Nigerian fintechs are booming, despite government crackdowns

(This is a transcript of the podcast posted on Monday, August 23th, 2021. You can listen to the podcast by clicking on this link https://open.spotify.com/episode/65EOEkIMxmHoqG8veXjMHe?si=ma3YD4a5RWeUomTFiP9ycw&dl_branch=1&nd=1)

DUMI JERE:

Greetings ladies and gentlemen. Welcome to this week’s episode of The Weekly Beat. My name is Dumi Jere, and I’m coming to you from South Africa. And with me today is my beautiful sister Maggie Mutesi, who’s coming to us from… Where are you Maggie?

MAGGIE MUTESI:

I’m in Dakar, Senegal.

DUMI JERE:

You see. Yes. My beautiful sister Maggie coming to us from Dakar in Senegal. Anyway, how are you?

MAGGIE MUTESI:

I’m doing good. You know in the past few days I have lost three people, not close to me, but people I know, that I have worked with in the past two weeks as well. I am safe, I don’t have COVID, some of them have been admitted. One of them passed on just the other day. And it’s got me thinking that this virus is not going away. I keep saying this every time we meet because it’s becoming closer to home, but also becoming more scary especially in thinking about the fact that even those in hospital have been vaccinated. So lots of questions to think of. How is South Africa?

DUMI JERE:

South Africa is all right. So what’s happening now is that they’ve opened up vaccines pretty much to everyone now because they’ve now allowed the 18-year-olds up to 34-year-olds. That probably was the last group to still not be vaccinated. So we feel there’s going to be more progress. The numbers have been going up in terms of people that have received either the first dose or are receiving their second dose.

So that is actually very encouraging news. And we’re on the right track as a country, but obviously as a continent, we’re still a long way to go. And speaking of the continent, today we want to head straight to the west part of the continent and by west I mean, W-E-S-T not W-O-R-S-T. I know sometimes the Malawi in me comes in and my pronunciation is all messed up, but yes, we are going to West Africa today.

We’re going to talk about the Central Bank of Nigeria, or should I say Nigeria strikes again? I mean, we’ve spoken about Nigeria before the show and it seems like they’re not doing themselves any justice. They keep being in the headlines of news. And for those that don’t know what’s been happening in the news, the Central Bank of Nigeria froze the bank accounts of four FinTech startups over alleged illegal forex trading.

So we don’t know whether that is actually has been happening or not, but the government seems to think, yes, it is happening. So they are investigating the illegal foreign exchange transactions by these FinTech companies. And the regulator also advised capital market operators working directly with those FinTech platforms to stop doing business with those FinTech platforms until further notice. So they went ahead to the high court, obtained an order freezing their accounts, and here we are.

Companies that are affected are Risevest, Bamboo, Trove, and Chaka. And this order to freeze is valid for the next six months. And so here we are Maggie. We have spoken about Nigeria before. I have been on the side that says the Nigerian government seems like a bully to companies that are doing business in Africa. As an entrepreneur myself, it makes me feel like it’s akin to a situation where I’m building something on quicksand, because I never know whether what I’m building is strong enough or when the ground is going to give in, when I’m going to be forced to close shop.

It’s really bad for business but I’m almost slightly moving away, but still staying within the story that we’re talking about. Nigeria has been in the news. I remember the last episode that we touched on Nigeria when Arnold was here-

MAGGIE MUTESI:

With MultiChoice.

DUMI JERE:

Yes, with MultiChoice.

MAGGIE MUTESI:

And Twitter.

DUMI JERE:

That too. Arnold was on the side that essentially was saying that, well, the Nigerian government is within its rights to regulate whatever the other companies are doing. And he was making the point that SA media has got a vendetta against the Nigerian government. But assuming that were the case, then evidently the Nigerian government is shooting itself in the foot. Right? Because at first we thought it was just an issue with South African companies, MTN, ShopRite, MultiChoice, and many other companies.

But now it’s looking more and more like it’s not only a case against South African companies. It’s Twitter. Twitter was also in the mix. That’s a U.S. company. These fintech startups that are in the mix, some of them are Nigerian or started by Nigerian entrepreneurs. And essentially the picture to me is becoming much more clearer to say it’s just a bad regulatory environment.

MAGGIE MUTESI:

That’s exactly what I was going to say. I’ve been thinking about it as you were speaking. And the question for me has been that Nigeria itself is such a huge economy. It’s the most populous country in Africa. You have these startups and then you have all these hurdles. And for me, the question has been that these policies or governance could actually affect innovation within Nigeria. And to some extent I would love really to understand, does the government really think through it when they are making such decisions? Because this company is freezing their accounts for six months, it’s a lot of money that you’re putting at stake.

But again, if it comes back to regulation, I mean, aren’t these things they should have known before? Is there something they did that we do not really understand? And I think it brings us back to what we’ve already said in terms of every topic we’ve covered Dumi, that good governance and policies are the only way to development, even opening up markets in Africa, because imagine companies going through this it’s hindering other people that would have loved to actually open up in Nigeria.

