Nigeria has officially slipped into a recession. In simple terms, the country’s Gross Domestic Product has contracted for the second consecutive quarter. The COVID-19 pandemic and falling oil prices has slowed growth in Africa’s largest economy.
Several think pieces and data articles had predicted that many African countries will fall into a recession as a result of the pandemic. Nigerian wasn’t exempted.
The last recession was in 2016 and as this Aljazeera piece
put it, it was the first one in a generation. Nigeria emerged from that recession a year later. But one impact
of that recession was a drop in foreign investment into Nigeria’s technology sector. The FDI growth rate dropped below zero. Asides the fall in global oil prices, Nigeria’s foreign exchange policy worsened the situation making investing in the country tougher.
It’s important to note that in the following year in 2017, foreign investment increased by the rate of 200%.
With another recession underway, there could be worries, understandably so, about a drop in investment into the country’s technology industry. But it’s difficult to see how that will happen within the next few months. There’s been general investor optimism about the Nigeria’s technology industry especially the fintech sub-sector with the acquisition of Paystack by Stripe and other similarly huge deals.
Also, many investors since the pandemic started have heeded advice from analysts that a recession is coming and have shifted investment into certain shock-proof sectors.
The bullish case for Africa will see VCs continue to deploy capital into Nigeria’s tech industry regardless of the current economic situation but a sustained recession will certainly dampen investor confidence.
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