Dream merchants in uncertain times

By Patrick O. Okigbo III.
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I had just settled into the metal chair in the departure lounge at Nnamdi Azikiwe International Airport, Abuja when I saw him walk in. Having recently watched his 2017 TEDx Euston Talk titled, “Who Will Own Our Future Unicorns”, I was excited to engage him on his bullishness about the prospect of tech start-ups in Nigeria; especially in light of the recent sale of Konga at a minuscule fraction of its previous valuation. How can one remain so bullish about the Nigerian tech space when the leader in the eCommerce space just toppled over? How does one realize such dreams in a country going through significant uncertainty?

Kola Aina holds an exalted place in the upper stratum of the new breed of dreamer-shapers in Nigeria. He is the founding partner of Ventures Platform, an Africa-focused fund that invests in start-up technology companies. His Ventures Park in Abuja is an ode to creativity, tenacity and hope. Built out of old shipping containers, the campus provides a co-working and co-living space for young techpreneurs. The murals on the shipping containers, painted by the internationally-acclaimed artist, Victor Ehikhamenor, is the first visual declaration that one has entered a haloed space dedicated to thought and creativity. From this oasis in Abuja, Ventures Platform has incubated about eighteen companies that leverage technology to tackle real problems in our society. Like vines thirsting for sunlight, these companies are all fighting for space to survive in a market that holds a lot of promise; yet, has its fair share of challenges and risk.

But before Ventures Park, or Yabacon Valley in Lagos that is becoming the leading technology hub in Nigeria, or Genesys Tech Hub in Enugu, there was Simdul Shagaya who founded what was to become West Africa’s largest eCommerce site: Konga.com. Sim, as he is popularly referred to, was like the SIM card for Nigeria’s emerging technology space. He came almost as a complete package with degrees from George Washington University, Dartmouth College, Harvard Business School, and work experience at Rand Merchant Bank in South Africa and as the Africa Head for Google. He cut his entrepreneurial teeth founding an offline business, E-Motion, an electronic billboard advertising company; and a slew of eCommerce companies: Alarena, Jobclan, Gbogbo, iNollyWood, and DealDey. Konga was founded in 2012 and by 2014, Sim earned himself a place on the Forbes list of “10 Most Powerful Men in Africa”.

Konga was expected to become the King Kong of the eCommerce scene in Nigeria. It promised to disrupt the way Nigerians shopped. Investors liked its position in a market that promised to be the gateway to the eCommerce opportunities in Africa. The numbers were exciting. By December 2017, Nigeria had over 145 million telephone subscribers; an increase of over 640 percent from the 19.5 million subscribers in December 2005. Of the current subscriber base, about 18 million Nigerians used smartphones. Over 91.6 million Nigerians were on the internet and over 16 million of them had Facebook accounts. Internet usage had grown by over 45.7 percent from the year 2000 to 2017. On the macroeconomic side, in 2013, Nigeria overtook South Africa to become the largest economy in Africa. Having grown at an average of 7 percent for close to a decade, the future looked bright for the country especially given the wide sweeping reforms that were at different stages of implementation.

This compelling story yielded significant investments. Between 2007 and 2016, Nigeria received about US$63 billion in net inflows of foreign direct investment. The tech sector benefitted from this inflow. Konga secured about US$130 million primarily from two venture capital firms. Other tech companies did as well. For instance, Andela, a company that provides access to the top 1 percent of tech talent across Africa secured about US$81 million from three funding rounds. It is no great surprise that by 2016, Mark Zuckerberg was seen taking selfies on Lekki bridge.

But by the time of Mark’s visit, Konga was already beginning to show signs of distress. Some of the exciting assumptions the company had been built on were fast turning into “fool’s gold”. Of the millions holding phones and ranting on Facebook, ironically only about 184,000 were transacting on Konga. Order fulfilment costs were high because the company had to create and manage its own delivery infrastructure. Sales margins were low due to a price sensitive customer base that also had low purchasing power. It seemed to be only a question of time before King Kong would collapse under its weight.

On February 03, 2018, in a succinct tweet (even by Twitter standards), Sim announced the sale of Konga to Zinox Computers, another frontrunner in the Nigeria technology space. You could hear the collective gasp in Nigeria’s tech community. It felt like a chunk of the tech heart had been gorged out. Jason Njoku, a tech innovator and founder of iRoko TV, mourned the event by stating that “Nigeria Inc.is poorer now” with the exit of Sim from Konga.

By the time the dust settles on this episode, the issues that led to the end of the dream could be categorised into two groups: business model and the Nigerian economy. Konga’s fate draws some parallels with the demise of Webvan, an online U.S.-based grocer that went bankrupt in 2001 after incinerating US$800 million within three years of operations. The company was founded by Louis Borders (founder of the now defunct but then leading U.S. bookstore chain, Borders Bookstore). The company had as its C.E.O., George Shaheen, who was the former Global Managing Partner of Accenture; a firm he grew from a business unit within Arthur Andersen to become one of the top three management consulting firms in the world. Webvan’s promise to deliver groceries to its customers within a 30-minute window of their choosing became the company’s death kneel. This commitment meant that the company had to own warehouses across the United States and create its own order-fulfilment infrastructure from scratch. Furthermore, Webvan expanded aggressively to many cities in the U.S. without first proving its business model. It also had problems with its customer segmentation. Having to serve a mass market that is price-sensitive put immense pressures on profit margins.

