E-commerce gets boost from spiralling internet uptake in Nigeria

Nigeria, Africa’s largest economy by GDP, is becoming the object of attraction for local and international online businesses due to the massive surge in internet subscription rate, industry observers have said.

Nigeria’s internet subscriber base rose from 48.2 million in June 2013 to 67.4 million in June 2014.This represents a density of 40 percent, placing the country above the African average of around 16 percent, as estimated by McKinsey.

In view of this, Nigeria is witnessing a deluge of digitally-enabled businesses, offering innovative services, and seeking fresh opportunities in a market with the largest mobile penetration rate in the continent (129 million).

“There has been an unprecedented growth in internet penetration, largely driven by strong mobile penetration. There is a raft of internet enabled businesses providing locally relevant solutions”, said Eki Toju, head of sales for Gidimall.com, a leading online retailer, in an interview.

According to eMarketer’s latest forecasts, worldwide business-to-consumer (B2C) e-commerce sales will increase by 20.1 percent this year, to reach $1.5 trillion. Growth will come primarily from the rapidly expanding online and mobile user bases in emerging markets like Nigeria, increases in mobile commerce (m-commerce) sales, advancing shipping and payment options, and the push into new international markets by major brands, according to market analysts at eMarketer.

The nation’s e-commerce market is steadily gaining traction, with the value of the country’s online payments rising exponentially from $314 million in 2010 to $488 million in 2012, according to data from the Nigerian Inter Bank Settlement System (NIBBS).  Local analyst however estimate that the total value of online payments hit $630 million as at the end of 2013, in view of rising sales at the main online portals. Nigeria’s success in building digitally-enabled services and business lays the foundation for easily scalable advanced services such as e-commerce, marketplace and social media, market observers say.

According to them, this is well reflected by the rise of electronic commerce firms such as Jumia.com, Konga.com, DealDey, Gidimall, Jobberman, Paga, iROKO, Kaymu, to name a few.

In recent times,  PayPal Incorporated, Olx, Cheki.com.ng, privateproperty.com, carmudi.com, easytaxi.com, Afritickets, Kuluya games, NairaBet, amongst others have popped up in the country. Even with the strides in technology start-ups in Nigeria, Africa’s most populated nation, funding still remains a huge constraint. “Many key components of a successful ecosystem for tech businesses are not yet in place in Nigeria, like widespread e-payments, cheap and widespread broadband access, trust infrastructure to verify identity and manage customer reputation, subscription management platforms and the like”, Chika Nwobi, founder of Lagos-based L5Lab, said.

According to Nwobi, there is also a lack of deep talent in the country. He adds that the few funded companies are competing for a small pool of talent.

Kenneth Omeruo, chief executive officer, TechTrends Nigeria, says, “Some success stories can be seen among the Nigerian startup ecosystem and you can find them in the technology hubs. Though one has not really measured their successes in terms of their profitability and share capital, the positive report from them is fueling the interest of investors into the Nigerian tech ecosystem.”

Nigeria’s internet access market is set to witness a huge boost, as the federal government has set the target of a five-fold increase in broadband penetration by 2018. In March, the Nigerian Communication Commission (NCC) successfully auctioned a single-slot wholesale license within the 2.3GHz frequency.

The telecommunications regulator has begun a fresh process to auction two slots of 70MHz frequency spectrum in the 2.6GHz band. This 2.6GHz band will enable efficient broadband delivery to subscribers at 1.5MB/s which is one of the objectives in the National Broadband Plan (NBP). The transformative benefits of increased broadband penetration however will cut across several sectors of the economy, according to market analysts.

In contrast to tele-density of 77 percent on the basis of 130.8 million active lines in June and a population of 170 million, broadband penetration is relatively low at around 6.8 percent.

However, the FGN has set a target to raise broadband penetration to 30 percent by 2017.  Following the recently released national accounts for Q2 2014 by the NBS, telecommunications posted the strongest growth in the non-oil sector, at 6.2 percent year-on-year (YoY).  Studies by the World Bank suggest that for developing countries, a 10 percent increase in broadband penetration translates into GDP growth of around 1.4 percent.

Ben Uzor