Nigeria: Taking Advantage of Software Development Economic Dynamics
By Aare Ago
“To accomplish great things, we must not only act, but also dream, not only plan, but also believe”.
““We need to do more at this stage in order to move forward; and no stone should be left unturned”. Those were the words offered by former president Olusegun Obasanjo in his inaugural speech for the Nigerian Software Development Initiative (NSDI) in 2005. This statement, obviously, insinuated unfettered supports of the Federal Government to the development of the country’s software industry with principal objectives of diversifying the economy from its overreliance on crude oil proceeds and ensuring that the sector harnessed its potential of being the single largest contributor to the GDP within its first five years.
These lofty dreams remain as they were at the time of conception a decade ago. An everlasting lull had befallen the initiative that had several teeming undergraduate followers prepared themselves for challenges and opportunities that are, today, still in the offing. The writer was not an exception to the fanfare. As a fresh graduate of Computer Science in a Nigerian University with strong affinity for software development, and an investment of “unavailable capital” in the Art in faraway India the preceding year, I was sure jubilant, prepared and expectant of a promising future that especially guaranteed a quick Return-On-Investment to one of my sponsors; now late. I still, vividly, recollect the grimaces of doubt about my expectations as I whined about them. But he was my brother. He could not have objected as I was dying to become a Solutions Developer.
This is 2015 – a decade after the dream about Nigeria’s dominance of the West African software market, if not Africa, was conceived. 10 years of unveiling the potential of an industry that could annually trap 0.05 per cent of the projected global software revenue. That seemingly meagre ratio, in 2005, amounted to about $1.3 billion of the $260 billion estimated global net worth. This purported revenue stream was particularly needed at the time for economic renaissance; consequent to the repayment of a huge sum of $12 billion (in lump) to the Paris Club in exchange for the remainder of our official debts of $30 billion, which was being written-off.
Fortunately, there was no better time to address the issues surrounding the atrocious debts, which had accumulated through fiscal rascality over many years before. 2005 was supposed to be the year of rejuvenation. As the international price of, and desirability for, our “sweet” crude rose, a prudent government led by Obasanjo ensured that our foreign reserve accumulated. From about $5 billion in 1999, Nigeria built a financial fortress of staggering $35 billion that was capable of supporting imports for 9 consecutive months even without further accruals. Backed by a strong economic team and an astute Central Bank‘s Governor, Professor Charles Soludo, it was time to start investing profitably; both locally and internationally. Pragmatic and prudential fiscal discipline meant that Nigeria would cut its recurrent expenditures to make room for long-term investments in the macro-economy; starting with Infrastructural development.
As the world had passed over to the Information Technology age, though it continues to run on oil, the software development subsector offered Nigeria a window of minimal capital investment in exchange for the “highest” ROI and increased per capita income. The economic promises of a vibrant software industry in Nigeria cannot be overemphasized and are, indeed, humongous and realistically existent; especially with an average population of 173.6 million citizens. However, the horrendous dearth of skills aggravated by dysfunctional system of education dealt it the greatest blow. Issues of vested interests, rent seeking, lack of aptly justiciable system, among other banes would not be foci of this writing.
The global software industry today has grown exponentially as compared to its net worth in 2005 (when the FGN salivated over a projected annual $1.3 billion revenue; being only 0.05 percent of the total software market revenue). In 2013, Gartner reported that the size of the worldwide software industry was $407.3 billion. If the 2005 records were correct, the differential amounted to a 36.16% rise in global revenue over a 10-year period. Had Nigeria been assiduous in its efforts towards actualizing her meagre “0.05-percent-of-global-revenue” dream, its probable current receipts from software shipments and sales would be slightly above $20 billion in 2014. This would have provided great succor to the economy and a good cushion for the value of the Naira; especially in the face of dwindling receipts from oil.
Let us dwell a little bit more on the monetary receipts accrued to the global software industry!
Of the $255 billion approximated revenue accrued to the Global 100 Software Leaders in 2012, not a cent accrued to Africa. Lest we talked about Nigeria. As a matter of verifiable fact, only thirteen (13) countries of the world were beneficiaries of this munificence. As expected, the United States trapped 78% of the total accrual, with an approximated revenue of $200 billion. Other countries on the list were Russia, Germany, France, China, Norway, Japan, Sweden, Canada, Netherlands, Switzerland, Israel, and even, Brazil. Africa was, and still is, unranked!
