The Population Myth
What is Nigeria's Actual Total Addressable Market for Tech-enabled & Internet-based Businesses?
There are entire industries built on the myth that Nigeria has a population of ≥200m people. From NGOs to venture funds to start-ups, numerous actors in the economic value chain have leveraged, and continue to leverage, this myth to steer/justify economic policies, capital investment and business decisions. Given the faulty underlying premise, this means such policies and investments are at risk of not impacting economic growth as expected or, even worse, causing imbalances that can hamper same.
In addition to the population miscalculations, there is also a (wilful/negligent) lack of understanding of the real economic constraints of the vast majority of the Nigerian population, even if it was 200m. It could be 1b, but as long as 90%+ continue to make an average of $60/month (with periodic currency devaluations in an import-heavy environment) opportunities to generate significant economic value from said population is an uphill and extremely risk/capital-intensive task.
The challenge is that we seem to have gone so far along this falsely informed path that too many have now leveraged on it, and are expected to deliver returns based on the resources already allocated as a result. From start-ups that relentlessly used this number (as opposed to actual metrics) to secure foreign investment, to the actual investors that consequently allocated capital, many have already made decisions that have tied them to this myth and incentivised them to further propagate it.
Unreliable Data
The reasons the Nigerian population number is almost certainly inflated can be traced historically to the first post-independence census conducted in the country, back in 1962. Firstly, each region of the country actually undertook censuses in their respective territories and simply transmitted their figures to the central body. It was almost impossible to audit those figures at the time, and the regions were incentivised to inflate their population figures as these were one of the direct factors that determined the number of seats a region had in the federal legislature – and by extension the amount of federal resource allocation each region was entitled to.
Fast-forward to today and the same incentives (to inflate population figures) still remain in the current Constitution. The amount of money disbursed as federal allocation to States (which, for most State Governments, is their primary/only revenue source) is determined by certain factors which, again, include the size of the population of a particular State. Additionally, there continues to be no real way to audit any censuses due to the logistical problem of the country’s size, and dispersion of communities – particularly in rural areas. So, our censuses are, at best, based on educated ‘guess-work’ or at worst, completely distorted based on manipulated data.
Actual Population Size
The foregoing notwithstanding, even if we use census data and extrapolate based on population growth rate estimates, (and assuming census data from the most populous cities and towns are somewhat reliable), the numbers still don’t add up. There are 400 cities and towns (of all sizes) in Nigeria. The most recent population estimates for all these towns and cities is 51.6m. Presuming, as is widely accepted, that 48% of the country’s total population lives in rural areas, it can therefore be estimated (based on the population numbers in the cities and towns) that there are just over 100m people in Nigeria.
This accords with another realistic population size indicator, namely the number of sim cards/active GSM lines in the country – given that even those in the lowest income or most rural areas have mobile phones. According to NCC data, the total number of active GSM lines as at the end of March 2021 stands at 187.6m. Given that sim card registration involves capturing physical and biometric data about sim card owners, this metric is quite reliable. Of course, one must also consider that a significant number of Nigerians, possibly around 40%, own and use an average of two sim cards. This means that around 60% of the total active lines (i.e. 112.6m) is probably closer to the total number of actual individuals that own all those sim cards. This figure aligns with the earlier estimated population figure based on cities and towns.
Market Size (TAM/SAM/SOM)
In the context of business opportunities, and as mentioned earlier, it matters much less what the actual total population numbers are than the proportion of such population that can actually be serviced by a business. This highlights the difference between a territory’s total addressable market (TAM), serviceable addressable market (SAM) and serviceable obtainable market (SOM). To briefly explain, TAM refers to the total number of humans or businesses (depending on whichever is your customer) in a given territory (e.g. Nigeria); SAM refers to the number of those already using/paying for the product or service from existing businesses (i.e. your competitors); and lastly, SOM refers to the proportion of the SAM that you expect to capture.
The most important initial market size metric is therefore the SOM; everything else comes after that segment is successfully captured first. Most Nigerian start-ups are however leading all their pitches and business plans with the (inaccurate) TAM number, which will arguably lead to a lot of issues once capital is deployed behind a business plan based on this figure.
So, if the total population size is half of the widely reported estimates, what then is the realistic addressable market size of that population for tech-enabled products/services and internet-based businesses? This question matters even more than the estimated total population size of the country because it is irrelevant how many people exist in a commercial territory if none of them are able to patronise your business – either due to lack of income, technology, or interest to access and use the product/service.
This answer to the said question of course depends on a number of factors including the type of tech-enabled product or service, the technology channel through which it is delivered/paid for, and the price point/structure of the product or service. What can be said for sure is that if, as is widely reported, around 40% of the country is still un/under connected then that means around 60-70m Nigerians are internet subscribers (technically speaking) and can thus be classified as the potential SAM for internet-based businesses.
However, if one digs deeper into the data it becomes clear that of those 60-70m people, only about half (around 27m) regularly use social media – which includes Facebook, Instagram and Twitter, in that order. These 27-30m people arguably represent the real SAM of the country for internet-based businesses given that they can at least afford the minimum data requirements to use these sites on a regular basis.
Dig further, and one finds that that of these 30m people, likely only 3-5m of them have the income to afford the (high-speed/reliable) data required to regularly use tech-enabled services and pay for them. Note that only 2m households earn enough ($10,000+ p.a.) to be classified in the top income percentile in the country. 2 million households equate to roughly 4m parents of which likely only half are in a young enough (ICT avid/savvy/active) demographic to warrant being realistically classified as part of the addressable market in question.
Conclusion
So, for all Nigerian tech-enabled businesses that require customers to have 3G data connectivity and above to access their products/services, with offerings that can be classified as a “luxury” (within the local context), and a price point above $2-3 will likely only have a target market of 1-2m people at best to realistically target. This is fine in and of itself if your business can survive/scale based on (capturing a portion of) this number of people. However, if every tech-enabled business is chasing this same ‘niche’ market, the challenges that arise are unavoidable.
Raising capital for a business plan based on a market size that is 100x above the true market size is a recipe for disaster and our entire ecosystem must adjust and correct this sooner rather than later.
Excellent summary! Very interesting to know the origins of overinflated population sizing. Would be curious to see a similar analysis of other African countries ie Ghana / South Africa, given that these territories are also seeing increases in foreign investment capital. Look forward to reading more! 👌🏾