Lagos, the commercial capital of Nigeria, is a source of mixed emotions for its more than 20 million inhabitants. Many come to the city from the hinterland to pursue their dreams. Some succeed, some do not. But all suffer one grief or another from the city’s punishing traffic jams, noise pollution from ubiquitous standby-generators, and so on. Despite its shortcomings, Lagos is a city of great potential. With a gross domestic product (GDP) of about US$136 billion in 2017, the city is already acclaimed to have the 7th largest GDP in Africa. , (The state government believes it is the 5th largest in Africa and aspires to become the third largest by 2020, three years from now. )
Figure 1: Smart Lagos as an ecosystem
Source: Author’s research
Additionally, the Lagos economy is estimated to constitute about a third of Nigeria’s output and certainly earns the highest annual tax revenue of all 36 federal states and the federal capital territory; which is in excess of US$1 billion. Lagos leads Nigeria on a number of other metrics. It has the highest literacy rate among 15-25 year olds. It has the homes with the most mobile phones in Nigeria. More homes have a car or a truck in Lagos than anywhere else in Nigeria. By 2023, Lagos could have uninterrupted power supply if current efforts by the state government continue and are successful. State governor Akinwumi Ambode has staked his reputation on bringing this about. Private sector actors are being encouraged via a myriad of incentives to establish small power plants that need not plug into the national grid. This is no doubt helped by recent moves by the federal government to waive this necessity, particularly that of licensing to generate electricity. An individual or corporate body generating no more than 1 megawatt (1MW) of electricity does not need to get a license. Judging from these attributes, it is not an exaggeration at all to suppose the ambition of the government to make Lagos a smart city, is one that can be realised.
The technology sector in Lagos is perhaps the one area where the city’s potential is writ large. With little or no government support, savvy entrepreneurs built the so-called “Computer Village” in the Ikeja capital district of Lagos, where there is hardly an information and communication technology (ICT) hardware that cannot be found. Today, Computer Village is adjudged the largest ICT accessory market in Africa. A planned relocation to a dedicated ICT park by the government has not been well-received.
But the city is also building capacity in software; organically at that. Lagos-based Andela trains programmers and facilitates their placement with software companies around the world. Such is Andela’s stellar reputation for excellence that American TV network CNN in June 2015 called it “the startup that’s harder to get into than Harvard.” There is also a budding tech entrepreneurship boom in what is called the “Yabacon Valley” in a district of Lagos called Yaba, where techies have been aggregating to create innovative solutions; currently mostly in e-commerce and payment systems. Global tech executives got wind of these developments and started paying visits to Lagos. Facebook’s chief executive, Mark Zuckerberg, stopped by in August 2016. So did Google’s chief executive Sundar Pichal in July 2017. But it was Microsoft that blazed the trail, with its chief operating officer Kevin Turner visiting Lagos in November 2010.
Now the Lagos State government takes the sector very seriously; albeit in some cases (like in the relocation of the computer village from Ikeja to an ICT park elsewhere) not necessarily to the delight of operators in the sector. In January 2017, state governor Akinwunmi Ambode announced plans to transform Yaba into a major technology hub: “I decided to come here just for me to feel the state of things and to learn about your challenges. Our government is seriously committed to assisting entrepreneurs like the ones here to be able to be good startups.” Tech entrepreneurs in the Yaba cluster would be allowed access to the state’s 25 billion naira employment trust fund, for instance. Mr Ambode also announced plans to upgrade road and parking infrastructure in the area. Now the state government is working on initiatives to position the city as a place for technological innovation. Yabacon Valley has a robust broadband infrastructure, courtesy of the state government, for instance.
Smart city defined
“A smart city is a destination where hard and soft infrastructures are integrated with technology and securely connected together.” And what does the Lagos State government hope to achieve when it refers to the concept? In remarks made in May 2017, Governor Ambode explained his understanding of the concept this way: “In the emerging knowledge era, ICT has taken centre stage, and as the city of the future, Lagos must take advantage and indeed leverage on the tools of ICT in moving towards a Smart City.”
