Across the world, tech workers are losing their jobs as many firms which over-hired during the early days of COVID-19 try to balance things up. The wave of mass sacks could hit Nigerian tech ecosystem within the shortest possible time, writes Temitayo Jaiyeola
The Nigerian tech ecosystem is a vibrant, innovative display of youth ingenuity. It is a thriving economy that is home to 19,344 employees, according to a report by Disrupt Africa.
Between 2015 and 2022, 383 Nigerian tech startups raised $2.07bn, and within that time unicorns like Flutterwave, Opay, Andela, and co were born.
The tech ecosystem survives on capital importation from foreign investors, and over the years, these investments have poured in like a flood. But in recent times, they have slowed down owing to a global economic downturn.
Globally, tech startups are facing a funding slowdown. In its ‘State of Venture Global: Q3 2022,’ CB Insights said, “Global funding continued to slide in the third quarter of 2022 to $74.5bn, hitting a 9-quarter low.
“This represented a 34 per cent drop Quarter-on-Quarter — the largest quarterly percentage drop in a decade — and is down 58 per cent from the funding peak in the fourth quarter of 2021.”
With global inflation at an all-time high, central banks across the world raising rates and an ongoing Russia-Ukraine war influencing economic responses, funding for startups is suffering and tech stocks have slumped in recent times.
Africa: The Big Deal said in one of its recent reports, “Down rounds, mass layoffs, bankruptcies. The global tech news is certainly nerve-racking these days.” This decrease in funding has led to massive job cuts in the global tech industry.
According to a startup layoff website, Layoffs.fyi, about 103,906 staff members have so far been laid off from 751 startups in 2022 with Twitter becoming the latest company to lay off staff en masse.
Recently, Twitter laid off about 3,700 employees, including its entire African office, following Elon Musk’s acquisition and move to make the company profitable.
To justify the layoffs, Musk revealed that the company was losing about $4m per month.
Leading tech companies like Amazon, Apple, and co have also announced a hiring freeze. Meta has announced plans to reduce its headcount in the coming weeks. The African tech sector has not been insulated from these realities.
Investment into the Nigerian tech sector dropped by 30 per cent towards the end of the second quarter of 2022, according to The PUNCH’s findings.
Kuda, Swvl, Wave, 54gene, and Vezeeta are examples of local startups that have had to lay off employees in 2022.
According to experts, while 2020 and 2021 were a season of plenty in the tech ecosystem, 2022 is the beginning of a drought season.
However, the prospect of the over 19,000 employees working in about 481 Nigerian tech startups might not be as bleak as what has been happening on the global scene. Industry experts believe that while there has been a delayed impact on the sector, its uniqueness and problem-solving role might help it through this dark period.
They stated that while companies might have to shed some excess weight from COVID-induced hiring, all would not be gloom and doom for the sector.
The Chief Executive Officer, Prunedge, Joel Ogunsola, explained, “The value of funding has been lower. Revenue is dwindling and everyone is battling with this, and it is a challenge.
“The idea behind raising funds is for you to be able to have a runway for a particular period of time. So, if I raise a certain amount for a two-year period to expand into four countries and I start to realise my maths isn’t working, I will need to resize my team to be able to meet the new projection and that is the whole idea behind layoffs.
“And it is also just a general economic downturn. Basically, you need to look at your income versus your expense. And if you feel you won’t be able to support the number of things on your revenue side, you typically will need to make the decision as to whether you want to downsize or not.”
According to the founder of Lendsqr and a trustee of Open Banking Nigeria, Adedeji Olowe, COVID-19 caused a lot of firms to overhire because of increased digitisation and demand.
He stated, “When COVID happened, everyone went remote and everything digital exploded. A lot of companies, both big and small, faced a lot of demand. There was an increased demand for their services and a lot of people thought that the increased demand and growth will face an upward trajectory, so people over-hired.
“People also raised funds at a high valuation. Now that the world is normal, things are calmer, and reality is beginning to reset things. It was COVID-19 exuberance that caused people to over-hire. So, now people are shedding excess weight. Tech is still great, that is the truth, but both enthusiasm and economics are coming back to normal. The market will reset, and everyone will move on.
“The layoffs will happen everywhere. Not just in the West.”
The Marketing Manager, Cassava Network, Elsie Godwin, added, “Start-up layoffs here are still very scarce. And even when they do lay off, they state their reasons.
“It is either mismanagement or not meeting their projections or shutting down aspects of their business because of a lack of viability. There are reasons for these layoffs, and they aren’t just layoffs.
“While there are some start-up layoffs, there is also a host of others not laying off. Business is happening, a lot of startups can learn from what is happening. There are a lot of intricacies leading up to these things.”
The Chief Executive Officer, TruQ, Williams Fatayo, believed the nation was not insulated from what is happening in the West, he explained that since the job tech firms were doing was important, they would survive this period.
He explained that Africa usually experienced a sort of delayed impact from global economic realities, and even if layoffs might happen, it would take a while.
He said, “Every other company in the world might be struggling to raise funds but African startups will keep on raising funds, as evident in all the latest fundraising on the continent.
“This is despite the undertones of a lack of money in the market. Investors are not writing cheques, but African companies are still raising money. What I think this means is that I don’t know the impact at which it will hit us in the Nigerian ecosystem, but what I know is that we generally experience a certain form of delayed impact of global market realities of some sort.”
Speaking on the composition of companies in the tech sector, he added, “A large chunk of Nigerian companies are solving real-life problems. We are not trying to create a product just because we can or solve some first-world problems.
“We are solving critical life-impacting problems across the continent. What this means is that revenue is coming in every day, and when revenue comes in, companies can grow and follow where the growth is happening. The economic landscape of African countries is still calm right now. We have not seen any announcement of mass dismissal apart from a few, which were understandable.”
The Chief Digital Officer, Wema Bank PLC, Olusegun Adeniyi, said that Nigerian companies could rarely let go of tech talents because of how crucial their job was in an increasingly digitalised economy.
According to him, the industry would not follow the global trend of reducing headcount since talent was still quite scarce. He explained that the few companies that had to lay off staff were riddled with challenges. He said, “I do not think that the industry is striving heavily to reduce headcount. In fact, what I see is that we do not have enough employable people in the industry.
“A lot of our talents are leaving the country; they are prized at the dollar rate from companies like us that make naira. It is becoming unaffordable for us to pay those guys. I do not know of many companies that are letting go of tech staff.
“There has been a rise in the demand for our talent, which is causing a struggle for us because as layoffs are happening in the West, they are now looking to a more economically prized region like Africa. A lot of organisations had over-hired during the COVID period and what is happening now is everyone is balancing that out.
“Firms are slashing and putting notice of hiring freezes. Everyone, during the pandemic, leveraged that time to employ a lot of people and now we are back in business and know what the future of work will be. We know what lies ahead for us and are a bit clearer on that.
“Local talents are becoming scarce, which is what is happening. Layoffs are not really happening in this part of the world. Now, tech companies locally have to compete with companies in the West in terms of salaries. We are just beginning to witness the exodus of tech talents. Local companies have to become creative in how they hire and retain talents.
“There is a need to focus on retaining talents too because there are businesses that are looking to hire, and if you are not careful, they will hire from you.”
The Nigerian tech ecosystem has thrived despite a lack of concrete interest and investment from the government. It has resiliently weathered every storm it has faced so far. Analysts believe the ecosystem will not only weather this brewing storm but will come out tops from it.