In the latest ranking of the Best Startup Ecosystem, Nigeria dropped 12 places to 68, and also lost its 3rd position in Africa to Rwanda.
This is according to Startup Ecosystem Ranking for the year 2020. Last year, Nigeria ranked 56th in the world and 3rd in Africa, behind South Africa and Kenya. Rwanda was three places up at the 65th position while South Africa and Kenya dropped to 52nd and 62nd positions respectively.
The Startup Ecosystem Ranking is conducted through data collated from over 60,000 startups and 14,000 co-working spaces around the world. The three main metrics used in ranking are: Quantity, as in the number of startups, their quality, and the business environment in the tech ecosystem.
Lagos also dropped 28 places in city ranking, losing its number one position in Africa to Kenya’s Nairobi. Lagos ranked 99th in 2019 but fell short this time around to 127th on the chart. Nairobi also dropped 11 places to 116 in the world, while Johannesburg and Cape Town rose to 146th and 160th respectively.
Nigeria’s drop in the recent ranking has been attributed to factors relating to business environment and basic infrastructure. The quantity score used in the ranking rose from 0.11 to 0.27, while the quality score rose from 0 to 0.11. But the business score saw drastic reduction from 5.89 to 0.46, a huge loss that resulted in drop in the ranking.
The Nigerian business environment is marred by infrastructural deficiencies and poor government policies that pose a threat to growth and development of startups. It cuts across government policies and basic amenities needed for businesses to thrive.
A popular example is the ban on ride-hailing motorbikes by the Lagos State Government. Hundreds of motorbikes were thrown off the roads forcing the startup companies to shut down. It has become a trajectory that every startup in Nigeria can get caught up in, as some other state governments have implemented similar policies.
The state’s policy to ban the use of motorcycles was implemented at the detriment of businesses that lost millions of dollars as a result – there was no compensation and alternate provision.
For other startups that are allowed to operate, it is survival of the fittest. Infrastructural decay ranging from unstable electricity supply and poor internet has offered them only the opportunity to strive.
Nigeria is still struggling to distribute above 4,000 megawatts of electricity, forcing startups and all businesses to depend on power generators for electricity.
On the other hand, Nigeria,s internet service is far below the recommended 10 mpbs, at 1.5 mpbs and startups are at its mercy. Attempts to improve the situation have fallen on government’s unfavorable policies, among them, the decision of state governments to charge N4.5 million ($11,600) for the laying of a kilometer of broadband cable. It has not only spiked the cost of the poor internet service, it has also made it difficult for telcos to facilitate undersea cable network infrastructure.
Unstable foreign exchange is another difficult situation that startups have to face in Nigeria. Techtext reported how Kwese’ satellite TV was forced out of business due to the devaluation of Nigerian currency that put their revenue at loss. Nigeria is still struggling to have a unified foreign exchange that business can count on.
Currently, Nigeria has two forex rates; a government’s rate of N361/$1 and the black market rate of N387.5050/$1. To cap the woes of entrepreneurs, the government’s rate is never accessible by most of the startups and SMEs that need it, though there was N380/$1 at $20,000 per quarter rate for SMEs, it didn’t help the situation.
Last month, Manufacturers Association of Nigeria (MAN), said that the difficulty in accessing forex has hampered manufacturing activities in Nigeria.
“It was pretty difficult to source forex from all the available windows. Members have had problems accessing foreign currencies for five weeks due to lack of Central Bank’s interventions. The scarcity of foreign-dominated currencies is hampering the ability of local manufacturers to import raw materials, machines, and spares that are available in Nigeria,” MAN said.
In May, the Central Bank of Nigeria suspended foreign exchange sales to retail Bureau de Change currency traders. The Apex Bank said the decision was to protect the naira after its devaluation due to the impact of COVID-19 and plummeted oil revenue.
All these were the factors considered by Startup Ecosystem that resulted in the drop of Nigeria’s ranking.