So, what are the steps already taken by the government towards this objective? In June 2016, the Lagos State government signed a memorandum of understanding with Dubai Holdings LLC, owners of Smart City Dubai LLC, “to develop sustainable, smart, globally connected knowledge-based communities that drive a knowledge economy.” To be located in Ibeju-Lekki on the outskirts of Lagos, “a Smart-City Lagos will be the pride of all Lagosians, just as we have Smart City Dubai, Smart-City Malta and Smart-City Kochi (India).”
To assess its potential, it would help to examine the evolution of smart cities elsewhere. Investments and jobs have been touted as potential gains. That has been the case for Smart City Dubai, certainly. But there are many advantages Dubai has that Lagos does not as yet have. Apart from looking to successful cities like New York and drawing up plans and implementing them, a crucial factor for Smart City Dubai’s success has been the authorities’ collaboration with the private sector, especially global technology companies. Today, just about five years after the Dubai Smart City project was launched in 2013, Dubai is at the forefront of research in artificial intelligence, autonomous vehicles and so on.
The city of Dubai has also taken on ambitious events and projects to motivate it towards its ambitions, like the Expo 2020 (which it won hosting rights to the same year the smart city project was initiated), Hyperloop Dubai, Oasis Eco Resort and so on. Other initiatives are: Happiness Metre, Smart District Guidelines, Smart Dubai Index, Dubai Data, Smart Dubai Platform, Dubai Blockchain, and so on. Although the Dubai example is perhaps a long shot, the promoters of Smart City Lagos are right to aim that high.
Local capital looking to profit from tech play
So, what could realistically be expected to happen regarding Smart City Lagos over the short- and medium-term? And what are the opportunities to watch out for over these time horizons? In assessing the opportunity, a potential investor, and indeed the government, could choose to focus on Smart City Lagos or Lagos as a smart city. In any case, the state authorities seem to be aiming for both.
In May 2017, they started the installation of free wifi infrastructure across the city. The state government has also started training its staff to align them with its smart city vision. For instance, staff in the Lagos central business districts (CBDs) had their training session in January 2018.
The real opportunity lies in Lagos, the smart city. True, the advantages that a smart city in the mould of Dubai Smart City provides, which in addition to flawless infrastructure, include a clustering of talent in a particular area, such that tech companies could easily conduct all their operations in one location, with all the logistical and operational benefits that engenders.
Currently, there are two other major smart city developments in the city apart from Smart City Lagos, which are already at advanced stages, and probably more relevant for a foreign firm looking to make the move to Lagos momentarily. Eko Atlantic City is a new city being created from a sand-filled area of the Atlantic Ocean bordering the highbrow Victoria Island area of Lagos. A totally private initiative, but with considerable government support, firms could easily set up shop and find accommodation for their staff in a secure and efficiently run enclave, without any of the difficulties typically associated with the main city.
The other major development is the Lekki Free Trade Zone (LFTZ), where a deep sea port is being built. Promoted by The Tolaram Group, a Singaporean conglomerate, and the Lagos State government, the Lekki Deep Seaport, of which the first phase is expected to start operations in 2020, would be able to handle 2.5 million TEUs and subsequently almost double that to 4.5 million TEUs when the second phase is completed. And although the broader LFTZ is currently dominated by manufacturing firms and the like, an IT hardware manufacturer could easily set up shop there as well.
The Lagos Smart City, under the aegis of the state government, should not be confused with other self-acclaimed smart city projects by private sector players that are ongoing across the city. The idea is more or less the same: a cluster of office and residential buildings dedicated to the ICT business. One being promoted by Chams Plc, “SmartCity Innovation Hub,” located in the Lekki-Epe corridor of Lagos, would, when completed, “provide a conducive cocoon in terms of physical and ICT infrastructure, energy, regulatory and fiscal policies for the optimum and most profitable operation and development of technology products and/or service companies.”
The key attraction of the concept remains the proximity advantages of having many ICT companies in one location where they are able to operate under world-class conditions and standards to enable them to compete favourably with their contemporaries anywhere in the world.
Another smart city project, also located in the Lekki-Epe corridor, is the $300 million Imperial International Business City (IIBC), initiated by one of the royal families in Lagos. They boast it would be the first eco-friendly smart business city in Africa and is expected to be completed by 2021. Put together with that of the state government, the potential investor is spoilt for choice. They are all trying to address the typical first concern of tech startups and indeed bigger firms of finding a conducive and cost-efficient environment within which to operate.