These are uncanny similarities with Konga, which also had warehouses across Nigeria to be able to serve its customers. It built its own order-fulfilment infrastructure and, by the nature of its business, had to focus on the price-sensitive mass-market as well. As with Webvan, Konga did not prove its model in a few cities before bullishly rolling out across Nigeria in its effort to win market share.

There is also an eerie similarity with the macro-economy. Webvan went belly-up in 2001 in the midst of the U.S. recession and the burst of the dot-com bubble. Konga may have had a fighting chance if the high economic tide of the preceding decade had continued. However, the collapse of international oil prices and the uncertainty that heralded the new Buhari government led to an economic recession that hastened the decline of many businesses.

So how does one continue to sell in Nigeria’s eCommerce potential in the aftermath of the Konga sale? This was the core issue I wanted to discuss with Kola. He caught sight of me waving at him; flashed me a toothy smile, and rolled his travel case over to where I had positioned myself beside the air conditioner overlooking the runway.

Kola was on his way to New York via London to raise capital for the tech companies in his incubator. I couldn’t help but note that this was the subject of his TEDx Euston talk where he bemoaned the fact that the tech companies coming out of Africa would be owned by foreign capital because Africans are not investing in these companies. I always assumed “wealthy” Africans do not invest in homegrown enterprises because they did not “earn” their capital through enterprise. Most of the wealth was secured as rent from the misuse of vantage positions in government. They prefer to squirrel away the loot in banks outside the continent rather than provide them as investable capital.

Despite the winter in New York, it is likely that Kola would be sweating as he made his pitch to the potential investors. Most of the points from his earlier presentations were fast turning to dust. While Nigeria still has the largest population in Africa and is set to become the third most populous country in the world by 2050, Nigeria’s current purchasing power is equivalent to that of only seven states in the United States. The 7 percent GDP growth rate of the last decade has since dropped off to about 1 percent. There is still no clarity on the economic policies that would jumpstart economic growth in Nigeria, close the unemployment hole, narrow income inequality, and increase disposable income. It has become obvious, even to the most ardent optimists that the Nigerian economy is not as robust as it was touted to be. With a significant drop in oil prices, fumes of petro-dollars that masked the inefficiencies in the market have also lifted and the country is now dancing naked.

Kola is a smart guy. He has a way with words. He said a lot without addressing my question. He spoke about the fundamentals of the Nigerian market and the variables that must align to unlock the innate potential. I did not push him too hard. What’s the point of dampening his spirit before he got in front of his potential investors? However, he left me with a profound statement. “We can’t entrepreneur ourselves out of foolishness”. There are fundamental factors that influence foreign investment decisions and most of these factors lie within the remit of the government.

Kola is right. While entrepreneurs can sell the opportunities in Nigeria, the onus is on the government to provide the public goods necessary to complement their efforts. An empirical study by Jason Lewis on the “factors influencing foreign direct investment in lesser developed countries” concluded that the three most important factors are a large pool of educated people especially in the technical disciplines, long-term economic stability and performance, and finally, urban centres with sufficient infrastructure to support business growth.

Over the last three years, Federal Government of Nigeria has allocated an average of 6 percent of the federal budget to the education section. This is paltry compared to the 26 percent recommended by the United Nations. Note that this comment is just about the quantum of investment in education as we are yet to commence the rigorous debates about the best model to extract performance from the teachers. The recent macro-economic instability resulting from an over-dependence on oil revenue buttresses the urgency required to diversify the economy. While there is some thinking going on in the power sector, as electricity is a critical infrastructure, there is the need for urgency to deliver results.

The announcer came over the PA system with an accent fluttering somewhere between British and Ibadan English. Our flight was ready to depart. Kola and I shook hands and headed for the gate. At many points during the flight, my thoughts went from Sim to Kola and to Nigeria. I imagined the range of emotions both entrepreneurs must be feeling at this time: a disappointment for one; hope and trepidation for the other. In the decade since my return to Nigeria, I have experienced most of the points on the emotion-spectrum. From the exhilarating adrenaline of the “opportunity”, to the depression of false-starts and absolute failures. As I tried to lull myself to sleep, I came to the realisation that there is no other way for economic development to take root and be sustained without the likes of Sim and Kola. Dreamers who fearlessly dare to make their dreams a reality in the midst of a graveyard of failed hopes and opportunities. While we must keep believing and remain optimistic about a bright, realisable future; we must also be realistic about our future not emerging (Africa Magic-style) on its own accord. It has to be carefully designed, nurtured and sustained into success. This is what Sim tried to do with Konga. This is what Kola is doing today with Ventures Platform.

I said a silent prayer for Kola; for success with his pitch. It can’t be easy selling dreams in these uncertain times but Nigeria needs the success stories. Let’s pray he wins and can pave the way for other dreams to follow.