We set out to understand the dynamics and factors enabling the three top innovation ecosystems in sub-Saharan Africa: Cape Town, Nairobi and Lagos.

With a growing number of tech start-ups, hubs, accelerators and investors, Lagos has put itself on the map as an important innovation ecosystem in Africa. Through our partnership with the Lagos Business School, and the virtual focus groups we organised with ecosystem stakeholders, we uncovered an interesting way in which Lagos innovation contradicts what we thought we knew about the enablers for innovation.

An enabling environment for tech innovation

The theory tells us that a prerequisite for flourishing innovation ecosystems is the presence of an enabling environment (see, for example, the World Bank, Stanford University or the MIT D-Lab).

This includes supportive government policies and the availability of reliable and high-quality infrastructure. Among others, such government policies should allow for sufficiently mobile capital and labour through visa and IP regulations, and for an adequate ease of doing business. The infrastructure of relevance includes adequate internet coverage and speed, reliable electricity provision, and interoperable payment systems, among others.

Whereas perfectly enabling environments may be few and far between, the assumptions remains: The more enabling the environment, the more likely it will be for innovation to come out of that location.

Now, let’s turn to Lagos. When it comes to tech innovation in Africa, many consider Lagos the place to be. It boasts a vast youthful market that is ready to try new digital products and services, and several well-publicised success stories have grabbed the attention of investors and eager entrepreneurs.

However, Lagos is not an easy market to operate in. Various challenges put pressure on business models from all sides. On the one hand, infrastructural challenges (including gaps in connectivity and power) limit the ability of consumers to access and use digital tools and create operational challenges for start-ups. A sizeable low-income population puts downward pressures on prices, while infrastructural challenges and the pressures created by USD-denominated investments increase the cost of doing business. Finally, with a ranking of 131 on the World Bank’s global Ease of Doing Business Index, navigating policies and regulations can keep an entrepreneur quite busy – especially when it comes to tech innovation. Stakeholders complain of a divide between government and industry, with the government seemingly not understanding – or even using – innovative technologies, which points to a gap in e-leadership skills.

The Lagos paradox

On the face of it, it seems strange that Lagos, with such gaps in its enabling environment, should turn out to be such a hotbed for impactful and sustainable innovations. Are the likes of Andela, Kobo360, and FarmCrowdy the exception and lucky innovators with the right idea at the right time?  As it turns out, it may be that those very same challenges that hinder the enabling environment in Lagos actually provide the purpose and create force behind impactful innovations.

Consider the many barriers that an innovator faces to achieve market success. For example, if you design a payment platform, you need to make sure it can work when the connection is down, can still check and validate transactions, see whether a customer was debited, and query four or five services at the same time to know whether to reverse a transaction. Or say you have built a logistics platform, only to find your business model challenged because drivers don’t have access to reliable data while working. So, you build solutions for all of these challenges into your processes, applications, software design, customer service response and business model. Once you’ve done this, the result is a much more robust solution for the local market. If, in Lagos, you can create and bring to market a solution that is affordable, that meets customer needs and that is elegantly designed, you have a resilient, fit-for-purpose solution that could be scaled to other developing markets. It seems that it is the very same challenges of Lagos that give its innovations the competitive edge and advantage in other regional or global markets. While it might be expected that a solution designed for the US would not make it in Lagos, it is more likely that solutions from Lagos might make it elsewhere: Either the new environment is easier to navigate, allowing your product to really come into its own; or you are so used to solving challenges in the market that the challenges thrown at you in a new (less challenging) markets are undaunting.

Prerequisites affect the ease, but not necessarily the quality, of innovation

Naturally, it is better to operate in city ecosystems with enabling environments, greater infrastructural coverage and preferred financing terms. Yet, these ideal prerequisites are not present in most African ecosystems, and this should not discourage innovators or ecosystem supporters from operating. An enabling environment does not guarantee the creation of impactful and sustainable innovations. Successful entrepreneurs in Lagos are forced to think laterally about challenges, identifying solutions to the very real market problems (of which Lagos has many).

So, like New York is to the arts, Lagos is to tech: “If you can make it there, you can make it anywhere!”

What is your experience? On balance, do challenging markets hamper or encourage innovations? Are there other factors of importance? We’d like to hear from you! Please reach out to Eden D’Oliveira.

Read more:

• Innovation ecosystems
• Synthesis report
• Cape Town tech innovation ecosystem (1)
• Cape Town tech innovation ecosystem (2)
• Nairobi tech innovation ecosystem

In our Innovation Ecosystems report, which is forthcoming in the next month, we’ll describe a framework for innovation ecosystems and discuss the ecosystems of Cape Town, Nairobi and Lagos accordingly, and we’ll provide recommendations for ecosystem support providers across the continent.