Foreign Tech Firms Battered On Bets In Key Nigerian Market

Nigeria, often regarded as the main character of Africa’s economic and tech aspirations, is proving to be a double-edged sword for global companies betting on its promise.

The latest casualty is dLocal, the Uruguay-based payments unicorn, whose third-quarter 2024 earnings reveal an over 80% year-over-year revenue loss in Nigeria, driven largely by economic headwinds in its once-prized Nigerian market.

This decline underscores the harsh reality facing foreign tech firms in Nigeria: the promise of a vast, youthful, and digitally inclined population is being undermined by relentless currency volatility, crippling inflation, and operational challenges.

Nigeria’s potential has always been irresistible for for global companies such as dLocal, which is among a growing contingent of prominent Latin American fintech companies making inroads into African markets of late. Yet, the country is also proving a headache.

While the fintech sees strong performance in Egypt and South Africa, the Nigeria unit, once touted as a growth engine for dLocal’s African operations, saw its Q3 2024 revenues plunge to USD 2.1 M—just 1% of the company’s total—down from USD 55 M in the first nine months of 2023. This steep decline, despite steady transaction volumes, stems from the naira’s devaluation, which has sharply eroded purchasing power and the value of processed payments.

The financial pressures highlight the difficulties of doing business in a country where exchange rates have spiralled out of control, making profitability elusive for even seasoned operators.

Across sectors, foreign firms are grappling with the same fundamental challenges. This week, South Africa’s MTN Group, Africa’s telecom behemoth, revealed in its financials that its Nigerian revenue dropped 48.7% in Q3, driven largely by the naira’s devaluation, which reached NGN 1,541 to the USD by the end of the quarter. For MTN, this translated into a staggering USD 414.7 M loss in H1 2024, the company’s first since a billion-dollar regulatory fine eight years ago.

MultiChoice Group, Africa’s leading pay-TV provider, has also felt the sting. The company reported losing 243,000 Nigerian subscribers in six months, citing reduced consumer spending power amid inflationary pressures. The naira’s devaluation drained approximately ZAR 7 B (~USD 318.2 M) from MultiChoice’s trading profits over the last 18 months. Plus, the company was forced to write off USD 21 M of cash held in Nigeria with Heritage Bank whose license was revoked in June 2024 and has entered liquidation.

Meanwhile, cryptocurrency firms like Binance and OKX have been forced to scale back in the face of regulatory crackdowns and a deteriorating business environment. Binance’s CEO recently disclosed that Nigerian authorities demanded bribes to drop money laundering charges—highlighting operational challenges in the region.

Despite these headwinds, some companies are finding ways to adapt. dLocal continues to invest in its payment infrastructure, aiming to stabilise its Nigerian operations. Similarly, MTN has leaned heavily on its fintech arm to offset the decline in voice and data revenues. The telecom giant reported an 8.5% growth in fintech revenue in Q3, with transaction volumes surging by 17.4% to nearly 15 billion transactions.

MultiChoice, on the other hand, is aggressively diversifying. Its rebranded streaming platform Showmax saw 30% growth in paying subscribers, while its fintech venture, Moment, now processes 30% of the group’s payments, showcasing the company’s pivot to financial services.

“MultiChoice has felt the direct weight of this volatility,” CEO Calvo Mawela remarked, as the company continues to expand beyond its traditional pay-TV business.

For dLocal and others, the Nigerian market remains a paradox: rich with opportunity but fraught with risk. With over 200 million people, growing internet penetration, and a youthful demographic, the potential is undeniable. However, companies have to contend with deep structural challenges, including unpredictable regulatory frameworks, high inflation, and significant foreign exchange volatility.

While the challenges are immense, so is the potential upside. But as dLocal’s latest results starkly illustrate, foreign tech firms in Nigeria are now facing a sobering reality: thriving in this market requires more than ambition.

Featured Image Credits: KPA