By Economist
Nigeria is undergoing a boom in online retail sales driven by a surge in consumerism and helped by a lack of major modern retail chains. This has enabled a number of well‑funded retail start‑ups to emerge and do battle for market share in a relatively new subsector. However, operating conditions can be challenging, especially in terms of infrastructure and ensuring payment, as well as avoiding fraud. Leading the pack is a general merchandise online retailer, Jumia, co‑founded in June 2012 by Raphael Afaedor—a Ghanaian Harvard Business School graduate—and Rocket Internet, a Berlin‑based Internet start‑up incubator. Jumia is currently the largest e‑commerce provider in Nigeria, offering around 50,000 products to over 100,000 daily site visitors. The firm processed over one million transactions in its first year, an achievement that was recognised in October when the company won Best Retail Launch at the World Retail Awards in Paris.
Some big-name investors
Jumia, an Amazon-style firm that accepts either online payment or cash on delivery, has some significant backers, including JP Morgan, Summit Partners and Millicom. The company has raised over US$50m in the past 12 months, funding marketing campaigns that have made it the fourth most visited local site in Nigeria. In June 2013 the company unveiled a 10,000‑sq‑ft e‑commerce campus and a 90,000‑sq‑ft warehouse in Lagos to help with distribution to its growing customer base.
Its biggest domestic rival—Nigeria’s second-largest e‑commerce operator— is Konga, founded by the former Google Africa boss Sim Shagaya. Like Jumia, it offers a broad cross-section of products and, also like Jumia, it has secured funds to help boost growth, in its case from Kinnevik, a Swedish investment group, and Naspers MIH Internet Africa, the digital investment arm of Naspers, a South African media giant.
Jumia and Konga are not alone in enticing overseas capital. Other examples include iROKOtv, Africa’s largest movie digital distributor, which received US$8m in funding from Tiger Global Management in 2011, and DealDey, a daily deal site, which received US$1m from Kinnevik in the same year.
Honing the model
Naspers MIH initially had first‑mover advantage in Nigeria when, in February 2010, it established a local subsidiary of its successful South Africa-based general merchandise online store, Kalahari.com. Yet Naspers closed the business a year later, citing poor performance, and instead it has banked its future on its cash-for-equity investment in Konga.
While Naspers was struggling to make online retailing work in Nigeria, Rocket Internet made an initial US$10m investment in Kasuwa, renaming it Jumia. Rocket Internet’s strategy works on the basis that the paucity of retail infrastructure in emerging markets such as Africa increases e‑commerce potential. So having injected capital into Jumia, the company has also spread operations to Côte d’Ivoire, Egypt, Kenya and Morocco, although Jumia Nigeria remains its largest operation.
Success takes time
Nigeria’s e‑commerce industry has been far from an overnight success. Lack of online infrastructure and expertise, poor transport systems, unreliable power supplies and problems establishing trust in the security of online payments have all held the industry back. Until as recently as 2009, online buyers had to make payment by depositing cash into the bank accounts of the e‑commerce providers before an online transaction could be processed, making online buying cumbersome and slow. These issues have been compounded by Nigeria’s notoriety for online fraud. In 2005 PayPal closed all Nigerian accounts and adopted a policy of refusing registration to Nigerian users that remains in place to this day. However, spotting the gap left by PayPal, Visa‑backed banks have more recently provided online switching and payment systems for e‑commerce. Jumia has adapted to poor infrastructure and a lack of payment options by guaranteeing delivery within five days, even to the most remote areas of Nigeria, and by allowing cash on delivery in the major cities. This has the added benefit of allowing buyers the confidence of being able to inspect products before paying. It uses a combination of its own couriers and an arrangement with DHL.
The retail opportunity
The boom in online sales comes at a time when the growth in Africa’s continental middle class is encouraging retail developers from South Africa to spread northwards, with Nigeria a key target market. Although it will take some time, African and international chains are expected to open more modern retail outlets and malls—making Nigeria the one global market where incumbent e‑commerce retailers could find themselves under threat from bricks-and-mortar retailing.
Despite multiple challenges, it is little wonder that Nigeria’s consumers are proving an enticing prospect. With sales expected to top US$140bn this year according to Economist Intelligence Unit forecasts, Nigeria has a fast‑growing economy and will overtake South Africa as the continent’s largest economy in the next five years. Meanwhile, according to the International Telecommunication Union, Nigeria now has over 55 million online users, making it the eighth‑largest online country globally. Therefore, despite the challenges, e‑commerce is set to continue growing strongly.
