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How to drive capital flow in Nigeria through thriving startups ecosystem

Enabling ease of doing business will not only facilitate economic prosperity for our teeming population but will attract capital flow from diaspora in form of FDI and FPI, writes Jide Ayegbusi

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capital flow
capital flow through startup funding

Every well-meaning country, no doubt, would desire to boost its capital flow so as to unlock economic opportunities and engender prosperity for its teeming population.

While a lot has been said about the investment opportunities in big, brown field platforms – as a way to ensure a huge capital low –  it seems we have done little to facilitate considerable investments in our start-ups, as a way to boost our capital flow and ensure economic prosperity for a larger population in the country.

This article will dissect how Nigeria can boost capital flow through its thriving start-up ecosystem. For context, we will look at start-ups as a symbol of SMEs in Nigeria and both terms will be used interchangeably.

Capital flow on the other hand refers the movement of funds that are put to use for productive economic purposes or creation of more wealth. This can be in the inform of investment, taxes, bonds, capital spent on operations etc.

All over the world, SMEs are largely contributing to GDP and enhancing shared prosperity for the multitude. According to a report by World Bank, “SMEs account for the majority of businesses worldwide and are important contributors to job creation and global economic development. They represent about 90% of businesses and more than 50% of employment worldwide.” The report goes further to say, “Formal SMEs contribute up to 40% of national income (GDP) in emerging economies.”

In Nigeria, it has been reported that SMEs contribute about 48% of national GDP and account for 96% of businesses and 84% of employment. No doubt, SMEs provide a huge opportunity for capital flow in the country if we do the needful.

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Many emerging economies in the world have realised the significant role of start-ups in driving capital flow and these countries are beginning to reap the fruitage of their labour. For instance, in the last 2 years, Indian start-ups raised more than $23 billion in capital. More than 50% of these funds have come from foreign investors.

In the same vein, in 2020, Brazilian start-ups raised a total of US$3.5 billion, 17% more than the US$2.97 billion in 2019 despite the ravaging impact of COVID-19 on investments and businesses globally. Between 2018 and 2019, China raked in over $560 billion in start-up investment.

In recent times, African start-up companies seem to be attracting the interest of venture capital, private equity, social impact funds and angel investors, especially from the diaspora – who are looking for higher returns on their investments.

However, Nigeria, the biggest economy in Africa seems to be biting a little of the pie of the global start-up funding. For example, of the over $1 billion African start-ups raised in 2020, Nigeria accounted for just 17%. (Imagine how little this would be compared to the global start-up funding).

While Kenya start-ups raised the largest funding in 2020 with over $194 million, Nigeria plays the second fiddle with about $170 million raised during the year.

However, there seems to be a glimpse of hope in the Nigeria start-up ecosystem and the country must take advantage of this to boost its capital flow. As Nigerian young entrepreneurs continue to come up with innovative business ideas that have the potential to significantly disrupt both new and established markets, it is almost impossible for investors to ignore the lure of attractive investment returns. Interestingly, we have got the talents and the market.

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We must realise that emerging economies that enjoy a lot of capital flow like China and India have taken deliberate actions to encourage entrepreneurships in their countries. We must borrow a leaf from these economies if we are serious about boosting our capital flow in the coming years.

One of the best ways the government can help its start-ups flourish and attract diaspora investments is to create an enabling environment for these start-ups to thrive.

Enabling environment may include grants to kick-start brilliant innovations, tax holidays to allow these innovations to grow, single digit interest rates for expansion opportunities and sponsoring these innovations for international exhibitions.

According to an article published by Talent2Africa, there are now more than 200 investment organizations, firms and platforms that are focused on investing in early-stage African businesses. Nigeria must take advantage of this opportunity to drive its capital flow.

Enabling ease of doing business will not only facilitate economic prosperity for our teeming population but will attract capital flow from diaspora in form of FDI and FPI.

In conclusion, supporting our start-ups will not only increase their capacity to generate much wealth, it will also help them create new professions, skills and jobs for Nigeria and the rest of the world. Finally, they will be able to help the country to be more open to the world in terms of capital flow.

Foreign education

Jide Ayegbusi

Jide Ayegbusi is the founder of Edusko Africa, an EdTech startup based in Lagos, Nigeria.

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  1. Pingback: How to drive capital flow in Nigeria through thriving startups ecosystem - 9jaheadies

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