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With 190 million people, Nigeria most likely to give birth to unicorns

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Africa’s most populous country is the biggest startup market most likely to give birth to unicorns. But capital and infrastructure to help these startups scale remain elusive.


The year 2018 was momentous for Staffbus.ng, a two-year-old startup helping solve the problem of congestion in Nigeria’s capital city.

Its solution? Encouraging residents to leave their cars at home and book its luxury buses for their daily commute to work.

Founded by Olusegun Oludayo, the startup was recently the winner of the N5 million ($13,700) Seyi Tinubu Empowerment Project (STEP) initiative, a pitching competition held annually in Lagos to identify leading tech entrepreneurs.

This program, along with many other venture capital (VC)initiatives, has sprung up in Africa’s largest economy in the last decade to help boost the startup ecosystem in Nigeria.

According to a 2017 report by Global Startup Ecosystem Report and Ranking 2017, produced by Startup Genome in collaboration with the Global Entrepreneurship Network (GEN), the Lagos startup ecosystem is estimated to be worth $2 billion. It has one of the highest rates of founders who have an undergraduate degree (59%) and those that have a technical background (93%).

However, when it comes to global penetration of these startups, there seem to be some significant challenges with only 11% of startups planning to take their business beyond the shores of Nigeria.

“We have a proliferation of similar ideas all trying to get funding from dwindling sources and those with funding just go around that circle of pitching, pitching, pitching. They don’t scale, so you find they remain startups for many years,” says Emilia Asim-Ita, CEO, AML Practice, a content, talent and resource advisory firm.

According to the Nigerian Communications Commission (NCC), Nigeria’s internet users this year reached a whopping 98 million. This, combined with the enthusiastic entrepreneurial energy of Lagos, has led to over 700 active startups in the country. As the business models of these startups become more innovative, there has also been an increase in the number of companies receiving big checks from top Silicon Valley VC’s in recent years.

For example, the significant funding rounds of Andela ($40million), Terragon Group ($5 million), Cars45 ($5 million), Rensource ($3.5million), Flutterwave ($10 million), Paystack ($1.3 million) has demonstrated that there is definitely a lot of potential in the Nigerian ecosystem but these are just a few success stories and are atypical to the entire ecosystem.

“The startup ecosystem in Nigeria is stagnating. It is difficult to give you empirical evidence but you will find that an industry or sector that is not growing and has not disrupted any new industries in a while and you haven’t seen significance in the growth and sustainability of even some of its biggest ideas cannot be growing, that is why I would say that it is stagnant,” says Asim-Ita.

This stagnation is as a result of the challenges facing the Nigerian startup ecosystem. Firstly, there is inadequate infrastructure.

“We are seeing the tech ecosystem go through some significant changes. The first big tech companies like iROKOtv, Jobberman and Paga were able to move from startups to become really serious companies and they have showed us that Nigeria has what it takes to build sustainable and profitable companies. We just need the right infrastructure to support our startups,” says Seyi Tinubu, founder and CEO of Loatsad Promomedia, a digital advertising company in Lagos.

Tinubu is also an investor and founder of STEP, a corporate social responsibility (CSR) initiative designed to empower tech entrepreneurs in Lagos with seed funding and mentorship.

“When you go outside the main cities, you will find there is a lack of access to internet and fluctuating power supply which has a long-term impact on the growth of tech companies leading to companies outsourcing development solutions to countries like India,” says Tinubu.

This invariably results in the inefficient use of financial resources and the eroding of a robust funnel of talent that the ecosystem needs, a problem organizations like Andela and the Tony Elumelu Foundation are trying to address.

“Startups need capital to operate. In Nigeria, many tech startups are known to solve local niche problems and try to create a long-term business out it but most of these businesses are often un-validated concepts which makes them difficult to secure investment in,” says Wande Adams, a business development executive at Enov8 Solutions, a tech company with a focus on all sectors.

The company aims to provide topnotch innovative solutions to identified gaps across various sectors. It recently secured a $250,000 funding from SPHINX Capital. Among the company’s many innovative solutions is a crowd-funding platform called SeekFunds designed to fund/raise money towards business, projects, charities, medical and educational assistance.

But the main challenge for most startups is still how to secure larger capital raising rounds to gain significant market share.

“Nigeria has attracted about a third of all startup funds available on the continent and we are still far away from having our own unicorns,” says Uzoma Dozie, CEO of Diamond Bank.

A unicorn is a term for a tech company valued at $1 billion or more. For this, the firm requires massive capital injections to achieve its potential, usually in tens of millions.

“When a startup has proven a concept and is seen as a viable business, it must protect itself from copycats and scale to other markets very quickly and this is a very a pricey process,” adds Gordon Adomdza, a Professor with Ashesi University in Ghana.

Most VCs get a buzz when they can find a handful of companies with the potential to be unicorns and they invest in all of them with probably most of them failing except one whose success returns all the capital invested.

In February 2018, Zinox acquired leading Nigerian e-commerce player Konga in a move that is widely believed to have been a significant down round.

Unicorns, down rounds and utter company failures are an inherent part of the world of venture capital. Nigeria, with its 190 million population, remains the biggest market and the one most likely to give birth to unicorns. For this to happen, it requires huge capital investment to help these startups scale, something that seems unlikely to happen in this current climate.

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Economy

Ford and IBM among quartet in Congo cobalt blockchain project

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 Carmaker Ford (F.N), technology giant IBM (IBM.N), South Korean cathode maker LG Chem (051910.KS) and China’s Huayou Cobalt (603799.SS) have joined forces in the first blockchain project to monitor cobalt supplies from Democratic Republic of Congo.

