Introduction

 

This article aims to guide both local and foreign investors who are looking at investing in Nigeria’s digital economy. This provides a glance into the Nigerian digital maturity, consumer- demographics and psychographics; also empowers them to make the right business decision.

It serves to highlight the most common issues, giving the investor or entrepreneur a heads-up on challenges as well as recommended solutions. This will help them prepare adequately before venturing into the Nigerian digital business space.

Thoughts are based on personal experience, observation, discussions and interviews of key stakeholders in the ecosystem. I have been there, done that when it comes to digital entrepreneurship; albeit silently, as a side-preneur, which is typical of Nigerian context. Job security is a major issue so we cling to what we are sure of while trying other stuff. In my case I committed serious funds to what I believed in.

This is a narrative of all my struggles and lessons and what I feel we need to do to get things right. Of course, backed by actual facts and figures to justify my point of view.

Nigeria’s population is projected to grow from more than 186 million people in 2016 to 392 million in 2050, becoming the world’s fourth most populous country.[1]

With an annual population growth rate of 2.6%, and consistently growing, Nigerian needs to look beyond oil to boost economic development, reduce poverty and empower its young population. One way to go about this is to embrace digital transformation, by creating enabling infrastructure and policies to support the industry growth and empowering the citizens by way of capacity building and funding.

 

[1] https://www.cia.gov/library/publications/the-world-factbook/

Digital state of the Nigerian nation

Financial inclusion

A picture is worth a thousand words.

On Monday, 4th May, 2020, Nigeria partially eased the lock-down due to the Covid19 pandemic. And despite the apparent escalation of new infections, all hell broke loose in most major cities especially Lagos.

This is the Covid19 escalation pattern at that time.

 

Meanwhile, see how Lagosians are defying all the social distancing rules for Covid19 prevention, same day, May 4th, 2020.

Imagine this happening in a developed commercial hub like Lagos, what then would be happening in other parts of the country. And this logically means:

  • Digital financial inclusion is a far-cry from acceptable level of penetration in Nigeria.
  • A lot of banked customers do not have debit cards and internet banking access.

This could be as a result of different reasons ranging from:

  • Ignorance – a lot of people feel they will be prone to fraud once they get a debit card or internet banking access. They rather prefer to lodge and withdraw cash the traditional way. I have a few learned colleagues who do this as well so it’s not a literacy issue.
  • Cost of maintenance – Banks usually charge about $0.09 (NGN35) after the third transaction on an out-of-network ATM and $2.63 (NGN1,000) for card maintenance per annum. Most Nigerians are very price sensitive, also due to the high rate of poverty, the share of wallet tilt more to basic stuff like food, shelter, transportation etc. Every Kobo counts!

If these people don’t have debit cards, internet banking and other digital banking solutions, how would they eventually be able to embrace digital services much less paid digital services. How would they pay for such services? Buy digital content via bank deposit? You guess it is as good as mine.

Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs –transactions, payments, savings, credit and insurance –delivered in a responsible and sustainable way (The World Bank).

Financial inclusion

It is evident that mainstream banking does not have the capacity to financially include a good size of the Nigerian population. Digital financial services (DSF) such as Mobile Money still have very low awareness and penetration (only 5.6%), especially among the unbanked. To achieve financial inclusion, it is obvious that we need a lot more of the Digital Financial Services and Agent Networks. Mainstream banking is too expensive to run and opening bank branches in every location is not sustainable especially in rural and semi-rural areas.

Financial exclusion could also have a direct link to poverty. Where the majority of the populace struggle to feed and provide basics (food, shelter and transportation), then it becomes difficult to have enough disposable income to engage in financial institutions.

According to a long-standing poverty statistic, the poverty rate in Nigeria’s south-west is 19.3%; south-south, 25.2%; north-east, 76.8%, and north-west, 81.1% (Nairametrics).[1] These figures also align with the Financial inclusion statistics, showing most inclusion in south-west and least up north.

Telcos to the rescue?

It’s long been touted in Nigeria that Telcos might be the missing link when it comes to providing ubiquitous Digital Financial Services. In 2018, the government issues Payment Service Bank licenses to. This license is available to Telcos as well as other mobile money operators and super agents. Although, none has successfully launched a PSB service, it’s expected to drive growth in this sector. But that remains to be seen. Perhaps we could draw breath from the Kenya success story, hoping we can replicate same success, albeit a tad late.

