Economic View

On finding opportunity in the face of adversity

What investment opportunities have you seen arise from previous economic and health crises, and how does Covid-19 compare?

IYINOLUWA ABOYEJI: Crisis is not new to Nigeria. We have already lived through a number of them, and they provide both challenges and opportunities. Indeed, two of our top portfolio companies were founded in the middle of previous crises. Software engineer training firm Andela was established during the Ebola crisis, and payment solutions provider Flutterwave successfully raised money in Nigeria in the middle of a major financial and economic crisis. 

The current Covid-19 crisis is slightly different, as it is one of the first where we face health and economic effects simultaneously. Large parts of the country are in lockdown, and the oil price drop is likely to result in an economic crisis. It is clear that this situation is accelerating the adoption of digital technology by both individuals and businesses. Unlike in many other crises where the main concerns were about the market, now there are worries about maintaining operations and keeping employees and communities safe. 

In what ways have entrepreneurs responded, and how can they overcome current challenges and capitalise on opportunities?

ABOYEJI: Ultimately, the same principles that apply to other challenging moments will also apply here. First, companies need to be in lockstep with their teams in response to the crisis, which must now be accomplished virtually. Second, companies must focus on the needs of their customers, which also has to be done from a distance. No sector is immune and no sector is doomed. It is all dependent on how entrepreneurs take advantage of opportunities and react to the crisis. This is a crucial time for start-ups to pivot and find new customers if they can. We are encouraging a number of companies – especially those that have testing capabilities – to use their expertise to educate people and try to work with the government. 

Unfortunately, collaboration between the private sector and the government can be a major challenge for start-ups. Expanding testing capacity is a key issue that needs to be addressed; however, for the moment the private sector is unable to contribute as much as it could, even though there are a number of companies that are willing and ready to jump in. For example, 54gene, a start-up founded to study African genetics, has molecular testing capabilities that are proving very helpful in the effort to scale up testing. It is working together with the Nigeria Centre for Disease Control to roll out operations. 

How has Covid-19 impacted the ability to raise funds?

ABOYEJI: In the midst of the ongoing crisis, a broad swath of investors is being attracted to venture capital funds, with a significant domestic component. Among them are a number of young people with the range and foresight to look at venture capital as part of their portfolio. Another important group is the diaspora – people who want to be part of the technology revolution going on in Nigeria. Lastly, institutional investors continue to want to engage, as they feel like this is the right time to secure deal flow.

There are many people who see the opportunities clearly. There are also some perfect storm characteristics that will continue to drive financing to venture capital funds. Currently, in the Nigerian market, banks are not offering products and are even rejecting deposits. Treasury bills, which traditionally offer safe and very high returns, are currently at 5% – lower than inflation. 

Everyone is expecting a further devaluation of the naira, which is making dollar funding options attractive. However, even with dollar funding options, people still want familiarity with investment assets, where they understand what the use cases will be. This is driving a lot of activity right now, and we expect it to continue even as the economy faces headwinds.

Where do you expect to see opportunities as the country comes out of the lockdown, and what will “back to business” look like?

ABOYEJI: There will be many problems that will require solutions moving forward. With physical distancing becoming a reality, we will be looking for businesses that provide social infrastructure by leveraging digital technology. We expect some form of social and physical distancing to be in place for at least 18 months, and people will continue to be careful even when the government eases restrictions. 

Remote work is going to be a major piece of the economy moving forward, with health care, logistics and e-commerce set to grow in value over time. Studying how entrepreneurs react to these changes is going to be very important – it is at times like these that new forms of innovation really become critical. Now is the time to identify what people are doing that is working and make sure to expand those innovations to as wide an audience as possible.