India is the perfect role model for Nigeria’s tech sector
In 2018, African start-ups were celebrating: They had raised nearly $1.2 billion in equity — a 108 percent increase from the previous year. Last year, Nigerian financial technology 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 coronavirus (COVID-19) pandemic should be a spur to action.
Nigeria is certainly on a promising path. Already it is Africa’s largest technology market in terms of 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 did five years ago.
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 past five years, producing 19 “unicorns” (companies valued at more than $1 billion).
On the Global Innovation Index, India 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 by 7.7 percent to $191 billion.
Three key policies helped to launch 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 levels of tech growth, Nigeria should pursue a similar approach.
One gigabyte of mobile data costs $0.26 in India, the lowest rate in the world. This compares with $12.37 in the US, $6.66 in the UK, and a global average of $8.53.
Indian consumers owe their low data costs to Reliance Jio, a young telecoms company that gained a foothold in the market by offering an ultracheap 4G service. To compete, other providers had to lower their rates significantly.
Nigeria’s government and private sector should share the burden of bringing down mobile data prices.
In Nigeria, data rates are among the lowest in Africa, with consumers in only 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 also 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 a unique digital ID to people 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. As a result, private companies can tap into the Aadhaar database to perform credit checks, customer verification, online payments and more. Indians can conduct virtually any transaction — pay their rent, order a ride to work or buy lunch, for example — using their Aadhaar ID.
To some extent, Nigeria is on the right track. In 2014, it introduced an electronic identity program that offers a chip-based card to everyone with a national identification number. But its system remains highly fragmented, with 13 separate federal government agencies issuing IDs. With no coordination among these 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 percent 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 the demonetization, e-wallet transactions surged by 163 percent.
Meanwhile, private companies increased their offerings of mobile money services. For example, 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 might backfire. Instead it should focus on promoting the use of mobile money. Such transactions accounted for only 1.4 percent of Nigeria’s GDP last year, compared with 44 percent 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 such as 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.
- Elo Umeh is CEO and co-founder of Terragon Group, a Nigeria-based data analytics and marketing tech company. Copyright: Project Syndicate