• Friday, June 14, 2024
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Why e-commerce in Nigeria remains unregulated despite market growth

Why e-commerce in Nigeria remains unregulated despite market growth

Despite the expansion and growth of e-commerce transactions in Nigeria, the sector is yet to see comprehensive regulation.

According to Statista, revenue in the e-commerce market is projected to reach $46.7 million in 2023, while user penetration is expected to be above 45 percent.

However, the lack of a robust regulatory framework has raised concerns about consumer protection, data security, and fair business practices.

Industry experts who spoke to BusinessDay said the inability to regulate the sector is due to many factors including the complexity and rapid growth of the ecosystem, resource constraints, informal practices, and technological limitations, among others.

“E-commerce encompasses a vast array of businesses, ranging from small startups to large multinational corporations, selling an extensive range of products and services. Crafting a comprehensive regulatory framework that accommodates the diversity of these entities while addressing their unique challenges is a daunting task for the Nigerian government,” Ebuka Anichebe, CEO of Jean-Paul and Associates, a business development company said.

He added that the meteoric rise of e-commerce in Nigeria has outpaced the government’s ability to establish relevant regulations.

“As the sector continues to expand at an unprecedented rate, the government struggles to keep up with the ever-evolving technological advancements, innovative business models, and emerging consumer trends. Establishing suitable regulations necessitates extensive research and consultation, which might not always align with the rapid pace of the digital realm,” Anichebe said.

Anichebe said the government has prioritised sectors which they consider to be key the focus, like education, healthcare and infrastructure, neglecting the booming e-commerce market.

“Implementing and enforcing regulations demand significant financial and human resources. Unfortunately, the Nigerian government faces resource constraints in adequately monitoring and controlling the vast and diverse e-commerce landscape. Prioritising areas such as healthcare, education, and infrastructure development often take precedence overregulating a sector that may not be viewed as an immediate priority,” he said.

A considerable portion of e-commerce transactions in Nigeria occurs through informal channels, particularly in rural areas and these practices remain challenging to regulate due to their fluid nature, limited traceability, and often non-compliance with tax regulations, according to experts. Addressing the informal economy requires a nuanced approach, striking a balance between regulation and fostering economic growth.

Jerahmeel Madumere, a digital market developer, cited limited infrastructure, innovation suppression and complexity of the market as major reasons why the sector remains Unregulated.

According to him, with a large population of over 200 million people, only a few cities have adequate internet and electricity coverage, making it challenging to implement and monitor regulatory measures effectively. For instance, tracking down businesses that engage in fraudulent activity can be difficult.

“As e-commerce evolves in Nigeria, it may have outpaced existing regulatory frameworks. This oversight can result in regulatory gaps where laws must fully address the specific challenges online businesses present. The complexity of this sector makes it challenging to enact laws and policies without proper planning, as regulation on e-commerce needs to cover various aspects such as online payments, logistics, consumer protection, data privacy, and taxation, which require careful planning,” Madumere said.

He explained that stringent regulations may hinder innovation and the growth of e-commerce given the early stage of the sector’s development in Nigeria and the need to nurture innovation and encourage the entry of new businesses. He said there is a need to strike a balance between both regulation and innovation.

In 2021, retail e-commerce sales amounted to approximately $5.2 trillion worldwide. This figure is forecast to grow by 56 percent over the next years, reaching about 8.1 trillion dollars by 2026, according to Statista

For Robert Awodu, head of communication, Jumia Nigeria, the lack of a regulatory body should be traced to the fact that it falls under the Ministry of Communication and Digital Economy and the Lagos Chamber of Commerce which have an e-Commerce body that works with the government on facilitating e-commerce policies.

“I will not say it is not regulated. It is and there are different aspects to it because we have different policies and regulations that more or less cover the operations itself. I will not call them the personal regulator but they are the body that looks into it,” he said.

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Meanwhile, Anichebe highlighted other significant factors contributing to the absence of regulations in the sector below

Economic Contributions and Job Creation

The Nigerian government recognizes that e-commerce has become a significant contributor to the nation’s economy and a source of job creation. Unwarranted regulation could stifle the growth of the sector and deter potential investors. The government may be wary of dampening the entrepreneurial spirit and innovation that thrives within the e-commerce space, as it has the potential to bolster the economy further.

Resistance from Industry Stakeholders

Resistance to e-commerce regulation may also come from industry stakeholders, particularly the larger players who have a dominant market presence. These entities might lobby against stringent regulations to maintain their competitive advantage and avoid additional compliance costs that could impact their profit margins. Additionally, smaller e-commerce businesses might express concerns over their ability to comply with complex regulatory requirements, which could disadvantage them against larger competitors.

Technological Limitations

Nigeria, like many developing countries, faces technological challenges, including inadequate infrastructure and limited internet penetration in certain regions. The government may hesitate to impose strict regulations on a sector that relies heavily on digital infrastructure, as this could inadvertently exclude a significant portion of the population from participating in the e-commerce ecosystem.

The e-commerce sector is fueled by increasing internet penetration, expanding smartphone usage, and growing demand for mobile internet services.