AI, Year 2023 and Why Foreign Investors Paused on Nigerian Startups

In a 2019 Harvard Business Review article, I wrote that Africa’s development path must be redesigned as robots and AI, not China or India, are the real competitors: “robots and AI are the real competitors”. I had argued that our path to industrialization which has been built to replicate the model used by China is largely hopeless, as what worked for China has expired, and cannot be relevant for contemporary Africa. Read the piece here https://hbr.org/2019/09/why-africas-industrialization-wont-look-like-chinas

The trajectory for that development remains unbounded and everyone agrees that Africa needs private capital to unlock its future, and people who participate could make tons of money. Largely, it is easier to make money in an emergent region of the world than competing in the saturated markets of the UK and US. To unlock that promise, investors poured money into new species of companies in Africa and Nigeria, hoping to seed that new future, via entrepreneurial capitalism and startups.

Before 2023 in Nigeria, statistically, investing in Nigeria was a great call, as valuation was compounding more decently than most parts of the world. And global investors saw that, and pumped money into Nigeria, as startups raised capital to fix frictions in the market. The permutation made sense: at optimal equilibrium, Nigeria should have a GDP of $3trillion, well ahead of the then sub-$500b.  On that projection, optimism was built since by building companies, you can fix friction, and advance the nation and the people. The startup investing world in Nigeria was anchored on that premise!

But with the economic changes in 2023, that path was truncated when Naira became a fudge factor in the whole equation, for a local desired result. More so, as that was happening, AI came at scale, making the old “saturated” markets look young with fledgling tech-infancy, for investing opportunity. So, with AI, and within the viewpoint of AI, countries like the UK and US look like Nigeria contextually, on emergent investing opportunity. Nigeria/Africa was offering a new opportunity. AI was offering a new market. But with Naira’s fudge factor, the investors picked the new AI world, and Nigeria became disintermediated, and investors fled!

This was the central piece of my Harvard article when I noted that expecting wages to rise in China, for Africa to emerge, was hopeless, since the jobs sent by the West to China, would be done in the West as robots and AI evolve, and would not be sent to Africa. That article was written in 2019, before ChatGPT was launched and before Trump 2.0. Great call for the village boy!

So, without the current AI ascension, Nigeria despite the black swan impact of the currency mess (N412/$ to N1500/$ in months) would still be getting those foreign investors. AI is providing the foreign investors a new digital continent, and  that looks more exciting for “frontier opportunities” than the African continent. In other words, AI has opened a new basis of competition, becoming a huge competitor for Africa. Our hope is that the effervescent effect of AI will cool down, and the Naira strengthened, otherwise, it would be a really long rainy season for this equilibrium to be shifted for startups in Nigeria!

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