Responding to shoddy journalism
How not to cover African tech by The FT and The Economist
Last week, the Financial Times started an article on the African start-up ecosystem with this banger ‘If every iCloud has a silver lining, then from every pandemic bursts an online business opportunity’. Tell the judges to go home, we’ve found this year’s Pulitzer winner. The writer then went on to regurgitate a randomly selected list of recent African funding rounds mixed with banalities about increasing internet penetration and young entrepreneurs innovating against a backdrop of poor governance and infrastructure. The article ended with a call for Aliko Dangote to launch a corporate venture capital fund because the next Bill Gates could be African. It was a head-scratching end to an article filled with head-scratchers. It’s at this point in my posts that I would typically link to the article, but I read that drivel so you don’t have to.
Not to be outdone, the Economist had its own piece about the Nigerian fintech ecosystem. This time, it had help from multiple members of the ecosystem. The article questions the sustainability of the current buzz in the Nigerian fintech ecosystem, given the socio-economic and political realities in the country. I’m still quite amazed that the journalist managed to gather some of the most prominent investors in Nigeria and get them all to say bad things about the ecosystem they’re investing in.
It’s not that anything in the article was untrue. Nigerians are mostly poor. The economy isn’t growing. The CBN is a very hands-on regulator and is always a wildcard. Infrastructure in Nigeria is underdeveloped. The investors quoted in the article aren’t wrong to point out these facts. But these aren’t new facts. I struggle to believe there is anyone investing in Nigeria’s fintech ecosystem that would be shocked to hear any of this. So if there is over-exuberance in the market, it is certainly not due to ignorance of these factors.
A properly written article would have tried to investigate why savvy investors are still putting money into the ecosystem despite these challenges. The journalist would have seen that investment in the ecosystem has been steadily ramping up over years - from $70M in 2016 to $356M last year. The journalist would also have seen that those investments are already starting to reap great returns. Last year alone, African fintechs returned over $1B to investors through just 3 exits.
In 2020, Fintech companies across Africa raised $356M in equity. As context, Mpesa alone generated 2x that number in revenue. I recently wrote about Nigeria having its mobile money moment. What’s your guess as to how much revenue Nigerian mobile money operators like Paga, TeamApt, Kudi, and Opay would generate at scale? This year, massive raises by Opay, Flutterwave, Chiper Cash, Kuda Bank, FairMoney, and TeamApt are likely to push the total amount raised by Nigerian fintechs somewhere north of $1B.
That number pales in comparison to the $4B of revenue being generated from digital financial services by the 15 companies in the chart above. While the majority of these companies are banks and telcos, you can already see fintechs such as Fawry and Opay on this list1.
Nigeria is a $500B economy that is still predominantly cash-based where the majority of consumers are unbanked or underbanked. As fintechs continue to broaden access to financial services, you can expect them not just to take revenue from the incumbent banks but to expand the pool drastically.
When a $500B economy is run 95% on cash, it’s difficult for me to see <$1B in investments aimed at digitising that economy as being ‘unsustainable’2.
There are other fintech companies that would ordinarily belong on this list but their revenues are not publically disclosed
I hope I do not have to say this, but just to be clear, I’m not saying every fintech raising money is going to be successful and return money to shareholders. After all, it’s called Venture Capital for a reason.