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Nigerian Startups Pivot to Domestic Solutions Amid AWS, Azure Cost Pressures Due to Naira Depreciation

Since the Central Bank of Nigeria (CBN) announced a floating FX regime in June 2023, the naira has depreciated by as much as 68% in value. For businesses with a portion or all of their operating expenses tied to the dollar, this has resulted in increased operational costs and, in certain instances, substantial financial losses. More The post Nigerian Startups Pivot to Domestic Solutions Amid AWS, Azure Cost Pressures Due to Naira Depreciation appeared first on Tech In Africa.
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Since the Central Bank of Nigeria (CBN) announced a floating FX regime in June 2023, the naira has depreciated by as much as 68% in value.

For businesses with a portion or all of their operating expenses tied to the dollar, this has resulted in increased operational costs and, in certain instances, substantial financial losses.

In 2023, MTN Nigeria incurred a loss of ₦137 billion as a result of its tower costs being linked to the dollar. Similarly, Cadbury Plc and BUA Foods suffered losses of ₦36.93 billion and ₦73.56 billion, respectively, due to the same issue.

As a result, numerous Nigerian startups have started shifting a portion of their technology requirements to local service providers.

The transition to alternative internal communication tools such as Zoho, which accommodates payments in Nigerian naira, has been relatively smooth. This has made it a popular choice among users. Meanwhile, some have opted to temporarily suspend the use of certain products to better manage limited resources.

However, one area of startup operations that has not experienced significant advancements is cloud hosting. Startups primarily rely on cloud hosting for database management and allocate substantial resources to it.

Most startups rely on cloud hosting providers like Amazon Web Services (AWS), Azure, and Google Cloud. These providers often offer free cloud credits to startups directly and through partners, allowing them to onboard many new businesses.

As the value of the naira depreciates against the dollar, several entrepreneurs are contemplating a shift towards local cloud hosting providers.

Can local cloud hosting providers meet the challenge?

Ebun Okubanjo, the CEO of Bento, a payroll services provider, recently announced that the company is transitioning some of its infrastructure to Nobus Cloud Services, a local provider. While expressing satisfaction with the quality of AWS’ service, he highlighted the significant cost savings this move will bring, especially in light of the declining value of the naira.

By switching to Nobus Cloud Services, he managed to reduce his monthly bill from ₦6 million ($3,814) with AWS to ₦4.9 million ($3,115) annually. This highlights the substantial cost savings that startups can achieve by transitioning to local service providers.

Ahmad Mukoshy, CEO of GigaLayer, challenges the concern that local providers may not have the capacity to support startups.

GigaLayer is a reputable local cloud hosting provider, catering to the needs of almost 16,000 businesses.

Mukoshy was initially established to offer micro-hosting services to small and medium-sized enterprises (SMEs) in the country. However, it has since evolved to also cater to startups and financial institutions, with almost half of its client belonging to these sectors.

Mukoshy contends that GigaLayer provides equivalent service quality to its international counterparts, addressing the prevalent concern of uptime for businesses utilizing local cloud hosting providers.

Drawing on infrastructure from companies in Europe and the United States, GigaLayer customizes its services to meet the specific needs of its clients. With a significant portion of its client base located outside Nigeria, it is imperative for the company to uphold service quality that is on par with global standards in order to retain its users and stay ahead of competitors.

In the majority of instances, we do not operate on an affiliate model where the overseas partner has full control over delivery or support. Instead, we receive products directly from our partners and customize them to meet the specific needs of our clients.

GigaLayer currently does not own any data centres, but it has strategic partnerships with six facilities in North America, Europe, and Nigeria. This allows the company to develop tailored solutions for its clients.

To enhance profitability.

As GigaLayer collaborates with partners outside of Africa, a portion of its operational expenses is denominated in dollars. However, Mukoshy emphasizes that the company effectively mitigates these costs by generating foreign exchange.

The company benefits from its overseas clients paying for services in dollars, which helps to generate essential dollar revenues to cover some operating costs.

Operating primarily from Nigeria offers the advantage of lower operating costs compared to foreign counterparts while providing similar services. This allows us to offer competitive prices to our users, giving us an edge in the market.

Mukoshy’s approach involves maintaining local infrastructure to minimize operating costs and generate sufficient international revenue to meet foreign exchange obligations. This strategy enables the company to operate efficiently and sustainably.

In response to the growing expenses that are pushing startups to look for local alternatives, Mukoshy outlines GigaLayer’s efforts to enhance its technical capabilities to better serve the needs of these startups.

He also emphasized that startups are hesitant to transition due to potential risks. In response, the company is now offering a money-back guarantee to minimize the risk associated with the switch.

 

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The post Nigerian Startups Pivot to Domestic Solutions Amid AWS, Azure Cost Pressures Due to Naira Depreciation appeared first on Tech In Africa.

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