Startup

Nigeria Needs Tech Champions, Startups and SOPEs

OLU OJO PHILLIPS

Tech champions are products of deliberate state policies. They are not harvests of ingenuity of a founder or group of founders.

Nigeria technology entrepreneurship has come a long way. A number of cutting edge solutions have been built in Nigeria but not a single local brand has acquired top 500 company status. No tech entrepreneur in Nigeria has built large entity in scope and scale, capability and capacity in their special field of endeavour.

None has been able to develop, and, or acquire leading-edge technology. For instance, Tara Solutions tried decades ago to do this. But the company fizzled out because of lack of customers that should provide the steady source of demand for its solutions. Also, the lack of government policy to protect solution and guide its survival and growth.

The key enabler for the growth of a new industry, especially a tech industry, is a customer who provides a steady source of demand for its products.

For instance, from the 1950s to the 1980s, the US military and NASA were the prime demand sources that allowed the early producers of integrated circuits to be in business.

And, the US Defense Advanced Research Projects Agency [DARPA] provided the key funding that made the creation of the internet possible.

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As late as 1980, the US government procured more than half of all the aircraft and telecoms equipment. This supported the companies plus allowed the development of spin-off consumer goods.

What this means is that without this demand from the US government, the companies would not have been able to engage in expensive research or make the huge upfront investment that birthed the microchip industry.

Tech champions are products of deliberate state policies. They are not harvests of ingenuity of a founder or group of founders.

In fact, in markets for more mature technologies, it’s very hard for a new company to grow if it requires big upfront capital investment and faces already established competitors. The newcomer would have to take customers away from the old companies by competing on cost or quality.

A new producer of chips, for example, would have to invest in fabrication facilities costing billions of dollars before receiving any return. Then, it would have to charge less or build a better product than long-established firms – a very difficult proposition.

Most countries have an industrial policy, whether they call it that or not. The German government’s “Industry 4.0” intends to use government policy to facilitate the upgrading of industry to use the coming artificial intelligence advances in and robotics technologies. Airbus would not have been created without substantial subsidies from the European countries.

Even though Alibaba, like Huawei, UnionPay, HNA and similar China-backed ventures, are licensed and documented as “private” companies when, in fact, they are better thought of as state-owned-private-enterprise companies (SOPEs), an expression the Western businessmen coined.

The SOPEs’ “founders” are loyal members of Communist Party of China (CCP), running the company effectively as CCP appointed trustees. The companies receive all kinds of perks (including protection), subsidies and access to whatever is needed to create powerful “champion” companies across most major lines of business and industry.

Back home, we are familiar with the story of MTN Group and Multichoice. These companies are both creations of the South African ruling party, African National Congress (ANC). They are South Africa’s biggest technology champions today.

The former chairman of MTN Group, Matamela Cyril Ramaphosa is now the President of South Africa. This is not a coincidence.  MTN and Multichoice are South African’s own SOPEs. Dangote is Nigeria’s SOPE.

Why is it impossible for Globacom to compete with MTN? A private entity can never compete favourably with a SOPE. This is the same reason none of the numerous indigenous but defunct pay TV brands could compete with DSTV.

As much as Nigeria needs a bustling tech startups ecosystem, Nigeria is needs tech champions to complete the cycle. African tech startups smashed funding records in 2018, as 210 startups secured US$334,520,500 million worth of investment with Nigeria emerging as the premier investment destination on the continent.

This is contained in the annual African Tech Startups Funding Report 2018 released by startup news and research portal, Disrupt Africa. The report, now in its fourth year, tracks the total amount of funding raised by African tech startups each year.

The report says the funding represents the best year since 2017. The number of startups rose by 32.1 per cent and total funding jumped by an impressive 71.5 per cent.

The report further showed that Nigeria is Africa’s startup funding hub, after years of playing second fiddle to South Africa. With 58 startups raising a total of US$94,912,000 in investment, Nigeria is clearly the top dog while South Africa fell behind with 40 businesses raising US$59,971,000. Kenya ranked third in terms of the number of startups.

The figures would be useless if Nigeria is unable to create champions out of these tech brands. The real work has just begun, as far as I am concerned. What will place Remita, PFs, Interswitch, Paga, and Appzone as well as Innovectives, Carbon, Flutterwave et al among the biggest companies in the world is beyond the ingenuity of the founders.

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These indigenous companies need deep line of credit that only CBN, working on behalf of the states can guarantee. They need access to the US dollars for their overseas activities. Dangote presently enjoys similar provisions.

We will be creating our own SOPEs if government extend the same facility to the tech champions.

The Nigerian government must invest heavily in core research and in the development of new tech products. The champions must also have a benefit of a protected market for its solutions.

Realizing the goal of creating a more vibrant and innovative domestic tech industry would be very difficult if the new companies and products face constant competition from established foreign players.

That is how China UnionPay has become the largest card scheme in the world.

Besides, we need tech champions to have a dynamic tech ecosystem. Tech champions should be able to acquired startups. The exit strategy for the startups would be to sellout to the champions at a profit.

The same goes for investors. This is one of the best ways to grow the ecosystem because not all the solutions can scale on their own.

Video

The MD, Systemspecs, John Tani Obaro, on Why Nigerians need to use indigenous software.