E-commerce as a tool for economic expansion

Proshare

Monday, June 08, 2015 8:46AM / FBN Capital Research      

Nigeria’s retail industry has become increasingly sophisticated, evolving from open-air markets to modern malls and online shops. Small and medium-sized enterprises (SMEs) are now primary drivers of growth for e-commerce. Cost reductions and improved marketing reach are two of the main advantages which electronic platforms offer. Future growth will very much depend on the evolution of internet penetration. According to the Nigerian Communications Commission (NCC), active internet subscription via GSM was estimated at 83.2 million in February, equivalent to a penetration of 49%.

Based on industry reports, countries with highly successful e-commerce industries such as the United Kingdom, the United States and Norway have correspondingly high Internet penetration rates of 87%, 81% and 95% respectively.

Recently, online retail platforms such as Konga and Jumia have been seeking ways to incorporate SMEs into their marketplace to drive business. This has assisted in bridging the gap between consumers and access to products.

On average, the leading online stores achieve about US$2m worth of transactions per week (approximately N1.5bn per month).

One roadblock in the online retail market is data security, which reduces frequency of online purchases. In fact, a large number of Nigerians still prefer the traditional retail channels because of this.

The CBN’s cashless policy encourages electronic-based transactions and has been of great benefit to online retailers, given that they rely on e-payment portals to secure order placements. Further steps by the CBN can drive financial inclusion which would increase the retailers’ customer base.

In the medium term, we expect e-commerce’s contribution to GDP to grow to a mid to high single digit percentage (from approximately 1% based on 2013 data). However, the FGN will need to provide stable and high-speed broadband.

For now, broadband speed remains low. The communications technology minister, Omobola Johnson, recently disclosed that the national average broadband speed stood at 4.7Mbps.

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