 

[1] https://nairametrics.com/2019/09/28/financial-inclusion-in-nigeria-data-and-hard-facts/

Conclusion

Though Nigeria is the most populous country in Africa, it is critically lagging behind in terms of Digital Financial inclusion. This grossly affects the country in the following ways:

  1. Limited opportunity for business growth – Consumers who are digital-financially unaware will not be predisposed to embrace digital products and services.
  2. Startups and entrepreneurs will have limited opportunities for growth.
  3. The economy of the country will have limited growth. Over dependence on Oil will not sustain the country any further given the recent technological innovations and diversification from oil-based economy by Nigeria’s oil export countries.

Internet penetration

The primary means to connect to the internet in Nigeria according to Nigerian Communications Commission (NCC) is via the mobile phone. This report shows 73m internet subscribers which represents an internet penetration of around 36%.

Devices as a factor for deeper internet penetration

This report indicates the total universe of internet users. It is also proven that 50% of this figures are made up of what is called the accidental users in local parlance, therefore, considering that a sizeable number of these subscribers use less than 5MB of data within 30 days (a benchmark for data-user definition by most of the Telcos in Nigeria), there is a lot of work still to be done to deepen internet penetration.

There is also the issue of low maturity level of Nigerian internet users who are currently struggling with basic internet access. For Digital services adoption to thrive, there is need to build the internet culture to a much higher penetration and maturity level whereby subscribers are able to consume video and other services and not just the basic internet browsing usage as is currently obtained.

There is also the issue of low maturity level of Nigerian internet users who are currently struggling with basic internet access. For Digital services adoption to thrive, there is need to build the internet culture to a much higher penetration and maturity level whereby subscribers are able to consume video and other services and not just the basic internet browsing usage as is currently obtained.

With oil accounting for about 90% of international export and the recent impact of Covid19 and apathy of investors towards Nigeria due to inherent risks emanating from unstable government policies and other mitigating factors, Nigeria’s outlook is quite vulnerable. This is illustrated further in detail below.

The average Nigerian would be most concerned about securing the basics such as food, shelter, transportation and security. The share of wallet for luxury items like Smartphones and data plans would further shrink as the economic gloom bites harder.

Device Financing to the rescue?

The lack of a consolidated data base of the citizens is also a failing by the government drastically affecting some of these service offerings. Corporate bodies now take it upon themselves to provide all the end to end infrastructure required, this comes at a cost often escalated down to the customer.

  • Device financing interest rate averaging 30% is quite high given the poverty rate and other mitigating factors.

Back in November, 2018, amid pomp and pageantry, with a good representation from the Press and general public, MTN partnered with Sterling bank and PayJoy (provider of device lock solution) on Device Financing scheme (DFS).

As widely reported by local news prints, this scheme was meant to enable customers to purchase smartphones and pay by equal installments for up to 6months.

Under the DFS, the smartphones ranging from N25, 000–N400, 000 can be purchased by any customer at its current purchase price plus a 20 percent interest with the Device Financing Scheme.[1] Though further investigation revealed 24% interest rate because of insurance cover, lock and other sundry costs.

On checking performance with the parties 12 months down the line, it was revealed that the scheme had performed woefully with less than 100 of the low range devices sold over the same period. It was clear, either a few things went wrong or may be Nigerians have not accepted Device Financing. Also looking at the Nigerian lending sector, with the few Startups who have ventured into the sector struggling to stay afloat, it could be expressed that most likely, Nigerians do not yet have a credit culture. The culture of Cash and Carry is more predominant where people only save to buy what they need at every point in time.

However, checks revealed some direct causes of the scheme failure as thus:

  • KYC – Customers were meant to submit some minimum Know Your Customer information such as Proof of Address, Bank Verification Number (BVN), government approved identity card (Driver’s license, International passport or National identity card (NIMC). It was discovered that over 90% of the customers failed to provide at least a complete valid KYC.
  • Financial inclusion issue – to show earning capacity and ability to repay the device loan, customers were required to provide a 3-month bank statement from any Bank where they have their account domiciled. It was discovered that most customers had incomes below the expected limit and most even had zero balance for most months.
  • Credit history – Customers were also expected to checkout on the credit bureau data base with a good It was discovered that most had no credit history. These customers were then tagged as risky because they had no credit history to benchmark their behaviour when trusted with the device loan.
  • Open market structure – Devices are primarily sold in Nigeria at the open market. This is a fragmented model where just anyone can start trading on devices. This becomes difficult as Telcos do not control the device sales value chain. It was also very difficult to penetrate the open market channels with this device financing offer massively limiting the reach as only MTN owned stores provided the service.

This clearly paints the picture of the current Nigeria’s devices financing ecosystem; it is still a bit too early to conclude that Device Financing is not the solution to unlock the affordability issue. We need to try out a few other models by new vendors with fresh ideas.

