the smartest institutions in sourcing value. We can learn from the Israel model.
According to Israeli venture capitalist Dr Orna Berry, there is no doubt smart policies played a key role in spurring innovation. “The Israeli government made a crucial strategic decision to jump start a sciencebased sector by providing financial support for commercial R&D,” says Ms Berry. “This policy made up for market failures and the heightened risk in operating in a geographically isolated market like Israel.” She knows the system well, having seen it through both the private and public sectors. In addition to a 25-year career in science and technology industries, she was the chief scientist from 1996 to 2000, a post that embodies the Israeli government’s hands-on approach to innovation. The Office of the Chief Scientist was created in 1969 within the Ministry of Industry, Trade and Labour, and would eventually become an important player during the high-tech boom.
The government can also pursue this initiative through the local venture capitalists.
Challenge for Nigerian Software Entrepreneur
Indeed, banking is where the money is, since our insurance industry is lethargic. As noted in the referred article, “the NOTAP DG believes Banks are the biggest consumers of software in Nigeria, noting that four out of five items in software are on banking applications”. You do not need any further market study because the man that approves all major software purchases in Nigeria has spoken. Banks consumer more than 80% of commercial software and that means focusing on banking software is wisdom. We need to get better in this business to get the banks to think local. We cannot get them to support us, just because they are Nigerians, they are, but they have other responsibility, which they are legally required to consider: they need to do what is best for their shareholder interests. For software, they have to buy the best possible they can afford to compete. We must respect that. Sure, we are part of the stakeholders but “shareholder” comes alphabetically before “stakeholders”.
However, if we do our work, they will come home. They have already come home in many areas. But we need to get higher in the value chain to get the key applications that power and run our banking sector. Executing on that should be priorities for software companies in the nation.
Rounding Up
Nigerian entrepreneurs have a challenge before them to make technology solutions for use by different sectors of the economy. They will need help to get into the quality level which can help them deliver. Nigerian government can make market-based intervention programs through the banking sector or broad venture-capital sector to seed that market. This problem of imposing orders to companies to support local ICT, while patriotic, is not necessary, when government has not done anything to help the local ICT entrepreneurs to have the capabilities to provide the solutions needed in the industries. Being world-class is a challenge to the local ICT sector, but banks, oil companies and others cannot be punished for being free enterprises. After all, the local ICT entrepreneurs also want value: that is why most host their websites outside Nigeria, despite the availability of local hosting firms!
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