Earlier in the month, the Minister of Communications, Barr Adebayo Shittu revealed that plans are underway to set up a niche financial institution, the Information Communications Technology (ICT) Development Bank.
The industry-focused banking institute, as the name suggests, will provide funding for the ICT industry. The announcement — which was made at an event in the Yenagoa, Bayelsa State — raised a couple of questions. Top on the list of those questions; is this not another announcement that will not go beyond the event at which it was made?
The minister likened the proposed bank to Bank of Agriculture (BOA) and Bank of Industry (BOI), saying the bank will fund the industry rather than rely on commercial banks whose interest rates are high.
If anything, the proposition for a specialised bank is a reminder of how important developing the ICT industry is to the nation’s economy.
Beyond startups, ICT is mostly based on Research and Development (R&D) and it is expected that more financial products go into R&D Projects.
We have no idea if this would happen soon or in the future, but it would definitely be a big deal for the future of ICT sector in Nigeria, considering that the sector is critical for rapid economic success, especially in the face of diversification from a mono-product economy.
The fact that it contributed 11.39% of the nation’s Gross Domestic Product (GDP) in 2017 is enough for the ICT sector to be recognized as one of the alternatives to oil.
The ICT industry is also one of the top employers of labour, directly or indirectly. Hence, having an industry-focused financial institution would go a long way to further increase its contribution to the economy while also generating more employment opportunities for the teeming unemployed.
The proposed institution would also need manpower to run effectively which implies that, it would play a part in reducing unemployment further.
As a specialised bank for the sector, funds would be readily available for infrastructure which could deepen broadband penetration and adoption of technology tools across the country.
We surely cannot argue against the importance of the ICT industry with reasons why the industry can’t get a dedicated financial institution. As it will surely promote and encourage young entrepreneurs, as funds will be available at lower interest rates compared to commercial banks.
“The ICT Development Bank is a good initiative and will remain so, only if the financing approach of the Bank reflects the key realities and peculiar business & innovation models applicable in the ICT sector,” says Olubunmi Abayomi-Olukunle, Partner at Balogun Harold.
Abayomi-Olukunle lists models the bank could adopt to include figuring out an entirely new financing model or accepting data as the new collateral for ICT loans.
Before getting hopes up, we might want to ask about the sustainability model that would be put in place by the federal government to ensure funds are available to the sector at the right time and quantity.
If the proposed bank will not break out of or innovate around the traditional debt orientation of development finance banks in Nigeria, then it won’t make much difference to early-stage technology startups on the notion that these startups need intimate capital which require smart, long-term and present capital.
Seeing that the government cannot possibly fully fund this bank by itself, has it gotten financial backing for? The federal government had in 2016 eyed an additional $15 billion, an equivalent of ₦4 trillion then, from foreign direct investment; that’s more than half of the figure for 2017 budget of ₦7.30 trillion.
Considering the complexity of the nation, the proposed bank may want to allocate funds based on quota and not merit. The hope would also be that the bank will not turn out to be a means for politically connected firms to access cheap funds.
Appointment of the proposed bank top management position like BOA and BOI will be subject to the approval of the Nigerian President, hence favouritism can come into play which will, in turn, affect the performance of the bank.
Does Nigeria really need a specialised financial institution for the ICT sector? Maybe not.
The government should rather put up models that will make it easier for VCs from any part of the world to set up VC funds while also encouraging wealthy Nigerians, companies and other institutions to invest in VC and directly in promising companies.
A welcoming environment for investors would go a long way in funding the startup more than a specialised financial institution which might end up as another white elephant project. Rather than putting up another system, we surely can strengthen the existing ones.
The government should work on removing bottlenecks limiting funding for the sector, this will ensure that the sector improves on its contribution to the nations GDP as more money will flow come in.
The Founder and Managing General Partner of EchoVC Partners, Eghosa Omoigui, in an interview with Vanguard said: “We caution our entrepreneurs to think about how they raise money, how they spend money and how they operate but even in this economy, our companies are growing.”
I’m not sure we can expect the proposed bank to do exactly what EchoVC Partners is doing with their investee companies but will this bank be willing to take more risks by investing in the equity of startups?
Abayomi-Olukunle believes there are cheaper and more flexible strategies through which ‘ICT financing’ objectives of the ICT leadership in Nigeria can be achieved other than setting up a development finance institute.
What do you think of a specialised financial institution for the ICT sector?
Nigerian startups raised $55.4m in Q1 2020; over 99% of which came from foreign sources. Find out more when you download the full report.
Subscribe to the Techpoint Africa Newsletter for weekly updates