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The New Normal for Tech Start-Ups

The New Normal for Tech Start-Ups

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The New Normal for Tech Start-Ups - The Spark

According to recent figures, Nigeria is officially in a full-blown recession. For most observers, this is hardly surprising news and in the search for a culprit, one name quickly springs to mind – COVID-19. The pandemic has created a deeply unsettling climate for Nigeria and exposed decades of underinvestment in critical sectors such as health, education and infrastructure. 

But despite the economic downturn, COVID-19 has strengthened the case for additional support of one budding sector in Nigeria – the tech industry. Whilst they may not be completely recession-proof, it’s likely tech startups will be nimble enough to navigate the new operating environment and become a much-needed catalyst for Nigeria’s digital transformation. 

However, the question now is: What measures need to be taken so this industry can strengthen Africa’s biggest economy during this critical time? 

Access To Skilled Talent

With Nigeria contributing one of the lowest shares of government expenditure in education (5.6%) globally, Nigeria’s startups face a huge dearth in the quality of candidates entering the job market. Degree curriculums are severely outdated and don’t provide graduates with the skills they need to be considered employable. 

For tech startups, who require quality, technical employees, the pool of candidates is even more limited and for those who are available, they face stiff competition from established companies who can afford to pay recruits a lot more.

In an ideal world, there would be a major overhaul in primary, secondary and tertiary education but this could take decades. In the short to medium term, one potential solution could be expanding training & work experience programs for technical and computer skills. These programs not only provide candidates with an extensive range of knowledge within a short period of time, but also a stronger understanding of the market’s demands. 

A good example is the Digital Explorers scheme, which provides paid, entry-level traineeships for Nigerians to build their data science/analytics skills with established tech companies in Lithuania. If government and private stakeholders can successfully collaborate on similar projects, this could be a quick fix for upskilling the next generation of recruits. 

Access To Capital 

In 2019, Nigerian startups raised over $1bn in funding, the largest amount amongst African nations. However, despite these promising figures and the success stories of startups such as Paystack (the Nigerian fintech acquired by Stripe for $200mn in October), many startups still struggle with access to early-stage funding. 

The startup failure rate is very high in Nigeria and with an estimated drop in funding due to COVID-19, entrepreneurs face the tough decision of persevering with their companies or securing their livelihoods through other means.

Now more than ever, Nigeria needs to take a long-term view on the prospects of its tech industry and during the current uncertainty, seed-stage grants from public and private organisations will be critical for entrepreneurs. It is vital that startups, especially those addressing the most urgent social needs, are given the capital they need to survive as this is the time their country needs them most. 

Although progress has been made in the private sector to support high-impact startups through grants such as the Nigerian Impact Startup Relief Facility (NISRF), government agencies can also play a key role too. If a push for grants comes into effect at a government level, it could be a crucial boost to the survival chances for many of Nigeria’s up and coming tech startups.

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Improved Regulation

Whilst Nigeria has made steps over the last few years to improve its ease of doing business, the current system still needs further modifications to become more “entrepreneur-friendly”. One particular area of note is the tax system. For early-stage founders, this can often prove difficult to navigate and there are minimal provisions for those with high-impact businesses which hold large societal benefits. 

It is imperative the government does everything in its power to support these enterprises. For a short period, it could be worth reducing or waiving the tax obligations of these companies or even providing social benefit subsidies, giving startups the cash reserves they need to strengthen their businesses and reach underrepresented communities. 

The lack of funding for startups could also be solved by these measures. Currently, there are no tax incentives for early-stage investors placing their money in tech enterprises. If new provisions, such as capital gains tax exemptions, are made available, there is potential for a major shift in the pool of resources to recapitalise startups in this period. 

What’s Next? 

At the start of 2020, nobody could foresee the impact of COVID-19 on our society however, as the country moves forward, it does have the power to determine an effective response to the crisis. We are in the midst of a “new normal” and tech startups are best positioned to service the needs of people as they find new ways to live, work and communicate. Now is the time to support them. 

Nigeria should take confidence from the fact that established tech companies such as Stripe, Microsoft and Andela have all been built during recessions and that the country possesses a new wave of mission-driven founders with unique insights into their markets. The only way to get out of the downturn is by building but for private and public stakeholders in Nigerian tech, there must be a mandate to provide the right foundations for growth.

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