But Lagos offers much more than that. It is a market of more than 20 million people. If all these people are able to use the internet for free, they could easily serve as the target of the services of these firms.
The smart city vision of the state government was discussed extensively at a conference it sponsored during its “Lagos at 50” celebrations in May 2017. Themed “Towards a Smart City: Preparing for the next 50 years of prosperity”, it had as keynote speaker a top thinker on African issues, Oxford professor, Paul Collier. He had a more engaging definition of what a smart city is. “Smart does not mean elite. Smart means a city that works for everybody in it. A city that works means that ordinary people can become productive and so earn a decent living.”
The envisioned smart city offers opportunities in transportation, ICT, tourism, hospitality, entertainment, and sports for excellence. The Lagos state government envisions the city to be the most attractive in which to live and do business in Africa. This is an exaggeration, of course. Even so, the government’s confidence is underpinned by what Mr Ambode dubbed an “urbanisation dividend” in a speech in February 2017. Despite its many deficiencies, and even before the authorities started making the needed effort to transform the city, which coincided with the birth of the country’s most recent democratic experiment in 1999, Lagos has always been attractive to Nigerians elsewhere. At 86 immigrants every hour, it has the highest inward migration rate of any city in the world.
The Lagos Development Plan (2012-2025) embodies what the authorities hope to achieve over the next decade. The “smartness” in Lagos Smart City or Lagos, the smart city, is in seeing technology as an enabler for development, whether it is in the provision of infrastructure, security or investment incentives, with the goal being to make Lagos attractive to investors who would then create much needed jobs. There have been some laudable initiatives by the government with regards to transport infrastructure, like the completion of one of the phases of a city railway (albeit not yet operational), reform of the bus mass transit system, expansion and tolling of a key highway in conjunction with the private sector (at first) and so on. But the pace and reach of the government’s infrastructure programme are grossly inadequate. Strained finances are one reason why. True, the state government earns more revenue than other states. But the revenue is inadequate for the huge spending bill for needed development programmes. And the private sector has not always had a good experience with public-private partnership (PPP) projects with the state government.
To fund its programmes, the government sometimes resorts to extreme means. Recently, the state government announced a land-use charge that was considered hugely insensitive. Naturally, it was met with uproar from the general public. Consequently, the state government had little choice but to revise the charges downwards. Even so, some grumbling remains. This also typifies what tends to happen when what are ordinarily acceptable infrastructure financing and maintenance measures – road tolling, for instance – are attempted. But the authorities are getting it right in other areas. Its support programme for technology entrepreneurs in the state is exemplary.
In December 2017, the Lagos State government launched “Lagos Innovates” to support tech entrepreneurs. Through the programme, small and medium-sized enterprises (SMEs) would be provided with the infrastructural support, training, capital and networks they need to succeed. The initiative copies similar models in Chile, India and Singapore. Targeted at tech entrepreneurs residing and working in Lagos whose businesses are less than three years old, Lagos Innovates aims to facilitate access to “high quality workspaces and infrastructure”, “learning”, “early stage investment capital” and “investor and peer networks”. Bottomline, Lagos Innovates is “a set of programs aimed at making it easier to build a successful tech startup in Lagos”. It is perhaps the greatest demonstration yet of the government’s recognition of the tech opportunity in Lagos.
The initiative currently has three major programmes. The first, “workspace vouchers”, would enable budding tech entrepreneurs secure funding support to acquire a workspace at one of the numerous innovation hubs in the city. For access, the tech entrepreneur need only apply online. The second, “hub loans”, provides capital to hub operators looking to expand or for those looking to invest in hubs. And the third, “events sponsorship”, provides support to enable tech entrepreneurs organize events to seek talent, publicize products and so on. Other programmes to be offered in due course, include “co-investments”, “program vouchers”, and “accelerator”. In early May 2018, Lagos Innovates will be sponsoring the “Secure Lagos Hackathon” event. Other upcoming events include “The Coworking Conference” in late July 2018.