The pilot, overseen by responsible-sourcing group RCS Global, aims to help manufacturers ensure that cobalt used in lithium-ion batteries has not been mined by children or used to fuel conflict.

Companies are under pressure from consumers and investors to prove that minerals are sourced without human rights abuses, but tracking raw materials throughout their journey is challenging.

The project announced on Wednesday has been quietly under way since December. Starting with industrially mined cobalt in Congo, it is monitoring supplies all the way to lithium-ion batteries for Ford vehicles.

Supplies of cobalt, expected to be needed in huge quantities for electric vehicles and electronic devices, are concentrated in Congo, a sprawling, volatile nation that has been racked by civil war and political tension.

The outcome of elections in December, which had been intended to be Congo’s first democratic transfer of power in six decades, is contested.

RCS says the IBM blockchain platform could be used to include other minerals and to allow artisanal miners, which analysts say are the biggest issue with regard to ethical sourcing, to join a blockchain-based network of validated participants.

Blockchain, famed as the technology behind cryptocurrency bitcoin, works by providing a shared record of data held by a network of individual computers rather than a single party.

For the pilot project, which should be completed around the middle of the year, cobalt from Huayou’s industrial mine will be placed in secure bags, entered into a blockchain and traced from the mine and smelter to LG Chem’s cathode and battery plant in South Korea and then on to a Ford plant in the United States.

Because minerals are often combined with metals from various sources when they are smelted, they are particularly difficult to track.

The RCS project seeks to enforce best practice by using guidelines drawn up by the Organisation for Economic Cooperation and Development.

IBM said it was exploring the potential of chemical analysis using artificial intelligence to pinpoint the origin of cobalt and ensure so-called clean cobalt was not smelted with minerals sourced less responsibly.

“There is no fool-proof method, but you have to keep the ball moving forward, to keep raising the level of accuracy,” Manish Chawla, general manager of IBM’s mining and industrial sector business, told Reuters.

VW and Ford team up

“Blockchain has been proven to be a very effective technology in raising the bar.”

IBM has already worked with retailers including Walmart (WMT.N) and Carrefour (CARR.PA) to trace food through supply chains.

In the mining sector, meanwhile, Anglo American’s (AAL.L) De Beers has begun using blockchain to track diamonds. -Reuters

Barbara Lewis

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Economy

150 percent price rise fails to fill Zimbabwe’s fuel pumps

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A drastic 150 percent overnight rise in Zimbabwe’s fuel prices failed on Sunday to ease a nationwide petrol and diesel shortage caused by a lack of hard currency.

Most service stations still had no fuel to sell to motorists who have been sleeping in their vehicles to queue. Some said they were awaiting an official notice from the regulatory authority (ZERA).

Deputy Information Minister Energy Mutodi tweeted that commodity price volatility “will be temporary before goods prices normalize”.

The acute shortage of U.S. dollars has made it hard for President Emmerson Mnangagwa’s government to import not only fuel but also drugs and other goods.

Mnangagwa himself was on Sunday setting off on a five-nation tour that starts in Russia and ends at the World Economic Forum in Davos, Switzerland.

Zimbabwe abandoned its own currency in 2009 after it was wrecked by hyperinflation, and adopted the greenback and other hard currencies such as sterling and the South African rand.

But now there is not enough hard currency to back up more than $10 billion in electronic funds trapped in local bank accounts, prompting demands from businesses and civil servants for cash that can be deposited and used to make payments.

Mnangagwa has said his government will not let businesses raise prices but they have been doing so anyway, arguing that they have no choice but to buy dollars at a premium on the black market.

Inflation is already at a 10-year high of 31 percent and, in the past two weeks, public transport firms have tripled fares citing a shortage of fuel, which some have been buying on the black market.

An assistant at a service station owned by Zuva Petroleum said: “We have not received any supplies since Thursday evening but we are hoping we will get a delivery before end of the day.”

A ZERA spokesman said all fuel companies had been notified of the new prices.

The Zimbabwe Congress of Trade Unions (ZCTU) said it planned a national strike from Monday in protest at the “insensitive and provocative” fuel price increase, although such calls have in the past not been widely followed.

Teachers, who are not represented by ZCTU, are planning a nationwide strike from Jan. 22, and civil servants have threatened to join them. -Reuters

  • MacDonald Dzirutwe

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Economy

World Bank Sees Global Growth Slowing In 2019

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The growth of the global economy is expected to slow to 2.9 percent in 2019 compared with 3 percent in 2018, the World Bank said on Tuesday, citing elevated trade tensions and international trade moderation.

“At the beginning of 2018 the global economy was firing on all cylinders, but it lost speed during the year and the ride could get even bumpier in the year ahead,” World Bank Chief Executive Officer Kristalina Georgieva said in the semi-annual Global Economic Prospects report here.

The World Bank outlook comes as the United States and China have been engaged in a bitter trade dispute, which has jolted financial markets across the world for months. The two economies have imposed tit-for-tat duties on each other’s goods, although there were signs of progress on Tuesday as the two countries prepared to enter a third day of talks in Beijing.

Growth in the United States is likely to slow to 2.5 percent this year from 2.9 percent in 2018, while China is expected to grow at 6.2 percent in the year compared with 6.5 percent in 2018, according to the World Bank.

Emerging market economies are expected to grow at 4.2 percent this year, with advanced economies expected to grow at 2 percent, the World Bank said in the report. -Reuters

  • Kanishka Singh

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