The lack of a consolidated data base of the citizens is also a failing by the government drastically affecting some of these service offerings. Corporate bodies now take it upon themselves to provide all the end to end infrastructure required, this comes at a cost often escalated down to the customer.

Device financing interest rate averaging 30% is quite high given the poverty rate and other mitigating factors.

 

[1] https://www.vanguardngr.com/2018/11/mtn-partners-sterling-bank-on-smartphone-device-financing-scheme/

 

Data cost and QoS as factors limiting internet penetration

So, this morning, I woke up a bit early to continue writing this book. I was already in that good writing mood since last night, having gone to been by 1am the night before, not a hindrance in any way, and boom, no internet service.

If I received a dollar each time I have received this message in the past 6months, I would be very rich.

This took a punch out of my morale and now I am trying to figure out which part of the story I could write without much reference to online data. I quickly checked the WhatsApp group for the Internet provider customer service and immediately without scrolling much, it hit me. They had had just another technical issue; as they usually call it. This has become a daily occurrence, oftentimes occurring several times in a day, every day is basically the same and no day passes without an incident. Despite having Fibre to Home service, I only enjoyed the service within the first few months, both speed and quality were spot on. However, it just went downhill suddenly a few months after and has remained epileptic since then. Low quality when available and oftentimes offline.

This is more or less the general picture when it comes to quality of service in Nigeria and it cuts across both the fixed and mobile services.

It is a huge relief however, to note that data cost is not among Nigeria’s numerous problems. According to research by Cable, Nigeria is ranked 11th cheapest data cost in Africa and 58th in the world with an average of $1.39 per 1GB data plan.[1]

 

[1] https://www.cable.co.uk/mobiles/worldwide-data-pricing/#regions

Impact of Transsion group and cheap smartphones; the implication in cost and durability

There has always been a lagging question of quality and durability hanging on these cheap Transsion devices.

The Chinese Transsion group has completely dominated the smartphone sales market in Nigeria for the last 5 years now. Their three sister brands (Tecno, Infinix and Itel) have completely decimated every competition with their aggressive sales channel roll out and launch of a smartphone model practically every month. They have a cumulative 51% market share at April 2020 despite the impact of Covid19 pandemic that has halted production for a few months.

However, there has always been a lagging question of quality and durability hanging on these cheap Transsion devices. Startups like Uber, and the likes, who need to rely on their app for daily ride hailing activities and driver management have had teething issues with some of these phones as it was reported that the maps didn’t work well and were prone to errors and abuse by fraudulent drivers. They had in the past discouraged their drivers from using such devices as they could not control the stability of their map app on the devices.

The Nigerian Consumer’s persona

 

I will pull call-outs from different sections of this write up to make up this part. This way, it truly reflects a complete view, which is the objective of this book.

  • Most Nigerians want free stuff! The concept that it takes money to make money eludes most Nigerians.

There is a need for Nigerian consumers to show more empathy to local products especially in the digital sector. This will fuel the growth much needed in the sector. Buy Naija to grow Naija. The issue here could also be related to the fact that most Nigerians love trends and are mostly outward facing. Copying fashion and trends from the western world. And generally, regard local stuff as inferior. They are very aspirational and showy.

 

There is also the issue of low maturity level of Nigerian internet users who are currently struggling with basic internet access. For Digital services adoption to thrive, there is need to build the internet culture to a much higher penetration and maturity level whereby subscribers are able to consume video and other services and not just the basic internet browsing usage as is currently obtained.

Nigerians seem to turn off intangible stuff like knowledge-based services as opposed to basics (food, shelter, transport, security), show-offs (wears, cars), fun (parties, music shows, luxury cars, drinks, clubs) et. They appreciate brick and mortar business a lot more, and online business also has to mirror the physical process and products being transacted.

Current business case for building local digital platforms

 

This section will serve to highlight how some Startups in the digital space have fared and how the current ones are performing.

Public opinion

Some public opinions will also be shown to buttress some points on the general digital culture and what most Nigerians prioritize the most in their daily lives.

I recently came across a no-holds-barred candid conversation on Instagram and I could relate with all the comments, having experienced most of the issues mentioned in the course of my entrepreneurship journey. I will share some of the comments here…

It all started with this post

This cannot be stated any better. Nigerians need local platforms that can remit earnings without much hassles. It should also be focused on serving Nigerians (besides the international market). The marketing tools and content packaging should reflect this.

 

Nigerians need local platforms that can remit earnings without much hassles. It should also be focused on serving Nigerians (besides the international market). The marketing tools and content packaging should reflect this.

