Geographies in Depth

What Nigeria's tech sector can learn from India 

India Nigeria tech technology IT services data innovation

Nigeria is Africa's largest technology market. Image: Project Synidcate

Elo Umeh
Writer, Project Syndicate
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  • Nigeria has Africa's second-highest tech startup density.
  • Fintech companies are set to raise $360 million from international investors in November alone.
  • To capitalize on its tech boom, Nigeria must look to countries like India, writes Elo Umeh, CEO and co-founder of Terragon Group.
  • India has shown that policies, from lowering the cost of mobile data, to embracing digital payments, are essential help tech firms innovate and grow.

In 2018, African start-ups were celebrating: they had raised nearly $1.2 billion in equity – a 108% increase from the previous year. And last year, Nigerian financial-technology (fintech) companies set an even more impressive record, raising $360 million from international investors in a single month (November). Making the most of the Nigerian tech sector’s current boom, however, will take work. The COVID-19 pandemic should be a spur to action.

Nigeria is certainly on a promising path. Already, it is Africa’s largest technology market by Internet users and mobile subscriptions, and it boasts the second-highest tech-startup density on the continent. Lagos is fast-becoming a tech hub, with more than 400 startups valued at a total of more than $2 billion. Add to that a burgeoning population, and Nigeria is beginning to look to like India five years ago.

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India has long been a leading outsourcing destination for global companies, particularly in the technology sector. But it has raised its profile significantly over the last five years, producing 19 “unicorns” (companies valued over $1 billion). On the Global Innovation Index, India has climbed from 81st place in 2015 to 52nd last year, when it was also the world’s third most attractive investment destination for technology transactions. This year, India’s information-technology and back-office sector is expected to grow 7.7%, to $191 billion.

Africa India Information Technology
Nigeria is already Africa’s largest technology market by Internet users and mobile subscriptions. Image: OC&C Strategy Consultants

Three key policies put the Indian tech sector on this positive trajectory: lowering the cost of mobile data, implementing a national identification program with an open-source application program interface (API), and embracing digital payments. To secure India-style tech growth, Nigeria should pursue a similar approach.

One gigabyte of mobile data costs $0.26 in India – the lowest rate in the world – compared to $12.37 in the United States, $6.66 in the United Kingdom, and $8.53, on average, globally. Indian consumers owe their low data costs to Reliance Jio, a young telecom operator that gained a foothold by offering ultra-cheap 4G service. To compete, other providers had to lower their rates significantly.

In Nigeria, data rates are among the lowest in Africa, with consumers in just four countries (Mozambique, Rwanda, Egypt, and Sudan) paying less. But the African average remains nearly nine times that of Asia, despite some of the world’s fastest growth rates for mobile-phone subscription and Internet penetration.

In lieu of a single player changing the competitive landscape, Nigeria’s government and private sector should share the burden of bringing down mobile-data prices. This means going beyond ordering providers to lower their rates, as the Nigerian government recently did, to liberalize and, along with private companies, boost investment in the telecoms sector.

The next step toward fostering a dynamic tech sector – and, more broadly, a digitized economy – is to create a national-identification program with an open-source API on par with India’s Aadhaar program, which assigns Indians a unique digital ID with which they can access government benefits and financial services. India’s government released the Aadhaar API so that developers could integrate the program into their systems. Now, private companies can tap into the Aadhaar database to perform credit checks, customer verification, online payments, and more. Indians can now conduct virtually any transaction – pay rent, order a ride to work, or buy lunch – using their Aadhaar ID.

To some extent, Nigeria is on the right track. In 2014, it introduced an electronic identity (e-ID) program, which offers a chip-based card to everyone with a national identification number. But its system remains highly fragmented, with 13 separate federal government agencies offering IDs. With no communication among agencies, duplicate IDs often are issued. Nigeria’s government should urgently create a single unified program similar to Aadhaar and release the API to private developers.

This would facilitate progress in the third key area: creating a cashless economy. India accelerated this process with a forceful demonetization in 2016, when the government suddenly removed 86% of the cash in circulation – a move that, though far from flawless, did drastically reduce the use of cash in the country.

It helped that the Indian government took steps to encourage all forms of digital payments, including the use of e-wallets. From October to December 2016, during demonetization, e-wallet transactions surged by 163%. Meanwhile, private companies increased their offerings of mobile-money services. For example, the mobile operator Airtel launched banking services in 2017 to cater to its 250-million-subscriber base.

Nigeria wants to replicate India’s transition to a cashless economy, but its plan to do so by taxing cash may backfire. Instead, it should focus on promoting the use of mobile money. Such transactions accounted for only 1.4% of Nigeria’s GDP last year, compared to 44% in Kenya. This can be blamed partly on Nigeria’s central bank, which previously limited the banking services in which mobile operators could engage, promoting instead a bank-based regulatory framework for mobile money. Fortunately, the central bank lifted these restrictions this year, allowing major telecom companies like MTN to start providing mobile-money services.

India has shown that structural reforms are essential to enable tech companies to innovate and grow. Without cheap data, users cannot access the next great e-commerce website. Without an open-API identification system and effective mobile-money platforms, the economy cannot go cashless. Nigeria is well positioned to apply these lessons. With the pandemic placing a premium on technologies that facilitate social distancing, it should start now.

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