Nigeria shedding floor to African rivals in VC funding race

Nigeria, beforehand the centre of enterprise capital funding in Africa, is falling behind the continent’s different main markets in the case of attracting funding, in a development that one analyst says “displays structural and long-term challenges in Nigeria’s enterprise capital ecosystem.”

In 2021, Africa’s document yr for enterprise capital with 681 fundraising rounds totalling $5.2bn, Nigeria ranked first for each deal quantity and the general amount of money raised. That yr, Nigerian startups secured round $1.8bn in funding, over a 3rd of the continent’s whole and greater than the continent’s three different main markets – Kenya, South Africa, and Egypt – mixed.

Nonetheless, this standing seems to be slipping. As of August 2025, greater than 500 African startups had raised about $2.8bn. Nonetheless, Nigeria accounted for simply $186m of that. In contrast, Kenya has managed $879m, South Africa has secured $848m, whereas Egyptian firms have collectively raised $561m. For the primary time in a number of years, Nigeria is firmly final among the many so-called “large 4” African markets.

Too reliant on overseas funding

What explains this sharp downturn in fortune? Talking to African Enterprise in Lagos, Noah Banjo, a tech and enterprise capital analyst, says a reliance on overseas traders is limiting Nigerian startups’ capability to lift funds.

“The first cause Nigeria is falling behind different main markets in enterprise capital funding is that Nigerian corporations take part in however hardly ever lead large funding rounds, which leaves startups depending on overseas traders for important growth-stage funding,” Banjo says.

This reliance on overseas enterprise capital funds is particularly problematic as a result of Nigeria has skilled a number of main macroeconomic challenges lately, which has deterred overseas traders from assuming an excessive amount of publicity to the Nigerian market.

Specifically, since President Bola Tinubu dedicated to liberalising overseas trade markets and freely floated the Nigerian naira (NGN) is June 2023, the foreign money has depreciated by virtually 70% in opposition to the US greenback.

For almost all of startups incomes their income within the native foreign money, this makes it extraordinarily tough for them to supply greenback returns to worldwide traders. Which means that even a few of the nation’s quickest rising firms with more and more giant naira-denominated income can nonetheless wrestle in greenback phrases.

For instance, Pawel Swiatek, chief working officer at Nigerian fintech unicorn Moniepoint, advised African Enterprise in April that the large depreciation of the naira had considerably dented its US greenback income.

“Whereas the naira has now fortunately stabilised, one of many challenges we at all times deal with is trade charge threat,” he stated. He added that Moniepoint was searching for to increase exterior of the West African nation partly “to diversify and have macroeconomic and foreign exchange publicity to different international locations and never simply Nigeria.”

Along with foreign money depreciation, related points equivalent to stubbornly excessive inflation – costs are nonetheless rising at year-on-year charge of over 20% – additional complicate the enterprise panorama and make the market more difficult for overseas traders.

Protfit repatriation fears

The Personal Fairness and Enterprise Capital Affiliation of Nigeria (PEVCA) has additionally identified that overseas traders are sometimes apprehensive about committing to the Nigerian market over considerations they may wrestle to repatriate their income because of capital controls.

These considerations have been strengthened by high-profile disputes, equivalent to that between Nigeria and the United Arab Emirates over the lack of Emirates and Etihad Airways to repatriate funds. Whereas the row was finally resolved, the dispute noticed Emirates droop all flights to and from Nigeria for round a yr from August 2022, citing sluggish progress on its efforts to repatriate round $85m of income.

Banjo notes that Nigeria’s drop in enterprise capital funding is partly pushed by these “financial challenges equivalent to inflation, foreign money devaluation, and excessive borrowing prices” and provides that “this displays structural and longer-term challenges in Nigeria’s enterprise capital ecosystem, influenced by macroeconomic components.”

Rotimi Ogunyemi, a Lagos-based expertise lawyer and companion at BOC Authorized, equally notes that “persistent foreign money volatility, excessive inflation, and still-unstable financial insurance policies make it tough for traders, particularly worldwide ones, to cost threat with confidence.”

Regulatory points persist

Ogunyemi additionally factors out that Nigeria’s regulatory panorama can show difficult for overseas enterprise capital funds to navigate. He says that “over the previous few years, sudden coverage shifts in overseas trade administration, taxes, and laws have created actual uncertainty – and traders have responded by turning into extra cautious.”

“The narrative that Nigeria is “dangerous” has grown partly as a result of, traditionally, the foundations have saved altering mid-game. Different African markets have their very own challenges, however they’ve been higher at offering clear ahead steering and sticking to it,” he provides.

“Kenya, for instance, communicates regulatory adjustments extra systematically, giving startups and traders time to regulate,” Ogunyemi tells African Enterprise. “Nigeria can do the identical, with out shedding its dynamism, by introducing extra clear session intervals, clearer roadmaps, and predictable regulatory timelines.”

No method out?

One other challenge which analysts say is hampering Nigeria’s enterprise capital ecosystem is the shortage of exit choices for traders. To various levels, it is a downside throughout the continent.

Sadaharu Saiki, basic companion at Sunny Aspect Ventures in Cairo, has beforehand advised African Enterprise {that a} lack of IPO exercise and restricted numbers of mergers and acquisitions or secondary transactions makes it tough for traders to exit their positions and money of their income.

“It’s clear we’d like extra liquidity choices to spice up the attractiveness of African markets for traders,” he stated.

Nonetheless, Ogunyemi believes that this challenge is especially acute in Nigeria, arguing that the nation “has not but constructed the type of home capital swimming pools and exit channels, equivalent to native IPOs or secondary markets, that give later-stage traders the arrogance they may get returns.”

“South Africa’s extra developed capital markets, for instance, give traders confidence about eventual exits,” he says. “Nigeria can replicate a few of this by creating, as an illustration, a devoted tech progress board on the Nigerian Alternate, with lighter itemizing necessities and incentives for analysis protection and market making.”

Time to encourage native funding

What could possibly be completed to reverse these developments? Past stabilising the macroeconomic setting – bringing the naira to a extra steady degree and getting inflation beneath management – each Banjo and Ogunyemi imagine that lowering Nigeria’s reliance on overseas traders is important.

Banjo says that “rising the capital and management function of Nigerian enterprise capitalists in funding rounds is essential to lowering reliance on overseas traders.”

Ogunyemi provides that this could possibly be achieved by encouraging “native progress funds backed by pension, insurance coverage, and diaspora capital, so startups usually are not wholly depending on overseas enterprise capital cycles.”

But regardless of the challenges, there are causes to be optimistic about the way forward for startup funding in Nigeria.

For one, the federal government has claimed that Nigeria is previous the worst of its financial instability having taken its “bitter medication.” In a latest speech in Abuja, Tinubu stated that “the economic system is stabilised […] the bleeding has stopped, haemorrhage is gone; the affected person is alive.” The naira has recovered about 15% of its worth for the reason that 2023 devaluation, maybe suggesting that extra steady macro situations could possibly be forward.

Banjo additionally notes that the Nigerian enterprise capital area is altering in response to the challenges it has confronted. 

“Rising funding types like enterprise debt and elevated involvement from improvement finance establishments point out potential for restoration and evolution within the ecosystem,” he says.

“Regardless of a decline in deal worth, Nigeria nonetheless leads Africa in enterprise capital deal quantity, suggesting there’s loads of room for sustainable progress forward.”