A business can't grow faster than the environment it operates in. There're core systemic issues stifling rapid growth in African countries, particularly in the tech. Transsion (Itel, Infinix and Tecno ) now seems like the exception. This isn't the end of the road for OPay.
— Ovigwe Eguegu (@OvigweEguegu) July 3, 2020
Nigeria: Opera subsidiaries are the latest companies to quit the country
After a profitable 2019 for the Norway based Chinese-backed OPay, the company has announced that several of its subsidiaries will be exiting Nigeria or temporarily stopping operations. In 2018, Chinese investors backed the startup with $180 million to take over the mobile money space in Nigeria.
By June 2019 Opay diversified its offering to launch a bike-hailing service, a bus transport service, a food delivery company, an investment arm and a loan service to Nigerian customers served through one app.
In July 2019, OPay asserted that it had over 40,000 active agents in Nigeria.
Experts and industry insiders long debated the viability of the businesses started by the fintech Opera, as well as the numbers declared by the company.
Despite having less visibility in Lagos, which is seen as a huge and major market for fintech players, OPay in 2019 claimed to process $5m worth of transactions daily.
To its customers, OPay was providing services at a subsidised rate. But when the government of Lagos announced a ban on passenger motorcycles in regions in Nigeria – effectively shutting down its bike-hailing service – rival ride-hailing companies blamed OPay for the ban, saying the company did not fully comply with the set down regulation on bike engines as well as not doing security checks on its bikers.
But, for all of OPay’s many offerings, Nigeria might be the wrong market for it. At the moment, the weak purchasing power of consumers in Nigeria makes a lot of the products offered by OPay unviable.
“We are in a market where food consumption is 56.5% of consumer spending, an indication of chronic poverty. Until Nigeria is able to build a large, stable and growing middle class, it would be hard to make the case for certain investments,” says Adedayo Bakare, a Lagos-based economist.
But the quality of Nigeria’s market was not the only stumbling block to the company.
“A business can’t grow faster than the environment it operates in“, tweeted analyst Ovigue Eguegu. “There are core systemic issues stifling rapid growth in African countries, particularly in tech. Transsion (Itel, Infinix, and Tecno) now seems like the exception.”
Future for OPay
At the moment, OPay will be focusing on its financial technology services, shelving initial plans to become a “lifestyle app”.
According to the company, “It is important to clarify that ride-sharing had always been only one part, and not a major part of OPay’s diversified business in Nigeria. In fact, OPay had been investing more and seeing accelerated growth in its commitment to Nigeria’s financial and technology inclusion.”
OPay was initially touted to create a mobile money service to rival the spread and usage of M-Pesa in Kenya for the Nigerian market.
But with several rival players already present in the market, such as like Paga and Paystack, many say the market is already saturated.
Power of COVID-19
Due to the COVID-19 pandemic, several countries have seen the economies slow down or grind to a halt. The IMF estimated that Nigeria’s economy will shrink by at least 3.4% but local experts have predicted that the recession is expected to hit harder.
“COVID-19 has only made a bad situation worse, the economy was already fragile and barely growing prior to the pandemic. It’s tough for investors to deliver quality risk-adjusted returns on external capital in an operating environment where poverty is high, incomes are weakening and the currency is always losing value”, Adedayo tells The Africa Report.
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This tough operating environment is part of the reason Nigeria has seen a string of corporate exits announced.
- Mr Price, a South African retailer, has closed four of its fives stores and will quit Nigeria in the next months.
- Two other South African retailers — Woolworths and Truworths — exit Nigeria in 2013 and 2016 respectively.
Support for the economy
The sharp fall in exports due to weak oil for prices and higher capital outflows due to elevated risk have prompted the weakening of the currency and invariably the economy. Nigeria received a $3.4bn emergency financial assistance from the IMF to help the federal government fund its 2020 budget and support the economy, including the healthcare sector.
READ MORE How will Nigeria navigate the pandemic
The loan from the IMF was added to the external reserves making the CBN more comfortable to meet FX demand while also easing the pressure on the currency.
Internet company is “extremely difficult”
According to Olabinjo Adeniran, a growth marketing expert for technology companies and the co-founder of Future Africa, running a conglomerate internet company is extremely difficult with only a few companies having the scope and ability to deliver.
“We’ve seen this over and over again as foreigners push hypergrowth through unsustainable customer acquisition strategies just so they can tell folks in San Francisco or London or Berlin or Beijing that they’re the next big internet play.”
Naspers and much recently Jumia have failed at the multi-business model with only Amazon as one of the very few companies that have made this play and are still alive.
“There’s still so much work to do with financial inclusion in Nigeria. So so much. We’re only beginning to see people have access to banking services. There’s still a huge gap for investments and other services like insurance that needs to be plugged,” says Adeniran.