Lagos Leads Rest of Africa In Tech Hubs, But Not Funding

Lagos has taken over as the African city with the highest number of technology hubs (31 active hubs) according to Global System for Mobile Communications Association (GSMA) report released in March, 2018.

On a country comparison, Nigeria lagged South Africa by the number of technology hubs (tech hubs) with 55 active hubs, leaving the second largest economy which boasts 59 activetech hubs on the Africa continent to take the lead.

Despite Lagos new found status, a report released in February by Partech titled ‘VC Funding to African Tech Start-ups, 2015-2017’ showed that funding to tech start-ups in Nigeria slowed down compared to those in South Africa and Kenya during the period. Lagos accounts for more than 70 percent of the entire tech ecosystem in Nigeria. The tech start-ups received $115 million in the period representing a 5 percent growth year-on-year and accounting for 20 percent of the total funding coming into the African continent.

Tech hubs are defined as physical spaces designed to foster and support tech start-ups. These include incubators, accelerators, co-working spaces, fab labs, Makerspaces, and other innovation centres. Active hubs on the other hand are hubs that show active digital presence (website, news, social media).

Africa is currently home to 442 tech hubs according to the 2018 tech hub report; this was up by 128 from 314 active tech hubs reported in 2016. Other leading tech hub countries in the continent, apart from the two largest economies include; Egypt (34), and Kenya (30) Morocco (25), Ghana (24), Tunisia (17), Uganda (16), Zimbabwe (13), and Senegal with 12 techhubs.

Collins Onuegbu, founder of Sasware and director at Lagos Angels Network (LAN) told BusinessDay that the report does not come as a surprise given the size of the city both in population (20 million people) and economy (GDP of over N100 billion).

“Investors go to the hub, to seek out smart start-ups to invest. The more hubs that open up to them, the more start-ups get trained and more likelihood that more receive funding,” he said.

He also explained that South Africa and Kenya have relatively matured economies compared to Nigeria. More investments happen at different levels of startup developments in South Africa.

“Kenya has had some stability in government. The government has had a focus on technology as a way to diversify its economy. It is only recently that Nigeria woke up to this possibility,” Onuegbu said.

Countries like Ghana and Cote d’Ivoire have also experienced significant growth in the number of active tech hubs over the past year. In fact, the Ghanaian ecosystem – home to hubs such as MEST and iSpace – has grown by 50 percent (from 16 to 24). Similarly, Abidjan in Cote d’Ivoire has gradually positioned itself as the new catalyst of innovation across Francophone Africa and has seen its number of active tech hubs double.

Funding has also picked up in many of these countries. Tech start-ups in Ghana which is less than the size of Lagos closed six deals in 2017 compared to Nigeria’s total 17 deals.

David Alozie, a tech ecosystem expert, said that while the GSMA report shows that the number of hubs in Africa is growing, it does not quantify the level of impact of the growth.

“The report could make tech investors believe there are more opportunities in Nigeria because of the number of hubs and the population. However, the number of hubs does not translate to investments. Investments come when there are good start-up cases,” he said.

Babatunde Babs Ogundeyi, founder of Kudimoney.com, told BusinessDay that funding is a process which the Nigerian ecosystem must go through. To attract significant investment and get investors excited about Nigeria, the country, he said, must have more success stories, more exits.

“It will happen, but it is a process; even Silicon Valley was built over many years,” Ogundeyi said.

The last couple of years have been characterized by the rise of tech giants’ interest in the untapped opportunities of African markets. CEOs including Mark Zuckerberg (Facebook), Sundar Pichai (Google), and Jack Ma (Alibaba) visited major hubs from Lagos to Nairobi, corporate partnerships mushroomed and players including Amazon and Alibaba increased their presence all across the continent.

In a bid to ensure constant flow of funds to start-ups, some organisations have led effort to build tech funds like Itanna by Honeywell, LoftyInc Afropreneurs Fund by Loftycapital, and the Lagos State Employment Trust Fund, (LSETF). Notwithstanding, these funds are set up, according to Onuegbu, by people who see opportunity to make money from their investments.

“If more funds are being setup, then more opportunities are increasing for investors, because more investment grade start-ups are being produced by the ecosystem,” he said.

Investors will however be encouraged to put more money when they see that the qualities of the start-ups that come through the system have been upgraded and there are clear policies that guide entry and exits. Businessday.

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