eCommerce
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E-Commerce Opportunities in Nigeria

Before the discovery of oil, the economy of Nigeria depended largely on agriculture. Upon the discovery of oil, the country’s attention shifted to oil exploration as the main driver of the economy, accounting for over 80% of the country’s foreign exchange earnings. The recent crash in global oil prices, resulting in dwindling oil revenue and its attendant threats to the nation’s economy has made it pertinent for the country to start looking at diversifying the economy. The nation’s sole reliance on crude oil makes the economy vulnerable as recently experienced. The present government in Nigeria in the past four years, made giants strides in reviving the agricultural sector and huge success has been recorded. In making attempts at diversifying the economy, it is imperative for a government to create an enabling environment for new opportunities and concepts with proven record of productivity and sustainability. Electronic commerce is one of such new concepts.

Electronic commerce is an alternative and convenient way of conducting business. This revolutionary way of conducting business popularly known as e-commerce has since broken down the geographical and traditional concept of commerce. The amount of trade conducted electronically globally has grown exponentially with widespread internet usage. A large percentage of e-commerce is conducted largely for virtual items such as access to premium content on a website, purchase and download of e-products like music and e-books, performance of e-services through outsourcing of digital, technical, creative and even legal jobs and services. E-commerce also involves the combination of purchase and transportation of physical items; retail and consumer products in some way.

The recent upturn in e-commerce enterprises across Africa is believed to be revolutionizing in not just the retail market but also business in general. The growth potential as demonstrated by several e-commerce firms showcases the enormous business opportunities that have not been maximized. As one of the continent’s leading IT markets and Africa’s largest economy with an estimated population of 170 million people, Nigeria has seen a rapid surge in the development of e-commerce.

All over Africa, e-commerce is progressively taking over the market space, replacing physical stores and malls. Outsourcing of all manners of digital jobs and services is also fast becoming popular in Nigeria. Compared to what was obtainable at the turn of this century when only few people knew about the internet and the advantages it possesses, the introduction of smartphones and the increasing internet penetration has continued to help usher in innovative business ideas one of which is e-commerce. For instance, Nigeria’s internet subscriber base rose from 48.2 million in June 2013 to 67.4 million in June 2014. This has also led to the emergence of such Nigerian e-commerce platforms like Jumia, Konga, DealDey and Lamudi amongst others.

Africa Internet Group, one of the continent’s leading e-businesses, through recent independent studies and field survey lists Senegal, Kenya, Morocco, Mozambique, Nigeria, South Africa and Ghana as the top 7 African countries gaining momentum in e-commerce.

In 2012, Rocket Internet, backed by Swedish investment firm Kinnevik launched Jumia, Nigeria’s pioneer e-commerce platform. As at 2014, Jumia was estimated to be worth US$555 million. Rocket Internet subsequently launched other platforms in Nigeria and they include Easytaxi, a smartphone-powered taxi hiring service, Carmudi, an online automobile marketplace; and Jovago a hotel booking portal. These businesses are gradually becoming multi-million dollar businesses.

Konga, which was also launched in 2012 is another success story. The platform has also witnessed support from foreign investors and is currently estimated to be worth US$200 million as at October 2014.

While e-commerce is doing well in consumer and retail products, the digital products and services sector is not particularly lagging behind in terms of investors’ input. Rockefeller Foundation recently pledged the sum of US$100 million on its new initiative – Digital Jobs Africa – which focusses on providing digital jobs for youths in six African countries. The Foundation recently gave a grant of US$500,000 to Paradigm Initiative Nigeria, a social enterprise that connects millions of Nigerian youths with information and communication technology (ICT) opportunities.

It has been recorded by an online researcher, e-marketer, that while e-commerce across the rest of the world is growing at 16.8 per cent, Africa’s e-commerce space is growing at a rate of 25.8 per cent, making it the fastest growing in the world. This growth has also been seen as fuelling a massive consumer behavioral change in favor of e-commerce.

Irrespective of how fast e-commerce is growing, there are certain challenges it has faced. Notable among the challenges are the issues of funding and logistics. Also identified is the issue of the country’s non-existent legal framework to regulate e-commerce.

Logistics challenge is attributable to poor road networks and traffic gridlock which is predominant in most commercial cities in Nigeria. This is also the reason why it takes between five to seven days for some major players to deliver goods to customers. The lack of basic infrastructure, power supply and expensive broadband internet greatly inhibit the rapid growth of e-commerce. Nigeria’s erstwhile notoriety for online fraud has further hindered growth. Outdated myths can be hard to shake off and unfortunately some still incorrectly see Nigeria as a haven for scam artists and fraud.

As it stands in Nigeria today, the market is unregulated. There is need for a legal framework to support the development of e-commerce as a whole. Such legal framework will address issues such as the legal relationships between, as well as the rights and obligations of the participants in the sector; the issuers, merchants and card holders/customers. It will also give definition to the scope of e-commerce. Certain Bills on the regulation of e-commerce are pending before the 7th National Assembly. They include Electronic Transactions Protection Bill (2010) and Electronic Commerce (Provision of Legal Recognition Bill) – 2008.

Irrespective of the problems identified above, there are tremendous opportunities for e-commerce growth and investment in Nigeria. The ease with which the evolving middle class in Nigeria has access to internet ready devices – affordable smart phones, tablets, phablets and computers- is complementary to the growth of e-commerce.

There is enough room for investors (local and foreign) to tap into the buoyant e-commerce space in the country. For instance, millions of Nigerians are currently being trained by Paradigm Initiative Nigeria as mentioned earlier. There is however no major presence of e-commerce platforms in the digital jobs and services sector. Upon being trained, Nigerian youths stressfully source for digital jobs on established foreign platforms like Clickbank, Dealguardian, Odesk, Elance and Freelancer. The creation of digital jobs and services platforms in the country would augur well both for Nigerian youths and the investors. In the retail and consumer products sector, while many wealthy Nigerians still travel abroad for their shopping, the key market target is the evolving middle class in Nigeria. There is a rapid transition of the low income class level to the middle class level, and with the growing population of the country, the market is large and opportunities abound for investors in Nigeria’s e-commerce space.

Oladele Adeniji

Senior Associate M: +234 (0) 817 200 5861 Email: deleadeniji@stillwaterslaw.com