FINANCE - 17 APR 2018

The many pitfalls of e-commerce in Nigeria

The many pitfalls of e-commerce in Nigeria
Overcoming the logistics of distribution still remains an obstacle for Nigerian entrepreneurs

It has been nearly a decade since Konga and its peers began Nigeria's e-commerce boom. A lot happens in ten years though; this year, Zinox group bought a struggling Konga for a reported $10 million as a precursor to a merger with Yudala.

Within that period, how has the e-commerce economy fared?

 

BYOI - Bring Your Own Infrastructure

Running a business is hard, and doing business in Nigeria is even harder. The same challenges that hamper traditional enterprises have hampered e-commerce firms; inadequate infrastructure, arbitrary levies, low access to cheap funding, etc. remain high up on the list. Although a number of firms have thrived, survivorship bias should not distract us from the frequent occurrence of failure. 

Take the usual problem of infrastructure. E-commerce firms may lack the regular brick-and-mortar structure of large retailers, but they still require infrastructure. Moreover, reliable internet and an efficient logistics chain are two additional demands. For instance, consider the logistic nightmare of negotiating deliveries during fuel scarcity. And while Nigeria's biggest cities can sometimes give a misleading impression, internet penetration in Nigeria remains low. 

In a country where the poverty rate is estimated between 50% and 60%, many cannot consistently afford a data bundle. This is why it is easy to be misled by Nigeria's population of 180 million people. E-commerce firms would tell you for free that the target market is markedly smaller. Even the middle class able to afford data would point to its unreliability and speed. To solve this, we need to increase internet bandwidth, currently at 11.3 kb/s per user compared to 126.5 kb/s in the United States. 

Logistics are another challenge. The Nigerian Postal Service is not up to scratch and has forced many e-commerce firms to develop in-house logistics solutions – Konga's KOS- Express as an example. This "bring your own infrastructure" approach to business increases operating cost and erodes the competitiveness of e-commerce players who cannot enjoy the same economies of scale available to their global rivals. 

 

Don't trust me, I am a Nigerian

For e-commerce firms, Nigeria's trust deficit proved to be a unique challenge. Having witnessed the likes of Amazon surpass traditional retail behemoths in the developed world, aspiring e-commerce entrepreneurs were met with an unexpected obstacle to running a profitable online business: many Nigerians were not comfortable making payments online. The rise in mobile payments and the Central bank of Nigeria's sensitisation "cashless society" campaign have helped on this front, but not enough to stop Uber from quickly incorporating the much-used "pay with cash" feature on its app. 

More fundamentally, Nigerians do not trust each other in person and trust each other less online. A generation of internet scams will do that to a society. A Nigerian man will typically count the money he withdrew from the ATM before leaving the premises.

But there are ways around this trust deficit. First, payment providers could do more to deepen understanding while providing psychological insurance to Nigerians. For example, PayPal offers guaranteed payback for transactions. Moreover, e-commerce firms in Nigeria have sometimes perpetuated the trust deficit by showing a brazen disregard for product quality and customer service. 

The effect of Nigeria's trust deficit can be fully seen when we imagine a service like Airbnb in Nigeria. The business model requires online payment and forces you to open your door to strangers. Would it work? 

 

A bright future?

All is not lost, however. As simple as it may sound, Nigeria's combination of aspirational capitalism, population growth, and mobile adoption create a fertile ground for e-commerce. The industry may just have to succeed in spite of government, rather than with its help. 

Mobile payments are growing, and FinTech platforms continue to carve niches out for themselves, helping to build a more sustainable ecosystem for e-commerce firms to thrive. Moreover, the lessons learned by the likes of OLX, Jumia, and Konga will serve another generation of firms; some will follow the MySpace path, others the Facebook route. The future of Nigerian retail is online, the current generation of firms will hope they are around to enjoy that time. 

Follow this Writer on Twitter @anselem_kadiri. Subscribe to read more articles here.

Anselem Kadiri

Anselem Kadiri

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