 I have experienced the bitter side of this in the course of trying to find a place to monetize my apps, games, books and video course. More on this story in the next chapter.

Then the comments started pouring in. Let me just highlight a few that hit the nail on the head as far as Nigerian digital situation is concerned.

Sad reality; most Nigerians want free stuff! The concept that it takes money to make money eludes most Nigerians.

My personal experience as a Content Creator

Mobile Apps and Games – developer experience

I ventured into mobile apps development back in the early days of mobile apps and games in 2012. Google Play and Apple Appstore had just swung into full operations and out of curiosity and my software programming background, I could not resist the lure.

I came up with a few ideas, bounced them off my wife, friends at the office and settled for a few.

Next, I started looking for a good development team to help me put my burning ideas into shiny apps and games. The search led me to rentacoder.com (now freelancer.com). I posted my ideas and within a couple of days I had a few guys propose to develop for me. I quickly settled for an Indian guy, who eventually became a close friend from then on, though we never met physically till date.

We partnered (shared cost and shared products). I provided half the cost of development, while he hired a team to do the development. Then, there were no app developers in Nigeria (I could be 100% certain of this).

I was so enthused with the whole idea of making forex off Google Play and Apple Appstore, this, especially fueled by all the novella stories of how young guys made fortunes on some games or apps drove me to the extent I was practically blinded to all the issues that were going to affect me in the course of this journey. I never thought everything through. Then came the issues, but good enough as it seemed now with hindsight, I was at a point of no return!

Stringent registration and KYC.

Being a Nigerian, or to a large extent, an African, comes with a few challenges. One is documentation. At that point, I had close to no documentation besides by work ID card. I didn’t even have an international passport (just because I had no need for it then, a young man relatively just arrived Lagos and starting a career).

Like I said, I was already too pumped with enthusiasm to let any challenge stop me, so I quickly registered a limited liability company and registered on the app platforms as a business entity rather than an individual. I had to go through the grueling but eye-opening process of company registration, Tax registration, opening a corporate bank account, including a domiciliary account.

The rest of the process went pretty easy but took weeks. I even had a few calls (about 3 times) with Apple and I was quite elated to be dealing with almighty Apple. It was a very cool feeling! Good enough, Apple accepted to transfer my earnings to my local bank, which was a huge sigh of relief. However, from the stories I heard then, Google Play was the cash cow, not so stringent, and where to make the most revenue. So, I was more excited by Google Play than Apple Appstore.

Payment remittance

My excitement for Google Play never lasted, I discovered my first shocker quite early. I could not get my earnings from my Google Merchant account (for InApp products) transferred to my local Nigerian banks. Google had a list of supported countries and I remember agonizingly checking that list everyday for months. Hoping for a miracle that never came, as at then. The other stream of income (which I realized later was even the bigger chunk) was from mobile ads. Because the best monetization model then was Freemium – i.e. make the app or game free to download and play, sell InApp products such as power boost, gems, bigger guns etc. while serving ads on the overall game real-estate. If a user purchases any InApp product, the ad serving is stopped.

Payment remittance is an issue that still persists till date. Most western digital platforms out there are developed and optimized to serve the western market.

 

I resolved to surmount this new challenge by all means – like I said, I was beyond return and I couldn’t see myself failing on this. So, I set out to research and do the leg work as well. I noticed they had the US and UK as top of the list (obviously) and I decided to get bank accounts in any of those countries. I contacted a few friends in the US but no luck, I couldn’t get any help, besides, I wouldn’t have really liked to use someone’s bank account for this, given it’s a long-time business I envisioned would make me very rich. Didn’t want to stress or have issues with anyone.

To cut the story short, I went to different banks in Nigeria, all the ones claiming to have branches abroad, I was rejected at all. The most embarrassing was a first-generation bank that had a “foreign” branch in Osborne estate, I called and went there early in the morning. The lady couldn’t hide his disappointment and disgust for my line of business (I think maybe she considered it fraudulent). I had to explain what coding, mobile apps and games, how much I expect to make, what others are doing, Google Play, Apple Appstore were about. I also think, because apps and games were really new then. She was not nice at all, she told me off, that I should just go, that they only seek clients with up to $50k earnings per month (I’m sure she just made that up to piss me off). But then, given the stories I had heard, I was sure I was going to make a lot more than that.  I was aiming for a million dollars actually.

Eventually, after a long search, meanwhile I kept on developing the apps and games, I stumbled on GTBank UK branch (Ajose branch) and that was my saving grace. I rushed there, went through very massive KYC, and strung some funds together to get the GBP5,000 minimum deposit for the saving account and that was it. I had a fresh UK account. Google Play here I come!

