• Thursday, March 28, 2024
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Nigeria’s ecommerce market: Addressing the real problems

Nigeria’s ecommerce market Addressing the real problems]]

This January, Deal Dey and Gloo.ng joined the growing list of firms in Nigeria’s ecommerce space that are taking the exit door, unceremoniously. That list also has in it, names like Efritin, OLX, and the old Konga. Jumia and PayPorte which appear to be the last-man-standing have been really shaken in recent times by the harsh realities of the environment.

Gradually, the ecommerce space has come to be a reference for where not to invest money in Nigeria. Ndubuisi Ekekwe, chairman of FASMICRO and one of the prominent critics of ecommerce in Africa, all but shut the door on foreign investments in ecommerce in a recent article with a screaming headline ‘Avoid Starting Ecommerce Venture in Africa Now.’

In the article he describes the sector as “the easiest way to waste money and destroy value in Nigeria.” He says any ambition of making profit in ecommerce will take a very long time to happen. In other words, as it stands, it is nearly impossible.

Olumide Olusanya, founder of Gloo also does not have flattery words for ecommerce business in Nigeria, for obvious reasons. For him, Africans in the sub-Saharan region do not have strong need for ecommerce.

“Total addressable market (TAM) is not big enough while there are high service delivery frictions,” he says.

Currently, businesses in the sector struggle to count up to 500,000 active unique ecommerce customers in Nigeria.

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It was not always so.

Stories of Amazon’s and Alibaba’s ecommerce successes elsewhere in the world in some way provided the drive for investors to believe there was a need for an ecommerce market in Nigeria and other African countries.

Perhaps the optimism of early pioneers of ecommerce in Nigeria like Leo Stan Ekeh founder of BuyRightAfrica.com was justified given the size of the population, majority of who were vibrant young people.

In 2013 and 2014 when the market was coming to limelight Nigeria had just discovered it was the largest economy in Africa and the number of people in the middle class was on the rise. Internet adoption was also having a healthy run. To top the icing, Omobola Johnson’s ministry of ICT had just launched a National Broadband Plan with 30 per cent broadband growth by 2018 set as target. It was easy for investors to see ecommerce was the next big thing.

There was a time in Lagos when buying an item from Jumia or Konga was a fancy way of announcing to friends and colleagues you have joined the elite class. In 2014, activities on ecommerce platforms in Nigeria showed over $2 million worth of online transactions per week and close to $1.3 billion monthly. The market was estimated to grow at the rate of 25 per cent annually.

Competition for customers went overdrive; Konga and Jumia practically combed every nook and cranny for advertisement space; every billboard, street light poles, television and social media platform was an opportunity for visibility.

“It will be interesting to look at the advertising budgets for the leading ecommerce companies in their heyday and assess if result justified the expenditure in terms of number of customers acquired,” Collins Onuegbu, executive vice chairman of Signal Alliance and a serial investor, told BusinessDay. “But to be fair to them, the race to be number one required that they create visibility for their brands.”

Apparently, visibility was not a major challenge to unlocking profitable in ecommerce in Nigeria; otherwise the aggressive advertisement model would have been a reference of how to succeed in the space.

Adedeji Olowe, CEO of Trium, says the bigger problem with ecommerce businesses in Nigeria is trust. Consumers could not trust the companies enough to want to continue patronage.

“At the time ecommerce started in Nigeria, digital payment was at its infancy, so the failure of card transactions was rampant,” says Olowe. “Ecommerce companies were forced to introduce payment on delivery (PoD). Of course, there was a massive boost that at one time PoD was 93 per cent.”

The ecommerce businesses apparently failed to capitalise on the PoD growth as quality of customer service dropped, delivery delays became a daily occurrence. On most cases when customers ordered for item A, they got delivered B or worse, fake products by employees of the ecommerce and courier businesses. Lack of trust was responsible for the failure of efforts by the old Konga to introduce cash before delivery model. The company finally bit the dust in 2018 when it was acquired at a loss by Zinox which also runs the predominantly offline store, Yudala.

The economic recession that Nigeria suffered from 2016 to 2018 may have also had a debilitating effect on the revenues of ecommerce companies. The sharp fall in the value of the naira impacted household incomes. Suddenly the amount of disposable income in the hands of the growing middle class became very limited.

Onuegbu suggests that had the economy continued to grow and retail kept expanding, more people with disposable would shop online.

“I believe when retail recovers as the economy itself recovers, ecommerce will become more attractive,” he says.

Olowe has more radical solutions for ecommerce recovery in Nigeria. One is the creation of an escrow system which allows buyers to pay but merchants do not get the money until they perform. Alibaba has leveraged on such an escrow system to become a global force where a Nigerian is able to pay for goods, have it delivered to Lagos, while trusting that the Chinese seller would not run away with his money.

He also wants a focused involvement of the Consumer Protection Council (CPC).

“Every package must have a document and a process for dispute which if ignored goes to the CPC,” he says.

Finally, ecommerce merchants could be made to pay a small percentage of fees on every sale, chargeable to buyer, as insurance to reimburse when there is a dispute. This money automatically goes to the insurer every month.

“This is like the NDIC that gives smaller customers comfort about bankers,” Olowe says.