Around the world, tech workers are losing their jobs as many companies that overhired at the start of COVID-19 try to balance things out. The wave of mass layoffs could hit the Nigerian tech ecosystem in the shortest possible time, writes Temitayo Jaiyeola
The Nigerian tech ecosystem is a vibrant and innovative display of youthful ingenuity. It is a booming economy with 19,344 employees, according to a report by Disrupt Africa.
Between 2015 and 2022, 383 Nigerian tech startups raised $2.07 billion, and during that time unicorns like Flutterwave, Opay, Andela and co were born.
The tech ecosystem survives on the importation of capital from foreign investors, and over the years, these investments have poured in like a flood. But lately they have slowed due to a global economic downturn.
Globally, tech startups are facing a slowdown in funding. In its “State of Venture Global: Q3 2022,” CB Insights said, “Global funding continued to decline in Q3 2022 to $74.5 billion, hitting a 9-quarter low.
“This represented a 34% quarter-over-quarter decline – the largest quarterly percentage decline in a decade – and a 58% decline from the fourth quarter 2021 funding peak.”
With global inflation at an all-time high, central banks around the world raising rates, and an ongoing Russian-Ukrainian war influencing economic responses, startup funding is hurting and tech stocks have slumped lately.
Africa: The Big Deal said in one of its recent reports: “Breakups, massive layoffs, bankruptcies. Global tech news is certainly nerve-wracking 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, around 103,906 staff have been laid off from 751 startups so far in 2022, with Twitter becoming the latest company to lay off staff en masse.
Recently, Twitter laid off around 3,700 employees, including its entire Africa office, following the acquisition of Elon Musk and his decision to make the company profitable.
To justify the layoffs, Musk revealed that the company was losing around $4 million a month.
Top tech companies like Amazon, Apple and others have also announced hiring freezes. Meta has announced its intention to reduce its workforce in the coming weeks. Africa’s tech sector has not been isolated from these realities.
Investment in Nigeria’s tech sector fell 30% towards the end of the second quarter of 2022, according to The punchdiscoveries.
Kuda, Swvl, Wave, 54gene and Vezeeta are examples of local startups that had to lay off employees in 2022.
According to experts, while 2020 and 2021 have been a season of abundance in the tech ecosystem, 2022 is the start of a season of drought.
However, the outlook for more than 19,000 employees working in around 481 Nigerian tech startups might not be as bleak as what is happening on the global stage. Industry experts believe that while there has been a delayed impact on the industry, its uniqueness and problem-solving role could help it through this dark period.
They said that while companies might have to shed some weight due to COVID-induced hiring, all would not be gloomy and dire for the sector.
Prunedge Managing Director Joel Ogunsola explained, “The value of the financing was lower. Revenues are going down and everyone is struggling with that, and that’s a challenge.
“The idea behind fundraising is that you can have a lead for a period of time. So if I raise a certain amount over a two-year period to expand into four countries and I start to realize that my calculations don’t work, I’ll have to scale my team to be able to meet the new projection and that’s the idea behind the layoffs.
“And it’s also just a general economic downturn. Basically, you have to compare your income to your expenses. And if you think you won’t be able to support the number of things on the income side, you generally have to take the decision whether or not to reduce the workforce.
According to Lendsqr Founder and an Open Banking Nigeria Trustee, Adedeji Olowe, COVID-19 has caused many companies to over-hire due to increased digitalization and increased demand.
He said: “When COVID came around everyone went remote and all digital blew up. Many businesses, large and small, faced high demand. There was an increased demand for their services and many people believed that the increased demand and growth would be met with an upward trajectory, so people were over-hired.
“People also raised money at a high valuation. Now that the world is normal, things are calmer and reality is starting to reset things. It was the exuberance of COVID-19 that caused people to overhire. So now people are losing their excess weight. The technology is still great, that’s the truth, but the enthusiasm and the economy are back to normal. The market will reset and everyone will move on.
“Layoffs will happen everywhere. Not just in the West.
Cassava Network marketing manager Elsie Godwin added: “Startup layoffs here are still very rare. And even when they fire, they give their reasons.
“It’s either mismanagement, or not meeting their projections, or shutting down aspects of their business due to a lack of viability. There are reasons for these layoffs, and they are not just layoffs.
“While there are start-up layoffs, there are also a host of others who are not laying off. Business moves, a lot of startups can learn from what is happening. There are a lot of complexities leading to these things.
TruQ CEO Williams Fatayo believed the nation was not isolated from what was happening in the West, he explained that since the work tech companies were doing was important, they would survive this period.
He explained that Africa generally experiences some sort of delayed impact from global economic realities, and while layoffs may occur, it will take some time.
He said, “Every other company in the world might struggle to raise funds, but African startups will continue to raise funds, as evidenced by all the latest fundraising rounds on the continent.
“This despite the implication of a lack of money in the market. Investors are not writing checks, but African companies are still raising funds. What I think this means is that I don’t I don’t know what impact this will hit us in the Nigerian ecosystem, but what I do know is that we generally experience some form of delayed impact from the realities of the global market.
Speaking on the composition of companies in the tech sector, he added, “A lot of Nigerian companies are solving real problems. We don’t try to create a product just because we can or solve first world problems.
“We are solving critical issues that impact lives across the continent. That means revenue is coming in every day, and when revenue is coming in, businesses can grow and follow where the growth is happening. The economic landscape of African countries is still calm at the moment. We didn’t see any mass layoff announcements other than a few, which was understandable.
Chief Digital Officer, Wema Bank PLC, Olusegun Adeniyi, said Nigerian businesses can rarely let go of tech talent due to the critical importance of their work in an increasingly digitized economy.
According to him, the industry would not follow the global trend of downsizing 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 don’t think the industry is pushing hard to downsize. In fact, what I see is that we don’t have enough employable people in the industry.
“A lot of our talents are leaving the country; they are prized at the dollar rate by companies like ours that manufacture naira. It becomes unaffordable for us to pay these guys. I don’t know many companies that lay off technical staff.
“There has been an increase in demand for our talent, which is causing us a struggle because while layoffs are happening in the West, they are now moving to a more economically desirable region like Africa. Many organizations had over-hired during the COVID period and what’s happening now is everyone is balancing that.
“Companies are reducing and imposing hiring freeze notices. Everyone, during the pandemic, used this time to employ a lot of people and now we are back in business and know what the future of work will be like. We know what awaits us and are a little clearer about it.
“Local talent is becoming scarce, that’s what’s happening. Layoffs don’t really happen in this part of the world. Now, technology companies must compete locally with Western companies in terms of wages. We are only just beginning to see the exodus of tech talent. Local businesses need to be creative in how they hire and retain talent.
“You also have to focus on talent retention, because some companies are looking to hire, and if you’re not careful, they’ll hire from you.”
The Nigerian tech ecosystem has thrived despite a lack of concrete interest and investment from the government. It has weathered all the storms it has faced so far with resilience. Analysts believe the ecosystem will not only weather this brewing storm, but come out on top.