Investing in Nigeria’s booming tech ecosystem has become increasingly attractive, with startups like Flutterwave and Moniepoint making global headlines. In 2022 alone, Nigerian startups attracted over $1.2 billion in venture funding – making it Africa’s most funded tech hub.
But high growth comes with high risk. While the rewards of tech investing in Nigeria are substantial, there are serious challenges – especially for diaspora investors unfamiliar with local dynamics.
This article breaks down the three biggest risks of investing in Nigeria’s tech space, and what you can do to navigate them effectively.
1. Regulatory Uncertainty
Nigeria’s tech sector operates in a highly volatile policy environment. One moment you’re scaling a fintech app; the next, regulations shift- sometimes without warning. A striking example is the 2021 Central Bank ban on crypto transactions, which blindsided many local and foreign investors.
How to Manage This Risk:
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Partner with local legal experts who understand Nigerian tech regulations.
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Stress-test your investment strategy using multiple policy scenarios – optimistic, realistic, and pessimistic.
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Diversify across tech verticals to reduce concentration in overregulated areas (e.g. balance fintech with edtech or healthtech).
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Consider convertible instruments instead of fixed equity, giving you flexibility if regulations evolve.
2. Infrastructure Gaps
Investing in Nigeria means dealing with infrastructure realities: unstable electricity, patchy internet, limited logistics, and inconsistent payment networks. A tech product that performs well in Lagos may struggle in tier-2 cities due to address issues, low mobile money usage, or weak connectivity.
How to Mitigate:
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Conduct infrastructure-focused due diligence. Test the startup’s product in both urban and semi-urban environments.
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Back startups with resilient business models – those that leverage existing infrastructure like USSD and mobile money.
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Prioritise teams with hands-on experience operating under infrastructure constraints.
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Account for hidden infrastructure costs in your valuation; like generator expenses or building last-mile delivery networks.
3. Currency Volatility
The Naira has lost over 60% of its value against the US Dollar in the past five years. Beyond devaluation, issues like multiple exchange rates, forex scarcity, and capital controls can trap your money and erode investment value.
A few strategies to protect your capital include investing in startups with natural hedges, like those earning in USD or where both revenues and costs are in Naira.
You also want to avoid over-relying on international exits. You can explore local acquisition pathways and secondary market strategies.
Use multi-currency investment vehicles to avoid forced conversions at unfavourable rates, and monitor key drivers of forex policy like CBN actions, oil prices, and national reserves.
Frequently Asked Questions
Q: Is it safe to invest in Nigeria’s tech startups?
A: Yes, but only if you understand the regulatory environment, currency issues, and infrastructure gaps. Risk mitigation is essential.
Q: What’s the best sector to invest in Nigeria right now?
A: Fintech leads in funding, but sectors like healthtech, agritech, and logistics are increasingly attractive.
Q: Can foreigners invest directly in Nigerian startups?
A: Absolutely. You’ll need to comply with local business registration laws, currency transfer rules, and sometimes sector-specific licensing.
Action Steps
Investing in Nigeria’s tech sector has a lot of opportunities for significant returns but only investors who are able to effectively mitigate against the risks would reap the rewards.
Get actionable insights on any tech sector before going forward with your investment.
You can’t always avoid risks, but you can mitigate them with adequate research and market intelligence
Let us do that for you today!
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