David Meek Jah dropped these lines from Sierra Leone: “What is happening to Nigeria and every other country is what we have said before. Virtually, all African countries are caught off guard by the challenges of the digital economy. We did not build the required infrastructure to thrive in it and the economists we have are not willing to gather new knowledge to play catch-up. Africa is growing so fast that its manual system cannot deal with the new challenges of a new context. We hope all African countries will wake up to this reality and build the required digital infrastructure to manage and thrive in a new context “
I agree with David. Why? As Nigeria is looking for foreign direct investment to cushion the scarcity of US dollars in the nation, the truth is that Nigeria is actually raising tons of money, via its startups. But there is a problem: that money is not making it to Nigerian banks via the Central Bank of Nigeria. What happens is that investors wire funds into US (or rarely British) bank accounts. Those millions of US dollars stay there, and are now imported into Nigeria, piece by piece, as needed.
As I noted in Boston University Law School, during a presentation there last year, that is the biggest risk Africa faces in fixing its broken economy. Yes, digital systems are masking (yes, masking) many components of market systems from the typical economic indicators. The CBN will not see any funds, even when startups have access to hundreds of millions warehoused outside the nation. In the past, that fund would have been in Nigeria. Not anymore because via the web, whether you have the funds in Lagos or New York, you are most likely going to operate the account using the web!
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And of course, all these companies are foreign companies and pay taxes abroad even though they do all their activities in Africa. As that redesign scales, you are going to see a massive disintermediation at scale. I hinted that in a post why Nigeria needs to review for new global tax treaties if it wants to have an economic future.
In my readiness document – a document I prepared in case the call comes one day – I have 13 factors which digital tech has distorted, rebalancing the national economic planning equilibrium. Besides the warehousing of raised capital abroad, Nigeria has lost a generation on its stock exchange (the companies to anchor the next wealth). Indeed, most of the leading startups and fintech companies in Nigeria are due for public listing, if you follow what happened in early 1990s when the new generation banks began.
GTBank was born in 1990 and went public in 1996, implying that most of these big startups in Nigeria are overdue for public listing in Nigeria. But that will not happen because most are not legally Nigerian or African.
So, unless the government rethinks and begins to apply modern tools, it cannot understand what is happening. That lack of understanding is the reason we’re not pushing policies which are impactful across Africa. Some do not make sense when you look at what is happening.
So, unless the government rethinks and begins to apply modern tools, it cannot understand what is happening. Respectfully, Africa needs a generation of new leaders who can make sense of the emerging economic architectures. London, New York, etc have disintermediated our capacity to influence our future economies because of digital tech. If all the funds raised by Nigerian startups are kept in Nigerian banks, we will not have forex crises! (But do not quote me…lol)
Comment on Feed
Comment 1: Is it possible to have a requirement that for any start up that wants to operate in Nigeria, any seed fund or DFI raised for such start ups should be domiciled in Nigeria?
My Response: You cannot do that because it is a FREE market. You can only create a better environment to make it better and those founders will come to Nigeria. Money cannot be caged and great policies provide directions to money.
Comment 2: I don’t think that it is New York, London or other developed cities that have disintermediated Nigeria rather Nigerian government has been asleep for more than 8 years. The startup’s keep their capitals outside Nigeria because our justice system and our financial services regulators cannot be trusted. The fact remains that it is not too late for Nigeria or Africa to start playing catch up but do government officials know how far off the tangent the country is?
Comment 3: Insightful! We must also address the low traffic of indigenous investors who would rather invest in foreign-owned company rather than local start-ups. I can tell you there are plenty of African investors putting their money on foreign-based corporations. To reverse the trend, local investors should first, find the act of investing in home-grown enterprises, not only as a good business, but a patriotic move.
My Response: “I can tell you there are plenty of African investors putting their money on foreign-based corporations.” – Great point. It comes down to confidence in local governments.
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We have to first admit that we lack conviction, before looking for something or someone else to blame. What is it exactly that drives us as a people? Without dealing with such a fundamental question squarely, it’s a complete waste of time prescribing for remedies or probable solutions.
When we were very small, we were trained to appreciate our mothers’ soup, that you cannot say your mum is a bad cook, and we internalized that, and it worked. The question each of us should ask and answer is, why is it as adults, our mum’s soup is no longer delicious, rather it’s those of neighbours and strangers? Therein lies all the things you are looking for.
I will spare all of you the long thesis I would have written in response to the piece, because it will indict everybody.
We want foreign university badge, foreign currency, foreign bank account, foreign residency, foreign accent, foreign headquarters, foreign investors, foreign stocks, even foreign friends and foods. Yet it feels cool to gather on LinkedIn and across social media to deliberate on the ills of Nigeria and Africa.
Is your mum’s soup the best or not? Until then…