Nigeria is investors’ most preferred destination, attracting half of the total technology funding in Africa and 37 deals in 2020. The strong growth opportunity for financial technology (fintech) companies in Nigeria is owing to limited access to credit, low technological sophistication, as well as a diversified ecosystem.
This year, Nigerian startups received several large-scale fintech funding rounds, including Flutterwave and OPay to add to the list of African fintech unicorns, while in 2020, Nigeria attracted over half of the $160 Million total fintech venture capital funding.
There are four reasons put forward for investors choosing more Nigerian tech companies compared with their peers in other African countries.
Low financial inclusion:
Nigeria’s financial penetration is low compared to other emerging markets. Reports from Tellimer Research show that only two-fifths of the adult population have a bank account versus a 70 percent median across the sample of 11 emerging markets (EM).
Poor access to bank branches and formal credit, and this is because the credit card penetration rate is at 2.6 percent of the population aged 15 plus compared to 5.7 percent EM median. This data only amplifies the challenges faced by ordinary Nigerians in accessing basic financial services.
Technological sophistication lags behind peer countries
Technological indicators in Nigeria are below other countries. Just 1.5 percent of manufactured exports can be classified as high technology, data on technology exports 2019 according to World Bank and Global System for Mobile Communications (GSMA), showed. This is as a result of a poor local skill base. Also, the GSMA infrastructure score was put at 42.7 compared to Ghana’s 134.3, Kenya’s 103.8, among other EM.
The main areas of weakness are in network coverage and performance, as well as other technology enabling infrastructure, and many startup investors are not letting these challenges hold them back. Another encouraging factor for investors is the size of the Nigerian youth population which makes up a median age of 18 years versus 28 for peer countries.
Extensive and well-diversified ecosystem
Nigeria’s fintech universe has a wide range with a similar overall profile to global EM. payments and lending accounted for 53 percent of the total landscape which is close to the 52 percent EM average. The weight of software solutions appeared higher (15 percent versus 5 percent EM median) and this reflects that firms are looking to service Nigeria’s fintech network. Nigerians are keen to invest to help curb their exposure to both high inflation and depreciation when it comes to hard-currency investments.
Nigeria is leading in Africa’s fintech funding arena. In 2020, the fundings pumped into African fintechs amounted to $160 million, well above $107 million in 2019. About 90 percent was concentrated on just three markets including Nigeria, South Africa, and Kenya. Nigeria is a preferred destination, attracting $89 million total funding (56 percent of total) and closing on 37 deals.