Cheap talent, large market
Lagos as a technology opportunity has to be seen from the angle of talent and market. According to the Global System for Mobile Communications Association, there are more technology hubs in Lagos than in any other city in Africa. Much of the tech industry in Nigeria, at least 70 percent it is reckoned, is in Lagos. Compared to other tech hub cities like Cape Town, Johannesburg, Nairobi, and Kigali, Lagos differentiates itself in terms of potential market size. With a startup ecosystem valued at $2 billion, it is the most valuable African tech city, overtaking Cape Town, Johannesburg and Nairobi. In 2016 for instance, the Lagos tech scene got most of the $109.37 million in start-up funding for Nigeria, more foreign capital than any of its African rivals. (South Africa secured $96.75 million and Kenya got $92.7 million in tech startup financing in 2016. )
The amount of funding is not necessarily reflective of activity, however. Taking a median estimate, about 500 startups worthy of note are probably active in Lagos. Compared to Cape Town, which has more than 1,200, the Lagos tech scene, when looked through the activity lens, is still quite small. The lesser activity versus higher funding suggests there are many more opportunities that probably do not get funded. Looked at another way, the opportunities that eventually bear fruit tend to be hard-won.
Tech companies in Lagos are beginning to realise the need for cost efficiency and patience. Take the case of Konga, the Nigerian online retailer; it could not boast of 200,000 active customers in a country of almost 200 million after operating for four years and spending a lot of money on advertising. So yes, the opportunity exists, but it is not easily won either. Despite this, some indigenous companies are making headway. An online retailer that did win in Lagos and is succeeding across the continent, is Jumia, the parent company of which was valued at more than $1 billion as early as 2016. Established four years earlier in Lagos, the Africa Internet Group, which set up Jumia, is Africa’s first unicorn, a tech company valued at more than $1 billion. Other successes are MainOne, a wholesale internet service provider with a submarine cable of its own that connects South Africa and a couple of West African countries with Europe via Portugal; Paga, a mobile money service provider; SystemSpecs, an e-payment company; and Computer Warehouse Group, a technology provider to the banking sector. These are a few exemplars of what is possible.
Incidentally, tech talent is relatively cheap in Lagos. Software engineers working in Lagos earn only 70 percent as much as their counterparts in Cape Town and Johannesburg. The increased interest of tech giants like Google, Facebook, and Microsoft in Lagos, is on the back of the recognition of the latent potential in such a large local market. With proper training, support and opportunities for international practical experience, many of the already quite tech-savvy talent pool could do much more.
According to PwC, the Nigerian gaming industry, which is largely domiciled in Lagos, would earn about $87 million in revenue by 2021 if its 16 percent average annual growth prediction is vindicated. Still, Lagos’ gaming industry pales in comparison to that of Kenya’s Nairobi. Considering Nigeria is four times as populous, the relatively smaller gaming market in the country points to opportunities for interested investors. How difficult would it be to create a model that provides access to the country’s teeming youths to have fun via games and also earn income? A virtuous loop also means more would be interested in creating new games themselves. For an industry earning revenue of about $116 billion globally, there is huge potential for the Nigeria gaming industry to take a bigger slice of the pie. And the focus does not need to be on foreign markets. There is an ample market opportunity within the country itself and clearly in other African countries as well; especially for mobile phone game apps since more people own a smartphone or have access to one than they do a computer. Considering games via mobile phone apps are expected to rival those based on consoles or played via a computer, this is probably just as well.
Some other players are trying to succeed in more complex areas. Take the punishing traffic of Lagos; artificial intelligence could be used to make it better. That is the ideal case, of course. In reality, traffic lights in the city are not even reliable. That is, if they work. When they work. To power some traffic and street lights, especially those in critical areas of the city, the state government relies on solar power generating systems. Still, even if the current traffic management system in Lagos works fine, it could hardly do the job well without some human intervention. Besides, artificial intelligence would be useful to solve the traffic problem, say, only if there already existed a well-functioning infrastructure. Examples of initiatives in Lagos traffic management using artificial intelligence are mostly focused on providing information and directions to reduce the probability of getting stuck on the road. An example is Lara.ng by RP Technologies, which relies on artificial intelligence to provide directions and fare quotes for public transportation in Lagos. But since artificial intelligence is the “ability of a digital computer or computer-controlled robot to perform tasks commonly associated with intelligent beings”, the user experience of Lara.ng does not meet the standard; albeit it is not yet fully developed. But it definitely shows how tech stakeholders in Lagos and Nigeria at large are thinking about how to use more complex but useful technologies to solve common problems in the city. In general, though, artificial intelligence is yet to take off. In the words of Emeka Okoye, chief executive of Cymantiks, “we don’t do AI in Nigeria. For now, what we have are copycats of the Artificial Intelligence frameworks adopted by the foreign-based platforms.”