Talking about the continent’s appetite for software products and services, government spending between 2010 and 2014 suggests increasing needs for automation of critical business processes. From public to private institutions, the potential appetencies of the continent is worth several billions of dollars. Proactive installations of Business Continuity infrastructures have seen Nigeria alone invested more than $500 million in technology in a single fiscal year. And as economies across the West African Coast begin to integrate (or at least plan to integrate), and their needs for data and Analytics deepen, substantial amount of budgets are being allocated to IT; with software procurement, deployment and maintenance taking lion’s shares. It is mere sneer, therefore, for Africa, and Nigeria in particular, to put such humongous investments into the consumption of software products & services with almost nothing being said or done about tapping and sustainably developing our local contents, capacities and capabilities for export.
To satisfy this gluttonous yet required appetite, Africa directly and substantially contributed, in payments, over $30 billion to the “party”. And this is being conservative. The implication of this travesty is that “whatever the monetary receipts from mineral and agricultural exports, Africa expends more in satisfaction of its appetite for technology/software solutions”. Summarily, Africa consumes more than it produces; and this is the reason for the gross deficits of its economies!
Coming back to Nigeria, the story is not any different. Majority of both public and private organizations in the country are powered by imported software solutions. While there are hundreds of software development companies in the country, 95% of them thrive on foreign partnerships in the provision of support services such as installation, customization, and training related to imported software packages. (Source: UNCTAD).Very few companies like SystemSpecs, have produced exportable software packages that have earned the country any foreign proceed. While the Computer Warehouse Group (CWG) is a successful brand across the Africa continent, starting from Lagos, Nigeria, it is majorly another outlet of foreign partners like Oracle and InfoSys Technologies.
Although Finnacle, a banking solution retailed by CWG, has helped to digitize and steer growth in the Nigerian Banking Industry, just like its counterparty T24 (retailed by INLAKS Computers for Temenos), Nigeria’s economy have had to repatriate huge investments, now probably measured in billion US dollars over the years, to the originating countries of these solutions. Due to adverse deficiencies in the local capacity/capability and the imperatives for topnotch technological need by sectors of the economy, especially banking, to commensurately accelerate their operational efficiency with those of their foreign counter parties, arguments could be made in support of software importation. However, such concession should be backed only with a long-term program that will ensure that local capacities and capabilities are fully nurtured within a stipulated period for adequate production of these solutions.
I strongly believe this is one of the goals of the Institute of Software Practitioners of Nigeria (ISPON) and the Nigeria Information Technology Development Agency (NITDA). Maybe the Nigeria Computer Society (NCS) too! Apart from NITDA, which is a government agency, most software companies in Nigeria are members of all the above-mentioned associations and more, whose creed is the liberation and liberalization of the software industry for socioeconomic growth and development. Unfortunately, and without any doubts, these members have hitherto paid mostly lip-services to the liberation movement. Their profitable Retail agreements with their foreign partners in a liberalized industry, the lack of efficacious regulation, monitoring, control and compliance mechanisms and unforeseen economic vagaries provide comfort havens and “genuine” excuses for these private promoters to continue to unabatedly import software solutions. In short, the ball always returns to government’s court!
As already opined, the software industry in Nigeria today is liberalized but not liberated. This means that while it is officially less cumbersome to enter into the industry and commence operations earnestly, there is general but grave apathy towards local contents, which drives participants into foreign spheres for imported software solutions. As such, the industry is stunted and shackled by the necessity for imported competition. Some of the attendant effects, which are under-listed, should bother a serious government more than the private sector players, who have maneuvered their paths to profitability in spite of damning socioeconomic decadence.
Loss of Revenue
In spite of the huge receipts from oil as reported in several National gazettes, though now dwindling, the State losses substantial amounts of its proceeds to the procurement of imported software products and services. In 2005, it was estimated at $900 million. With insufficient data on the performance of the industry, only God knows how much of revenue the country had lost in the last 10 years.
