Valued at about $200-million, it was a landmark deal for Nigeria’s booming tech community. A hunt for more Paystacks has ensued among local and international investors. They are worried about missing out. With broadband penetration rising from less than 20% five years ago to more than 40% since May 2020, Nigeria’s information and communications technology sector is the fastest growing in the country, rising 6.31% in the first quarter of 2021. The importance of this sector is only increasing, given the negative economic effects of the Covid-19 pandemic on Africa’s largest economy, and the pressing need to diversify away from oil revenues.
Such metrics, including the fact that 81% of Nigerian adults own cellphones, encourage investors to part with even more unprecedented million-dollar checks, like the $10-million raised by digital bank Kuda at seed stage last November. The appetite and tolerance for tech enterprise in Africa’s most-populous country has never been so high.
But this burst of energy and innovation is facing a familiar foe: the Nigerian government.
Last week, the federal government banned Twitter — one of the biggest social-media platforms in the world. The ban came after Twitter deleted a tweet issued from President Muhammadu Buhari’s account, saying that it amounted to a threat of violence. Businesses and media organisations in Nigeria have been instructed to delete their Twitter accounts, and ordinary citizens risk arrest for using the app.
The Twitter ban comes just six months after another major shock to the local tech industry, when the Central Bank of Nigeria ordered banks to stop enabling cryptocurrency transactions.
Suddenly, Nigeria is losing its appeal for tech investors.
“The truth is that regulatory risk has been the chief concern for us investors for a while,” Tokunboh Ishmael, a former board chair at the Africa Venture Capital Association, told The Continent. Through Alitheia Capital, an investment firm, she has helped to fund Nigerian startups, including Paga, MAX and Lidya. In each case, “regulatory risk has factored high in our risk matrix”.
For Nigerian startups, this means that they need to offer investors a higher return on their investment than in more stable markets, Ishmael said.
Tayo Oviosu, who founded Paga in 2009, says a handful of investors have mentioned regulatory risk as their reason for not investing in the mobile-payments company, but such occasions have been rare in the past. “That said, all investors consider the macroeconomic situation of any country they invest in, particularly if investing in a regulated sector.”
The Twitter ban will not only make it hard for Nigerian tech companies to raise money; for some of them, it will also make it difficult to operate. With its estimated two million users in Nigeria, Twitter is an important platform for businesses.
Eloho Omame, founding chief executive of Endeavor Nigeria and co-founder of a new firm aiming to fund female-focused startups with $25 000 seed money, said Twitter has been “essential as a touchpoint” with the founders and startups it serves.
Her firm, FirstCheck Africa, is essentially a startup in need of a platform to tell its story and gain traction with the women who could found Africa’s next big thing. “A not-insignificant part of our investment pipeline relies on outreach on Twitter and a lot of our hiring is done via Twitter. The ban has disrupted all of that. None of the alternatives are as efficient.”
Twitter has become a customer-service-management platform for new startups looking to be lean and nimble. Part of the success of Piggyvest, a popular savings app, is that it went from zero to 450 users in a year with next to nothing spent on marketing, relying on Twitter for customer acquisition.
With the ban, startups have pushed notifications explaining that Twitter support is now deactivated.
An email from Fairmoney, a digital bank, offered a phone number, an email and a Facebook page as alternative customer-service channels. Risevest, a stock-trading app, included Instagram among its alternatives. Henry Mascot, founder of Curacel — which provides fraud-detection technology for insurance companies — says the company has had to hire a new team outside Nigeria to manage its Twitter feed. That means more spending.
Mascot says it’s too early to know how bad the effect of the ban will be. His investors, who helped Curacel raise $450 000 this March, are in for the long run, but he is concerned about the message to the broader ecosystem of investors.
Oviosu, the Paga chief executive, is optimistic and says investors will observe the Twitter ban as an isolated issue and won’t be deterred from the market. Victor Basta, managing partner of Magister Advisors, which has advised on multimillion-dollar deals in Africa, sees the negatives of a social-media ban but doesn’t expect spillovers to fundraising work. “We have multiple deals ongoing with Nigerian companies and we see no backlash from this step.”
But in the present, founders and investors agree that a continued pattern of arbitrary regulatory changes is sending the wrong signal to people considering Nigerian startups as a destination for their capital.
“A government that’s consistently hostile to technology sends a message that its economy is less credible as a destination for important future-focused investments of time and money,” Omame says. “We’re competing for talent and capital with ecosystems all over the world and we’re even further on the back foot.”
This article first appeared on The Continent, the new pan-African weekly newspaper designed to be read and shared on WhatsApp. Download your free copy here.