Nigeria is the leading African destination for foreign direct investment in technology startup companies. Between 2015 and 2022, Nigerian tech startups have secured a total of just over $2 billion in funding. This is the highest amount of funding recorded by any country in Africa.
The “Big Four” countries Nigeria, Egypt, South Africa and Kenya are leaders in Africa’s startup scene. They currently account for about a third of the continent’s startup incubators and accelerators and receive 80% of tech startup FDI in Africa.
Interestingly, despite its endemic corruption, high poverty rate and poor economic performance, Nigeria remains the top destination for technology investment in Africa.
This is underscored by the announcement that Serena Ventures, the venture capital firm of recently retired tennis legend Serena Williams, is backing Nigerian data and insights firm Stears in a $3.3 million seed round led by MaC Venture Capital. This means Serena Ventures has partnered with institutional investors MaC Venture Capital, Melo 7 Tech Partners, Omidyar Group and Cascador to invest $3.3 million in Stears.
what is the attraction
The “Big Four” countries attract more FDI for start-ups than other African countries due to their large economies and sizeable populations.
Nigeria, for example, is projected to be the third largest country in the world by 2050, with a GDP of about $440 billion and a population of about 211 million. Likewise, Egypt, Kenya, and South Africa boast some of the largest economies in the country of Africa, with GDPs of $404 billion, $110 billion, and $420 billion, respectively.
Investors are attracted by the large markets in these countries and the potential for technology companies based there to expand across Africa.
Why Stears got Serena’s nod
There are several reasons for Stears’ investment appeal. It has grown by around 6.5% monthly since 2017 and has doubled its user base in the last year. Corporate clients, mainly employees working in various finance-related institutions across Nigeria, now account for more than 75% of revenue, up from 45% in 2021.
This makes it a rare success story of paywall subscriptions in Nigeria, where consumers are generally unwilling to pay websites for information.
Stears has also positioned himself as a collector and analyst of African data for international organizations. His clients include the European Investment Bank, the United Nations Development Program and the UK’s Foreign, Commonwealth & Development Office.
Stears uses its data and analytics skills to create interactive visualizations and has developed Nigeria’s first real-time election tracker during the 2019 general election cycle.
The Company plans to use the new seed funding to expand its coverage geographically by establishing a presence in East and Southern Africa and expanding its product offering.
Corruption is still a problem
Due to corruption, Nigeria has not been able to benefit from rising global oil prices, unlike other oil-producing countries such as Norway and Qatar. It used to be Africa’s largest oil producer but lost that position to Angola this year.
The increasing importance of Nigerian tech startups matches the global reality. With the threat of climate change and a possible shift away from fossil fuels, the Nigerian oil industry is likely to take a hit.
While it is good news that Nigeria continues to attract investment in tech startups, urgent action is needed to fight corruption. This will attract more investment into the country and help alleviate poverty. In addition, tech startups can help fight corruption while securing investments.
Our research has revealed the activities of one such case. BudgIT is a Nigerian NGO that received $400,000 from Omidyar Network in 2014. In 2016, she secured an additional $1.4 billion from the Bill & Melinda Gates Foundation.
BudgIT provides technology products that give citizens access to household data that is often kept secret. Like Stears, it pioneered the open and active engagement of citizens to advocate for transparency in Nigeria’s budgeting process.
Stears did something similar with its real-time election tracker. This technology product helped give Stears credibility in the technology industry. It also helped improve electoral transparency in Nigeria.
Such activities can help promote accountability. This in turn will give foreign investors more confidence to invest in African countries and highlight the value of such companies.
Things can be better
Technology companies are sources of employment for millions of people around the world, and their activities are changing the nature of work. Nigeria needs this sector to thrive, if only to solve its unemployment problem.
Political stability, lower production costs and good infrastructure (especially electricity, communications and transport) can contribute to this. A liberal foreign direct investment policy that does not restrict investments and the free flow of capital would also be advantageous.
Crucially, Nigerian tech startups will attract more investment when Nigeria is less corrupt. Their activities can help both secure investments and reduce corruption in the country.