A related field is the Internet of Things (IoT), defined as “a network of physical ‘things’ embedded with sensors and connected to the Internet.” “With IoT technology, devices are able to communicate and share data between one another without manual intervention.” The relationship between artificial intelligence and the Internet of Things is akin to that between the human brain and the body respectively. Since both are connected, companies involved in the internet of things would also fall under the umbrella of artificial intelligence. Vacker Nigeria, an engineering solutions provider, avails its clients in the retail and manufacturing sectors with tools to monitor and manage their supply chains using the internet of things, for instance.
Cloud services is another potential growth area. Although a lot of Nigerian firms still prefer to have their own network infrastructure, the need for scale as they expand makes cloud services attractive. Cloud service providers like MainOne and the Rack Centre, host the networks of their clients in their own infrastructure, which they share with other subscribers to their service. Trust remains a constraint, however.
Silicon Valley already positioning itself
Global tech giants are expectedly following up on their top management’s newfound Africa bug. In late 2017, Facebook announced plans to facilitate training in digital and business skills for 50,000 SMEs. It would also be partnering with local innovation hub operators to set up tech hubs in major cities in Nigeria. In Lagos, together with Co-creation Hub, which Facebook CEO Mark Zuckerberg visited in August 2017, Facebook announced the launch of NG_HUB in December 2017. Starting in 2018, NG_HUB provides support to tech SMEs, product developers, coders, and the tech community at large. And the hub’s incubation programmes are quite ambitious. It aims to build local expertise and products in such advanced fields as artificial intelligence and machine learning, for instance. Considering NG_HUB would be Facebook’s first tech space in Africa, it speaks to the importance the American tech firm attaches to the tech opportunities in Nigeria, and Lagos specifically. It is not just intuition. There are 22 million Facebook users in Nigeria. And 10 million of them log onto their Facebook accounts daily via mobile devices. When Mr Zuckerberg visited Lagos in August 2017, he also announced the investment of $24 million in Andela, the software talent developer earlier mentioned.
Google led the way, though. Its own training initiative, launched in July 2017, aims to train 10 million Africans. Its flagship programme in this regard, the “Google Developers Launchpad Start,” was first started in Johannesburg in 2017. In March 2018, Google launched the Lagos leg: “Launchpad Start Lagos,” a “1-week problem-solving bootcamp for early stage startups focused on product strategy, technology, marketing, business development and presentation skills.” The acceleration programme would provide equity-free support to promising tech startups with “a minimum viable product and little or no revenue or users,” with their teams also allowed access to Google engineers for support and mentoring. Incidentally, CcHub is also Google’s partner.
The tech startup opportunity in Lagos is promising. And judging from the recent strides of global tech companies towards seizing this opportunity, this is a fact. What is today a vibrant ecosystem, at first evolved organically with little or no government support. Tech talent is relatively cheap, and the market size is potentially the largest on the continent.
There are challenges, of course. Infrastructure remains problematic, for instance. Taxation could be unpredictable and draconian.
But clearly, that has not stopped local and international entrepreneurs from chasing the opportunity. Besides, unlike in the past, there is now government recognition and support for the technology sector. Just as Facebook and Google are setting up accelerator programmes to support tech startups, the government also launched its own, for instance. The focus, as has been argued, and as Figure 1 shows, is for the focus to be on Lagos as a smart ecosystem, of which the government’s “Lagos Smarty City” initiative is just one component.
Written by Dr Rafiq Raji, this article was first published on How We Made It In Africa on 18 April 2018. Republished with permission.