The Nigeria’s banking industry alone had invested more than a billion dollars in imported technologies. Yet, it is the same sector that had received the most of government subventions for the development of the macro economy. The same sector was bailed out by the Central Bank of Nigeria in 2009, under Mallam Sanusi Lamido Sanusi (the current Emir of Kano) with 620 billion Naira for sheer mismanagement of depositors’ funds. At the prevailing foreign exchange rate at the time, that was a $4 billion bailout.
Be that as it may, not all the imported solutions are cutting-edges that could not have been developed locally. But we choose to sendoff substantial parts of our income in a show-off race for Fitch ratings. Of all the investments (in billion dollars) that had accrued to foreign companies from the Nigeria’s software market, what percentage had been re-invested in the development of the industry? Either by the local vendors or their foreign partners? Had Infosys not developed Finnacle and Temenos not shipped T24, I wonder what Nigerian banks would run off?
Government, therefore, needs new policies to encourage or, if need be, force the hands of private players to invest substantial amount of their profits in the development of the local industry. As narrated recently by Professor Mariana Mazzucato of the University of Sussex in her article, “The Innovative State”, the U.S. government in 1925, allowed AT & T to retain its monopoly of the telephone system but required the company to reinvest its profit in research; a deal that led to the formation of Bell Labs. Such approach is what the Nigerian government currently must implement to not only ensure that thriving local companies remain profitable but to finally liberate the industry from the shackles of its foreign competition, and increase the country propensity for prudence as regards expenditures on imported software products. This, in effect, will cut our financial outflows and income will rise!
Let INLAKS, CWG, SystemSpecs and the hundreds of supposed local software makers remain profitable but justiciably committed to reinvesting certain percentages of their profits into Education, Research & Development of the industry, with focus on the imported packages they retail.
Depreciation in the value of Naira:
That local companies bridge the gaps between the technological deficiencies and needs of the economy is an advantage that is easily eroded by its adverse effect on the value of the legal tender currency – Naira. Two of the core mandates of the Central Bank of Nigeria are “To ensure monetary and price stability” and “To maintain external reserves to safeguard the international value of the legal tender currency”. These objectives are closely related to our balance of international trade. As a net importer of goods and services, the local economy practically depends on the viability of other economies that provide its supplies. And this is not limited to the software industry alone.
With unprecedented decadence in infrastructures such as power, industries are faced with herculean challenges to remain profitable amidst staunch competition posed by imported products. The software industry is not insulated from this economic menace. However, to sustain software imports valued at over a billion dollars annually would mean that the economy must make commensurate supply of its Naira in foreign exchange to meet this demand. As in economics, where heightened demand for a particular product or service raises its price, the value of the dollar as a commercial commodity rises against the naira as local companies source more naira in its exchange.
Starting with the software industry, government can begin to block this loophole by actively promoting and ensuring local production of essential software products/services. This cannot be isolated from the provision of other amenities like power, which is essentially important in setting up IT parks as highlighted in the plans of the Ministry of Communication Technology.
Transfer of Employment & Contagion Economic Effects
There is no arguing the fact that the reliance of one economy or country on the other for the provision of its essential needs is tantamount to the transfer of labour from the dependent economy to that, which is independent, on the one hand, and an unmitigated exposure to economic shocks that might befall the independent economy on the other.
Let us take for example that to keep programmers gainfully employed in a particular country, a banana republic must continue to buy from it. So, let us assume that the country is struck by severe economic crunches and suddenly, there is a need to make adjustments to its balance of trades. Otherwise, those highly paid programmers would be laid off. A solution option might be the need to increase its exports earnings. Implementation of this adjustment will automatically translate into upward variation in prices of goods and services that are exported.
As a result, the banana republic would be forced to pay more to its supplier on imported goods and services, which would, in turn, drive up the cost of running the local system. Prices would rise in the affected sector. And before that country lays off the first programmer, banana republic would have laid off more marketers to make room for the difference. In addition to the points on the “depreciation in the value of the Naira” above, more currencies of the republic would now begin to chase limited U.S. dollars as the official medium for international trades. As a result, the currency value of banana republic willl depreciate. This is the contagion economic effect and it should bother the government. Private sectors players might not be particularly worried since they might still remain profitable and competitively so, in spite of it. What they buy, is what they sell!
Reversing the scenario above to that in which the republic is self-reliant, it would not matter that a country is economically crushed. With loose ties augmented by local production, the effect could take a new dimension that is capable of springing innovation. The story of the mobile money in Kenya comes to mind but would be left for a different discourse.
