Culture of innovation
The ‘Flying Donkey Challenge’ is a prime example of Nigerian innovators developing a radical solution to a complicated problem, with the focus of the challenge being to successfully introduce unmanned aerial vehicles, or ‘cargo drones’, at a commercially viable price point.
Flying Donkeys are a type of unmanned aerial vehicle that can be remotely operated and have the ability to travel at almost 80 kilometres per hour and carry loads that a donkey could, hence the term ‘Flying Donkey’. It may be many years before ‘Flying Donkeys’ are a regular sight in the Nigerian skies. However, academics at Afrotech, a future Africa initiative based in Switzerland at EPFL (the École polytechnique fédérale de Lausanne), are working on the world’s first commercial cargo drone route, expected to be up and running by 2016.
The unmanned aerial vehicles would be able to negate any issues caused by poor
infrastructure and in the process revolutionise the way e-commerce products are delivered. The potential of so-called ‘Flying Donkeys’ is huge, taking into account that the Nigerian e-commerce market was valued at $1.3bn earlier this year.
The recent re-entry of PayPal into the Nigerian e-commerce payment market is another strong vote of confidence for the online payments industry. Nigerians were quick to use the new service, with the number of sign-ups in the first week being in the tens of thousands. Over the six months that PayPal had been operating in Nigeria, items from the UK, US and China have been purchased using the platform. However, PayPal has not yet allowed local merchants in Nigeria to use the platform, so the largest online retailers Konga and Jumia are not able to accept PayPal at the moment.
However, SimplePay offers users both a web and mobile-based ‘e-wallet’ that can be used to pay for goods and services, such as taxes and mobile phone bills. This service allows any business or consumer with an email address and a bank account to securely, conveniently and cost-effectively send and receive payments online or through their mobile phone. All a user of SimplePay needs to do is sign-up for an account online, connect a bank account or credit card and then deposit money into the ‘e-wallet’ to be spent at hundreds of merchants both online and offline.
The founder of SimplePay, Simeon Ononobi, says: “Obviously e-commerce in Nigeria is in its infancy but there is tremendous room for growth and we hope to capture as much of that as possible”.
Even the very basic problem of obtaining power has been “a great hindrance to growth as we use a generator, which is costly”, says Ononobi, who also notes that finding the best talent is difficult in Nigeria, which shows how crucial educating the next generation of technologically literate Nigerians is.
Whilst it may be difficult to operate in the Nigerian business environment as a startup, the opportunities for those companies that are successful in gaining a foothold in the market are sizable. The value of Nigeria’s online payments has grown significantly, up from $314m in 2010 to $488m in 2012, with online payments expected to total $630m in 2013.
Cash-on-delivery is used by many as a payment method for online orders. This method may be an appropriate stopgap to make Nigerians more comfortable placing orders online, but it is not cost effect or scalable, which is why the innovative new payment systems are important.
Nigerians are naturally cautious about making purchases online, which is not surprising, as cybercrime is becoming a bigger problem as more money is spent on online platforms. Nigeria has been ranked as the third most fraudulent country in the world. It is clear that a concerted effort will be needed to halt cyber criminals in Nigeria, if the growth in e-commerce is to be maintained.
The Nigerian government shoulders a great deal of responsibility in the fight against online fraud and theft. Currently there are no specific cybercrime laws in the country so, unsurprisingly, criminals are showing no signs of reducing their activities. There is also a need to increase technical knowledge and training at all levels, to ensure there is no risk of a talent deficit in Nigerian companies of the future.
E-commerce depends largely on a very reliable delivery system. But given the soft
infrastructure problems in Nigeria coupled with its vast size and low population density outside Lagos, the system is in dire need of attention. The weak infrastructure is compounded by the lack of a fully reliable postal service in the country. The government-owned NIPOST is not able to guarantee arrival of items on time or handle post in large volumes. In order to meet the complex needs of their customers, many e-commerce companies are establishing their own independent distribution networks.
Jumia and Konga have both created a network of distributors by making agreements with local delivery firms and supplementing this service with their own fleet of vans, tuktuks and mopeds. Konga also runs sorting centres and delivery points in key Nigerian cities, but the increase in leasing costs has limited this expansion. The cost of creating such networks can be prohibitive, which in turn reduces the total area that e-commerce companies can deliver to.
Nigeria is growing at such a rapid pace that its physical infrastructure cannot be built fast enough to accommodate demand. The only way that e-commerce providers are currently able to reach customers that live in remote areas is on foot or by donkey, due to the varied terrain they encounter.
Another major problem is that although Nigeria may be the most populous country in Africa, with 174m citizens, the level of broadband penetration is in the single digits at 6%. This figure is all the more surprising, due to the recent $1.6bn investment in submarine fibre-optic cables that connect Nigeria to the world. However, Nigeria’s Communications Minister Omobola Johnson is hopeful that the level of broadband penetration can pass the 30% mark by 2018.
