Business News

More operators quit $17b e-commerce sector

 How poor logistics, infrastructure, distrust hinder players
• Fake products, bad customer service worry consumers
• Ghana beats Nigeria on global average spending

Concerns are mounting over rising cases of exits and divestments among operators in Nigeria’s $17 billion electronic commerce (e-commerce) sub-sector of the information and communications technology (ICT) industry.
Findings by The Guardian showed that with about a decade into Nigeria’s e-commerce revolution, not fewer than 10 operators have either exited the space or completely divested their operations to other lines of business.
It was gathered that some of the challenges that have continued to shrink the size of the market in Nigeria include the poor state of the economy, which has neither triggered breaking even nor profitability for players.
Others are policy inconsistencies, tax burdens, gaps in logistics and last-mile delivery, poor Internet infrastructure, increasing losses, preference for cash transactions, low literacy level, cybercrimes, and lack of trust.
On the other hand, customers have had to struggle with growing cases of fake products and poor services from the online platforms.
McKinsey and Company, a global consulting firm, which put the sector’s worth at $17 billion, predicted that online shopping could account for 10 per cent of aggregate retail sales, becoming a $75 billion industry in another five years.
Indeed, the likes of OLX,, Dealday,,, Cribpark, Gingerbox, Buyright, among others, have either exited the space or moved to another line of business. Others like Jumia, Konga, Vconnect, Wakanow, and Kaiglo, have continued to weather the storm.
Recall that the Zinox Group, owners of Yudala, had to rescue Konga from collapse after acquiring it in early 2018. Reports said Konga was sold at a likely loss to its investors, after failing to match expectations despite pulling in over $70 million in investment since it was founded in 2012. Zinox Group, after Yudala acquired Konga, retained the name, Konga, for brand purposes.
Although online sales have risen by 60 per cent in Nigeria, with hourly orders on the rise, a digital trends report by HootSuite in 2019 put global average spending on e-commerce purchases at $499 with China in the lead. In Africa, South Africans lead with a spending pattern of $109. Egypt spent $96; Ghana $59; Nigeria $44; Kenya $42 and Morocco $41.
Further findings showed that more people in Nigeria preferred to shop via mobile devices than desktop computers. Online shoppers in Nigeria are majorly male folks. The shopping period is usually between11:00 a.m. and 4:00 p.m. daily, with Thursday as the day with the highest traffic, followed by Tuesday.
Chief Executive Officer of Konga, Nnamdi Ekeh, said e-traders like Konga have changed the way consumers shop despite the infrastructure, logistics and payment challenges.
He said the potential of e-commerce was felt in Nigeria amid the COVID-19 pandemic and that the country needs more players. Konga is very close to achieving profitability, he said, noting: “We have been able to consistently grow our revenue while also cutting our losses drastically.”
He said Konga continues to tap into opportunities amid challenges such as below average Internet infrastructure, poor road infrastructure for distribution of goods, payment systems, and people’s reluctance to shift from deeply ingrained traditional shopping habits. Ekeh, who said the firm doesn’t enjoy any tax holiday or pioneer status opportunities anymore, stressed that the incentives would help if the government grants them.
Highlighting the need for more institutional support, he said: “During the lockdown, we encountered some difficulties with making intra-state and inter-state deliveries because of the failure of the government to clearly delineate e-commerce as essential service providers. It was a lost opportunity to get more Nigerians into the e-commerce net.”
Victor Eze, CEO of Kaiglo, an online shopping and sales firm, said e-commerce service came at a time the country was not prepared for it, “but I must say that COVID-19 changed so many things. Coronavirus fast-tracked it. It gave opportunities for existing firms to showcase their strength, while also creating chances for newcomers to the space.”
While agreeing with Ekeh on the challenges, Eze claimed that the greatest obstacle is trust. “About 70 per cent of Nigerians still don’t trust e-commerce operations because of the quality of some products and services they get. Also, the prevalence of cybercrimes in Nigeria is an issue. People are skeptical about carrying out transactions with Nigerians,” he said.
On complaints about the prevalence of fake products, Eze maintained that Kaiglo is not involved, even as he noted that tackling the menace might be difficult. According to him, the economic situation is making people compromise so many things.
“Take, for instance, a particular Nike product that cost about N35,000. It was discovered that some people were counterfeiting it and selling it for as low as N10,000. Poor economy stirs up fake products,” he said.
He disclosed that Kaiglo, which started operations last year, is yet to make profit, but has invested hugely in the sector. “We cannot be talking about profit now. Even the pioneer operators cannot lay claim to making profit for now. What everybody is doing is survival and making sure that the industry does not collapse. E-commerce has huge potential in Nigeria because the market is here,” he said.
Eze appealed to the government to create favourable policies, saying that the recent 7.5 per cent Value Added Tax (VAT) increment is a disincentive to business. He called for tax exemption for, at least, five years, to strengthen the companies, and further stressed the need for infrastructure development.
At a virtual news conference, Jumia Nigeria’s CEO, Massimiliano Spalazzi, recalled that at the beginning, operators viewed e-commerce as a long-term investment, but lately, customers are coming online, because it has become the new normal.
While announcing Jumia’s eighth year anniversary, Spalazzi said e-commerce is gradually playing a huge role in the economy. He said logistics and last mile delivery pose a challenge, “but we are bridging that gap.”
He said Jumia does not give room for fake and counterfeit products. When such acts are detected, “we write the seller for verification, and there is a N70,000 fine or the firm gets delisted from the site.” Spalazzi also disclosed that every seller on the platform goes through Jumia Hub, where every product passes through checks and balances.
The President, Association of Telecommunications Companies of Nigeria (ATCON), Olusola Teniola, said the e-commerce business model is predicated on the assumption that Internet access is widely available and affordable to consumers, and that the virtual operation overlays a sophisticated supply chain management system that encompasses an efficient and Just-in-Time (JIT) logistics structure.
He said these foundations are then interlocked in a way that makes clicking on the web portal of an e-commerce provider seamless and reliable to the consumer. He noted that e-commerce operation is heavily reliant on underlying infrastructure to guarantee success. Otherwise, it becomes an unnecessary distraction, which places an additional burden of margin squeeze on operations.
“Customer experience has dictated the success or otherwise of e-commerce operations in Nigeria. With the new norm and COVID-19 pandemic, there lies an opportunity for e-commerce to cater to the latent demand in online shopping for essential goods.
“This, again, means that an established interoperability of different systems are to be put in place to provide the impetus for growth, otherwise, performance will demonstrate a growth trajectory that is subdued at best,” he said.
A senior lecturer at the Department of Mass Communication, University of Lagos, Dr. Olorunifesi Suraj, said COVID-19 gave life to e-commerce in Nigeria and in other parts of the globe.
Suraj, a UNESCO consultant on Media and Information Literacy, however, faulted the claims that e-commerce is not profitable in Nigeria, and that operators are not making profit, even after eight years of operations. “If they are not making profit, why are they still in business?” he asked.
Noting that the economy in this part of the world is challenged, Suraj said lack of infrastructure, including basic Internet service, could worsen the situation. According to him, “A second can affect the margin of business owners. E-commerce is a life business. It is online real time. But it is better for operators to understand, ab initio, the terrain they are moving their businesses to before investing.”
Suraj also pointed out that the management principles of e-commerce operators’ must be looked into to avoid unnecessary losses.
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