To think that the U.S. proactively orchestrated for its own growth, but unknowingly precipitated the crises that hampered Nigeria’s earnings from oil in 2014, is indicative that we must begin to insulate our own economy, too. from global shocks. In 1976, the Morgantown Energy Research Centre and the Bureau of Mines launched the Eastern Shales Gas Project, which demonstrated how natural gas could be recovered from shale formations. Last year, after ample maturity of about 40 years of research, government’s investment yielded its first dividend – America had insulated itself from fluctuations in the global oil prices by being self-reliant through shale and its fracking. That was good news to majority Americans; but not to the government of Nigeria, whose biggest customer, U.S., just walked free!
Increase in the dearth of Skilled Resources
Skilled resources and sound educational system are two sides of the same developmental coin. One feeds the other and vice versa. A skilled industry stimulates as well as motivates the system of education for evolutionary excellence. Simultaneously, a sound and effective educational system replenishes as well as strengthens the skilled resources of a country. If one goes bad, in no time at all, the other, too, will. This makes the case for the need to focus on the educational sector in order to reinforce our decrepit IT workforce, and to stimulate a productive IT industry with equitable reward systems to keep the symbiotic cycle between the two flowing.
Unfortunately, if one word is to qualify the state of the educational system in Nigeria, it would be “Preposterous”. It is not surprising to find our economy in the bottom row of world standards. As such is the entire IT industry. At best, our potentials have been globally renowned. Sad news is, they remain potentials; never fully developed into productive capacities. In spite of the rebasing of the economy by the present government, nothing physically can be shown for the high GDP recorded on paper. That, too,is Preposterous! Let’s leave that for another day.
Discussing skilled human resources, it is the only single resource that any country, no matter how richly or poorly endowed, should crave for and earnestly develop without ceasing. Immediately after the Second World War, the economies of Germany and Japan were two of the mostly hit. Africa was physically untouched. Comparative analyses between Germany and Japan on the one hand, and Africa as a whole on the other hand conspicuously reveal yawning differentials between the 2 economies in favour of the former. The only disparity between the sides being the quality of human capital that existed therein. While Africa is richly blessed with natural resources, the dearth of quality human capital is its bane for economic growth.
The IT Industry, generally speaking, is one that is driven by quality, fast-paced and changing knowledge. It is therefore not surprising that the general macro-economic sectors in Nigeria suffer serious shortages in skilled manpower. With government daunting spending in education, not much could be expected. However, in the face of humungous debt profile tossed upon the nation by the current administration, incoming government will have to be innovative in its approach to fund education generally. To tackle this menace in the software education subsector, moves must be initiated to see private players adopt technology institutions in the bid to develop the industry. This could only be achieved, if the venture of adoption is made profitable in itself to parties that would be involved.
Let’s suppose that, through capital seeds in software development by the private sector, a University developed a robust Enterprise Resource Planning (ERP) solution that could be adapted by numerous organizations in Nigeria for their operations. Apart from being cheaply produced by students, sponsors can thereafter commercialize the partnership for economic profitability. This way, more private institutions would form linkages with our schools, in a fashion that is akin to “taking the factories to schools”. We can, therefore, begin to tackle the paucity, while we also continually create linkages with the industries. This initiative, if properly harnessed is capable of transforming the country into a production hub like China a few years from now. But government, must take the lead by enacting the right policies, incentivizing both the private players and the student communities to be partakers, directly providing long-term funding for the initiative and by protecting both public and private investments in R&D by curtailing the national appetite for imported software solutions.
Too numerous are the adverse effects of a stagnated software development industry to any country with unprecedented need for automation and an inept population of over a hundred million potential problem solvers, who are empowered and motivated to proffer the much needed solutions. Other attendant issues are exposure to cyber-attacks and warfare, exposure to financial and economic espionage, extortion in software pricing among others. But with a few mentioned and discussed, and if Nigeria must survive the next four years, the incoming government must ensure that the economy is highly diversified for resilience against negative probabilities and particularly to reduce government expenditures through self-sustaining initiatives as expressed. The software industry, like other industries in the economy, offers this opportunity with a huge potential of the local market, which serves as a guarantee that any initiative, well-funded and well-managed, in support of it will not fail.