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E-Commerce Platforms Closing Down in Nigeria: Models or Market Environment

Proshare

Thursday, February 07, 2018 6.00PM / Proshare WebTV

We are in the fourth industrial revolution, the age driven by the digital space which include online business, transactions, activities and interactions. This explains the emergence of the new media, social media, online platforms for business, e-commerce and a dynamic tech ecosystem.

This is manifest in the distribution of leading global online companies like Facebook, Alibaba, Snapchat, Uber and Airbnb who have developed robust business models through the digital space.

Looking at e-commerce, one company that comes to mind is Amazon, currently valued at $685bl which positions it as one of the most profitable brands in the globe. This is thanks to a robust platform and strategy of retail and distribution across the world’s largest economy-the United States of America

The e-commerce success story of Amazon has inspired the evolution of new firms in the Nigerian and African market.  From Jumia, Konga, Dealdey, Wakanow, Jiji, OLX and Payporte, we have witnessed companies driving the e-commerce service in Nigeria, providing jobs to a young vibrant population in the country while seeking to bring a shift to online shopping in the country.

As at 2017 the e-commerce market industry in Nigeria, according to a Thisday Newspaper report   was valued at $13bl (N4.5trl) . The National Bureau of Statistics (NBS) is projecting that in 2018  it could hit N10trl. These are promising projections, but there are challenges and concerns at the moment. Zinox Technologies recently acquired Konga operations and OLX recently shut down its office in the country.

While Zinox has assured that the acquisition of Konga will boost the e-commerce ecosystem, the OLX development raises concerns over the impact of the business model in Nigeria.

There are great potentials for the e-commerce segment to thrive in Nigeria and position it as a market leader in Africa, from a huge population, ready market of over 180 million, an increased adoption of mobile technology, spread of telecommunications coverage to an increase in internet data usage.

Apart from the fact that OLX (a subsidiary of Naspers) office shutdown affects about 100 workers in the nation, this also impacts the e-commerce business space in Nigeria, that has been in the process of consolidation and value creation.

It will be recalled that Effritin.com another key platform closed its operations citing the challenges of doing business in the country.

Why E-Commerce Firms Closed Down in Nigeria

Efritin an e-coomerce firm and subsidiary of Saltside Technologies in 2017 shut down its operations citing high cost of data, the harsh economic conditions(recession at the time) and increasing operations costs in the country.

Konga a $34ml valued company was recently acquired from Naspers and ASB Kinnevik by Zinox Technologies one of the strategic tech companies in the nation. This is an acquisition which Zinox has assured industry watchers, that it is a move designed to strengthen the value chain.

OLX a subsidiary of Naspers on its part stated that it had to make a difficult but important decision by closing its operations in Nigeria, to consolidate its operations across the globe. This is part of efforts in recalibrating its operations, by leveraging on its leading market in Africa, South Africa.

Economic Policies that Impacted E-Commerce firms

The Ease of Doing Business in Nigeria has been challenging, prior to the launch of the reforms by the office of the current Vice President in 2017.

From business registration, permits, customs operations reforms, visa-on-arrival for investors, amongst others the business environment has been challenging, but with the current reforms there are prospects of an enabling environment for the e-commerce industry to thrive.

Also, the Slow implementation of the Broadband policy by the Federal Government, and this is affecting the growth in the operations of the e-commerce space in the country.

What Nigeria has lost to E-commerce companies closing down

Nigeria has lost millions of dollars in investments with the exit of key e-commerce players (namely Efritin and OLX), hundreds of young vibrant workers who have been disengaged, opportunities for  leveraging a viable e-commerce ecosystem(which can be reworked), valuable assets and revenue.

With the aforementioned businesses closing down, there must be a pathway for the sustainability of the e-commerce industry in Nigeria. Key issues to consider include:

Cost of Doing Business

The current reforms on the Ease of Doing Business carried out by the Federal Government is critical. At this time businesses like the e-commerce platforms face challenges with the “Cost of Doing Business”. This is vital to ensuring that the business environment is conducive for attracting more investments that will transform the landscape.

Respect for Contracts

The business model of the e-commerce industry in Nigeria has been wrought with the challenge of an acceptable and viable means of transaction, which values and respects contracts. The Digital space in Nigeria faces the issue of trust and credibility, which explains the adoption of Prepay on Delivery over the Pay on Delivery, which has not been profitable for the e-commerce firms.

Broadband

Broadband penetration is critical to driving the accessibility of the e-commerce services to millions of Nigerians, especially those in the rural areas who can benefit from it. The Government (Federal, State) and Private sector should partner effectively in driving the broadband infrastructure across the country.

Infrastructure (Roads, Rail & Waterways)

E-commerce thrives on a robust infrastructure network of solid rail system, roads network and safe waterways. For the Industry to thrive and create value in the area of logistics and delivery, Infrastructure is critical as we can see in the United States, Europe and Asian markets. Several e-commerce companies have incurred huge costs and damages due to poor infrastructure in the country.

A Robust E-Commerce Ecosystem

Collaboration amongst the e-commerce players is key in the country, working in silos will not help and to achieve this there is need for the strengthening of the ecosystem that will drive advocacy for the industry particularly in the areas of policies.

E-Commerce companies will have to forge a strong partnership in the area of service delivery.

Investing in Technology

In the Digital revolution, technology and innovation are the vehicles of driving the economies which informs the need for businesses to take investment in technology seriously. With the advent of technologies and innovation like Artificial Intelligence, Drones, Big Data E-Commerce companies in Nigeria, we will have to invest in these technologies to drive the value chain and services in the country.

Repositioning NIPOST

Countries like US, UK, Germany, France, China are experiencing a robust e-commerce service because of a viable postal service system. The Ministry of Information and Communications Technology has shared its vision of repositioning the Nigerian Postal Service to support the e-commerce and fintech value chain. The reform of NIPOST is critical to strengthening the e-commerce ecosystem in Nigeria, we expect that the government will take this head on and create the enabler for the digital economy.

Conclusion

The Challenge of the e-commerce Industry in Nigeria seems huge and enormous but surmountable. The pathway is collaboration, strong ecosystem, viable reforms and policies, deploying new technologies, respect for contracts, improved broadband penetration, infrastructure, cost of doing business and the repositioning of NIPOST.

We believe the e-commerce industry has a bright outlook in Nigeria, but the spate of businesses shutting down operations raises concerns, but if the aforementioned issues are addressed there are prospects of sustainability instead of the survival race for the businesses.

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