The lack of broadband speeds has created a great opportunity for mobile phone companies, with over 65% of the population having mobile subscriptions; total subscriptions were more than 120m by the end of last year. The rapid uptake of mobile phones in Nigeria can be attributed to lower prices for handsets and tariffs, faster network technology and increasingly easy to use devices. E-commerce providers can see many opportunities to reach a wider range of customers through smartphones, especially as it is estimated that the number of Nigerian mobile subscribers is expected to rise to almost 170m by 2017. Around 43% of web browsing in Nigeria is done via mobile devices, compared to only 14% in North America.
At first glance Nigeria may not appear to be a prime location for a rapidly growing e-commerce revolution, due to barriers ranging from poor infrastructure, relatively high internet access costs and online safety concerns to name a few. However, widespread innovation has led to unprecedented growth figures in the e-commerce sector in Nigeria.
Only three years ago the e-commerce landscape was very different in Nigeria. In October 2011, Naspers’ Kalahari.com.ng website closed down after trading for less than two years. The primary reason was simply because there was such a small number of potential online customers. But as we near the end of 2014, Nigeria is seeing a resurgence in e-commerce activities, with the market forecast to total $1.3bn this year. No single company has been responsible for this growth increase, but rather a diverse range of factors have worked in unison to make e-commerce more available, cost-effective and safe to the ordinary Nigerian.
Venture capitalists are taking notice of the e-commerce success in Nigeria and are actively seeking to invest in this market. The two most prominent examples of online retailers gaining substantial investments are Jumia and Konga.
Jumia and Konga are the largest online retailers in Nigeria, with Jumia currently selling over 100,000 physical items ranging from clothing, mobile phones, books to groceries. These items are mainly stored at a warehouse near Lagos and several smaller storage sites in other Nigeria cities they deliver to. The main way online retailers like Jumia and Konga quickly deliver to their customers is by moped or van, with Jumia owning a fleet of over 200 mopeds.
Naspers have re-entered the Nigeria e-commerce market with their investment in Konga, after their last foray ended abruptly with Kalahari.com.ng closing. Naspers first invested $50m into Konga in March 2013, with Swedish investment company AB Kinnevik also investing $25m early this year. The most recent $50m funding into Konga has been led by Naspers, who now control more than half of the company.
Jumia has seen a mix of investors; from financial giant JP Morgan to global media company Millicom and London-based hedge fund Summit Brothers. The $35m investment from Millicom and $26m from Summit Brothers is a ringing endorsement of e-commerce in Nigeria. This massive inward investment is indicative that the country is ready to do business on a global scale.
On a practical level these investments allow Jumia to ensure they are able to recruit the best talent, increase their product offering and deliver faster to remote areas.
The CEO of Jumia Nigeria, Nicolas Martin, says “e-commerce will be the next driver of Nigeria’s economic growth, with e-commerce expected to soon contribute about 20% of GDP, in terms of growth”.
Therefore, for Nigeria to fulfil its expectation to become one of the global ‘Next Eleven’ economies, the e-commerce sector must have a fully formed policy framework, backed by government, which encourages startups to combat the issues facing the industry. However substantially more investment will be needed to combat a number of issues that the Nigeria e-commerce market faces, from the lack of infrastructure to giving Nigerian e-commerce startups the capital and resources they need to hire the most qualified staff.
The future is bright
E-commerce has the ability to propel Nigeria into the ranks of the fastest growing economies in the world. A recent study undertaken by the Terragon Group has shown that by June 2014 almost two in three Nigerian internet users had purchased at least one item online, with over 2m Nigerians regularly using the top two online retailers, Konga and Jumia, in 2014. These figures are a positive sign and indicate the need to encourage the remaining Nigerians who have not bought online to try a new shopping experience and to ensure that customers who have used online retail in the past continue to do so in the future.
The major problems that need to be solved if Nigeria is to adopt e-commerce as a part of everyday life include the infrastructure issues, online payment security, technological innovation and ease of use. The good news is that there are many new e-commerce payment platforms, such as the partnership between the United Bank of Africa and Ixaris, which will offer a pre-paid card option for online payments. A future trend that is set to become an important aspect of the e-commerce market is how significant social media will be in terms of allowing customers to review products and share their experiences of shopping with a particular company. Over 85% of young Nigerians have a Facebook account.
In the medium term, the effects that e-commerce is expected to have in Nigeria will be nothing short of transformational. From the creation of new, skilled jobs to the increased product selection and making shopping so much more convenient, ordinary
Nigerians will surely be the biggest beneficiaries of the e-commerce revolution.
One of other more unusual reasons for the recent success of Nigerian e-commerce has been the fear of contracting Ebola. The concern of mixing with large groups of people in supermarkets and shops has led to a growth spurt in e-commerce purchases, with sanitation and cleaning products being the main beneficiaries.
The use of online shopping may have played a small part in restricting the spread of Ebola in Nigeria, as there is a reduced risk of human-to-human transmission
The impact on neighbouring countries will also be significant as the internet can be a major unifying force with a more interconnected Africa being expected in the future.
There are many positive trends that are expected to further boost the e-commerce sector, such as Nigeria’s growing middle class and the consequent rise in the demand for luxury goods. Nigeria’s population is expected to grow to over 440m by 2050, greater than the population estimate for the US, at just under 400m. Thanks to the e-commerce revolution, Nigerian consumers will soon be able to take their pick of products from countries around the world and open up untapped markets for small and large businesses in Nigeria.
