The fragility of the reserves being used to support the naira and it's revalued rate shows that Nigeria needs to find new ways of earning foreign currency. In the first story of our series on the impact of COVID-19 on Nigeria, we look how its economy considers strategies to reduce the naira’s dependence on volatile oil prices.
This is part 3 of a series.
The clearest winners in Nigeria will include internet service providers, and data and telecommunications companies such as MTN and Spectranet, says Abiodun Odunuga of the Nigeria-France Tech Initiative (NFTI) in Paris.
- Fintech and some e-commerce, especially in food and basic necessity distribution, will also benefit, as well as companies promoting e-learning platforms, he says.
- The outlook is particularly favourable for fintech online payment companies, he says. Their counterparts in microfinance “may have [it] tougher” as clients will struggle to meet their obligations.
- Government, banks, insurance companies and other financial service providers will depend more on solutions from fintech firms, says Ekerete Ola Gam-Ikon, a management consultant in Abuja. “I will not be surprised to see a few of them being acquired by these institutions.”
- The face of commercial advertising is also likely to change. “We will surely see more advertisements on mobile devices as we enter the post COVID-19 era,” says Ola Gam-Ikon.
- Increased use of digital platforms by Nigerian government agencies is likely to give a boost to the wider digital economy, he adds. Meetings, including that of the Federal Executive Council, have gone virtual, notes the consultant.
- “Budgetary allocations will be made for investments in digital solutions, so there will be a boom in software and even hardware technology,”says Ola Gam-Ikon.
Digital startup funding
Growth in these sectors will take time to emerge. Boye Olusanya, chief operating officer at Flour Mills of Nigeria, sounds a note of caution. “Even if companies operate with very little proximity, people can’t spend money if they cannot make any,” he says.
Still, Olusanya predicts “significant growth in mobile money transactions.”
- There will be sectors where customer spending is cancelled rather deferred.
- Ride-hailing services such as Uber and Taxify will be clear losers, says Odunuga at NFTI.
- The hardware segment is likely to face losses due to difficulties in transporting goods, says Ola Gam-Ikon.
READ MORE: Nigeria: 3 Myths about the FinTech Sector
Fintech innovation has continued in Nigeria even during the pandemic. This month, the Voyance startup launched the Sigma platform, designed to help fintech companies block known fraudsters from using their systems. But many early-stage companies are exposed and don’t have strong balance sheets to enable them to wait.
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Nosa Omusi, Nigeria country manager for the BFA Global Catalyst Fund, argues that tech startup support organizations can take concrete steps to limit the impact of the increased difficulty of fundraising.
Investors cannot travel to meet startups in Nigeria, and won’t be back any time soon. Digital funding platforms are the only viable substitute for physical due diligence. Support organizations need to focus their efforts on these platforms, argues Omusi.
- Support organizations can also give technical assistance for financial modelling to help tech startups quantify and communicate their fast-changing cashflow outlook, he argues.
- In turn, startups will have to accept reductions in the amounts that can realistically be raised at a distance, he says.
Bottom line: Nigeria’s fintech innovators need to be protected as their success is critical to the economy of the future.
For part 1, click here.
For part 2, click here.
For part 4, click here.
For part 5, click here.
For part 6, click here.
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