Conclusion

Payment remittance is an issue that still persists till date. Most western digital platforms out there are developed and optimized to serve the western market.

My experience as a writer

Below is my experience with trying to sell my first book – Marketing and Sales strategy for Startups

  • Uploaded on Shopify account
  • Pros:
    • I could use my personal domain (http://paulonu.com)
    • quickly set up and accepted Paystack as a payment gateway which directly connected to my local bank.
    • Also, could receive payment in USD.
  • Cons:
    • No DRM, consumer will download my content completely (complete pdf file). This could be freely shared afterwards.
    • There is a subscription fee for the shop (USD 29) monthly for the least package. This becomes difficult to sustain if you are not making sales.
  • Podium, Gumroad, Teachable, ThinkFic and more… – they only accept PayPal and Stripe as payment gateways. PayPal for merchants is not allowed in Nigeria and Stripe too doesn’t work down here.

 

  • Amazon Kindle
    • I eventually settled for this. They are free to sign up and revenue share on earnings. They also do print copy and deliver. Take off the cost of printing and logistics and share revenue on the balance. Which is perfect for me.
  • Udemy
    • for my video course. Similar model to Amazon and I was able to register on Payoneer payment gateway which I then used for the remittance.

Worthy of mention also is that these platforms (Google Play, Apple Appstore, Amazon Kindle, Rakuten Kobo, Udemy) are all very congested. Your app, game or book would be ranking sub 2m. meaning discovery would be a major challenge. Also given the cost of advertising is astronomical, especially given the hit on Naira over time resulting in constant devaluation.

For my apps journey, well I could say I made about US$30,000 (AdSense revenue contributing 95%. Ads monetizing is the winning model for most mobile games). I also invested about US$20,000 (cost of development and ads).

The average lifecycle of mobile apps is quite short, after 6months, then they become high maintenance and low proceed. Consumers usually move on to other new shiny toys.

Current state of my apps and games – suffice to state here that average lifecycle of mobile apps is quite short, after 6months, then they become high maintenance and low proceed. Consumers usually move on to other new shiny toys. This made me put a break to this line of business since 2015, while I pursue other ventures.

And for context, my games were well crafted and designed, at least to the extent of our technical ability and resources, with good store rating. So, it’s never a quality issue.

These platforms (Google Play, Apple Appstore, Amazon Kindle, Rakuten Kobo, Udemy) are all very congested. Your app, game or book would be ranking sub 2m. meaning discovery would be a major challenge. Also given the cost of advertising is astronomical, especially given the hit on Naira over time resulting in constant devaluation.

And decent download and review count/rating (4.4/5) – this means you could have million downloads but not a corresponding revenue. App monetization is a completely different business from development and upload. It entails understanding customer behaviour with your games, targeting the best audience, improving customer journey, optimizing your ads real estate to minimize nuisance, constant aggressive promotions, understating the drop off points etc. as well as loyalty and reward schemes both online (free gems, power boosts, stronger guns for as rewards for positive behaviour) to offline – proper on-ground activation for your mobile apps and games (merchandising items and branding, events and sponsorships etc.).

I would say I understood these clearly then and I tried as much as my shallow-pocket could allow me.

Experience with Nigerian Mobile Gamers

I was naïve, for every time I ran Facebook or Google Admob ads, I picked Nigeria as no 1 country to advertise to. This was a wrong move and with hindsight, I could have saved some hard-earned USD. Nigerian consumers play with ads a lot, just like some Asian countries – India, Philippines, Malaysia etc. however, the Click Through Rate (CTR), i.e. clicking on a link and allowing it to load so you can interact with the ad end point (my app or game) was abysmally low for Nigerians. So, I ended up losing money on those ad costs. I am not sure I remember sighting Nigeria as a country on my InApp billing or AdSense billing. This shows that they are poor quality users. Quite unlike US, UK, Canada, where you have less users messing with your ads and a lot more revenue in both InApp and ads

I stopped developing new games and updating since 2015 – I had a decent run from 2013 to 2015, making a total of £20, 635.91 (Notice the Pound sterling sign, yeah, I was still using my UK bank account. Eventually, almost when I stopped caring and checking, Google enabled Nigeria developers to receive earing to their local Nigerian banks. But then the developer needed to create a new Google account and start a fresh upload. I eventually did this post 2015, though I had slowed down on Games and Apps.

 

Also note the revenue for the 6-year period is just $2k. Meaning, you needed to hand-hold your Mobile Apps and Games business. Once you stop updating and promotions, the product is gone. Unless you are comfortable making $20 monthly for an average $14k development investment per game or app.

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