I had a question from somebody a few weeks ago, months ago, when we covered Twitter. He said to me, do you think Twitter took their HQ to Ghana because of the unfavorable government policies in Nigeria? Because Nigeria really has the biggest users. Why then not take the headquarters to Nigeria? And when you think deeper into it, it makes a little bit of sense that if you’re not sure of how the policy is going to affect your company, then you’re going to look for a favorable environment to start business. I think it’s much more hindrance to innovation, especially within Nigeria, because they have such a huge startup ecosystem. They raised the highest amount of money in 2020, close to $241 million alone, so they have so much potential and something like this is a setback.

DUMI JERE:

I think one thing that we can all agree on is that there’s so much, we’ll call it inconsistency when it comes to the regulatory framework within Nigeria. And true to what you were saying around Twitter, it’s been preferably setting up its headquarters in Ghana as opposed to Lagos which probably has more users. It only then makes sense that at the end of the day they probably evaluated certain things. They looked at the framework, they looked at the messaging that was coming from the political space. And at the end of the day, to me it looks like a brilliant call that the Twitter folks did. Also, when you look at it, the former Minister of Finance in Nigeria on your board for Twitter after evaluating everything else, you realize that, Hmm, actually maybe let’s not go to Nigeria. Let’s actually go to Ghana. That speaks volumes about the environment that is in Nigeria today, but looking forward, what I mean, obviously at the end of the day, now a lot of startups are probably thinking, okay, do I do business in Nigeria? Or do I not?

Assuming you’re sitting on the other side, what would be your take as we wrap up this conversation, what idea or rather, what messaging would we give to startups that are looking at entering the Nigerian space? Because let’s not lie to ourselves. Nigeria is still a very big contender on the continent with over 200 million people or in terms of population is probably one of the biggest, if not the biggest or the most populated country on the continent. So that’s a huge market that we should not ignore. So where to from now if you’re a startup looking to expand?

MAGGIE MUTESI:

Well, I think like you’ve mentioned, there are some economies you can never run away from Dumi. You can’t run away from Nigeria, you need the numbers, you need the population. I mean, it’s such a great market. It will always be. Markets like Nigeria, regardless of their challenges, still present opportunities. Of course, as investors, the greater the risk, the greater the profit. I don’t know how accurate this is, but this is what I’ve read all the time.

And it takes me back to somebody who said to me, “Listen, I love East Africa. One of the countries in East Africa, I love it, but the numbers don’t work for me. People are so few and I feel like I can do so much more in Nigeria. Even if I had 1% of the cake, I feel like I can make much more than just going into a country that has smaller populations.”

But again, for me, I think it’s important to understand the regulation of the Nigerian government. It’s a bit unpredictable on a policy level. I think this is something to be careful with, but again, we might be looking at it from an entrepreneurial perspective. Maybe in a policy perspective, they’re are trying to actually tighten up stuff. They’re trying to make things pop up because also this is a country that has been operating in a very unconventional way.

So maybe they’re trying to tighten up things and to get the economy in a proper way. And to regulate stuff, not just operate as they used to. So that’s another way you have to look at it, but for me, for any startup going into Nigeria, I would still say, go for it, just go for it. I mean, there’s always going to be those risks in terms of policy, in terms of things like this, you just have to be ready for the shocks.

Everyday when we speak, even when wars or crisis happens, you never know this is going to happen. It’s always a hiccup that comes in business. And now that I’m in business, I think I even understand it more. It’s like the unexpected is always waiting. This is not a good move. I see a lot discouraging for entrepreneurs, especially for entrepreneurs from Nigeria, it’s not the most open or the most proper country where you just say it’s easy to do business. So the fact that it’s hard to do business, they should at least make it easier on the regulation part. So I feel like it will hinder innovation. It will affect a lot of people. The people whose money might be stuck or not, but again, it’s businesses, it’s investments Dumi. We just go for it and do it. The risk in Africa is always worth it.

DUMI JERE:

Of course, for me in conclusion, I think entrepreneurs and startups, it’s a space that excites me because I also play in it. And we’re always trying to innovate and find ways around whatever seeming obstacles of blockages that we may come up with. So if it’s me talking to a startup or particularly a fintech that are trying to penetrate a Nigerian space, I would say use what we call decentralized finance, which is essentially a range of financial applications in crypto currencies. And these are geared toward disrupting the financial intermediaries such as Central Bank of Nigeria and in so doing you’re going to end up interacting with those decentralized finance platforms through none certain custodial, call it digital wallets.

So with that arrangement I’d say fintech companies in Nigeria can then guarantee that the operations have continuity for their customers, regardless of the regulatory status quo in the country. At the end of the day, investors then don’t have to worry about central government or the regulatory body freezing their accounts because their funds are always accessible to them in the form of crypto currencies.

But look, we are, as Arnold would say it, running very heavy on time and we’re going to have to leave our conversation. Therefore in conclusion, thank you for listening to this episode. A special thank you to my cohost, Maggie, and of course to you, the loyal listeners.

Please remember to visit our website mansamedia.africa for more news about the continent, as well as follow our social media pages, Mansa Media Africa on Facebook as well as @mansa_media on Twitter. Please remember the virus is still real. Continue to mask up, social distance, sanitize. That works, let’s do that. I am Dumi Jere, until the next time here’s to peace and profits.

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