The introduction of online stores such as Amazon and eBay has transformed the way retail business is done, bringing consumers much closer to the goods they desire. They represent the advent of electric commerce (e-commerce), which is “the buying and selling of goods and services via electronic channels, primarily the Internet.”⁽²⁾ Its benefits include the convenience of 24-hour availability and the ability to be geographically unconstrained in obtaining goods. With a growing number of increasingly affluent Africans taking advantage of the convenience and choice e-commerce offers, the region is reportedly the largest growth market for e-retailers. Adaption to the local market has led to the relative success of the industry in Nigeria, Africa’s largest economy, but challenges to operating in Africa still remain.

E-commerce in Nigeria

African e-commerce retailers are moving into the continent having noted the sector’s success in North America and Europe as well as the growing demand for similar services in Africa. While the sector is already present in dynamic markets such as Kenya and South Africa; it is Nigeria that has embraced e-commerce. With estimates of over US$2 million worth of transactions weekly, Nigeria is fertile ground for e-commerce retail.⁽³⁾ Major companies such as Jumia and Konga have made significant inroads into the Nigerian market, with Jumia ranked as the favourite website to shop online, with Google Store second.⁽⁴⁾ Jumia, which utilises Amazon’s model of selling a variety of goods online – including electronics, groceries and fashion, with the promise of speedy delivery to locations in Nigeria – has recently received an estimated US$150 million from existing shareholders.⁽⁵⁾ The sheer scale of investment into the sector is a strong indicator of its promise.

Nigeria’s growing middle class is enabling e-commerce’s success. This middle class makes up 23% of the population, classified by the African Development Bank by their consumption of between US$2 to $20 a day.⁽⁶⁾ This group is well-educated, and exposed to Western markets, and they are largely responsible for driving the new demand for quality goods and prompt home delivery. Prior to retailers such as Jumia and Kaymu, customers would often make lengthy journeys to find products, often without product quality assurance.

Mobile payments and e-commerce

Present in nine African countries, Jumia’s success – and the failure of previous African e-commerce ventures – lies in how the company has adapted itself to the African market. The retailer is aware of its consumers’ widespread use of mobile phones and their limited use of credit cards, as compared to American and European markets. It is mobile phones, rather than personal computers, that have increased Internet usage for the average African. Traditionally, online shopping is done on personal computers, with the majority of North American and European markets using them as their main means to browse for and buy goods. With the advent of mobile money services such as M-PESA in Kenya, it has become easier for African consumers to pay for services through their phone in a safe and reliable manner.⁽⁷⁾

Jumia has taken advantage of the high mobile penetration in Nigeria. The company is currently working with a Chinese handset company, Innjoo, to have its applications pre-installed on mobile phones, which will give its customers ease of access.⁽⁸⁾ Bloomberg Business reports that the number of mobile phone payments within the country have “more than doubled to 2.4 million, in the first half of 2012.”⁽⁹⁾ Nearly 20% of Nigerians would prefer to use mobile airtime as a means of payment for goods, with 39% favouring cash, as seen in the graph below. Cash-on-delivery remains the key payment method of e-commerce, with customers preferring to pay on receipt of goods as opposed to paying for a product that has yet to be delivered. However, these preferences could soon change with the growing popularity of mobile payment services and several e-retailers introducing mobile features as key components of their service delivery.⁽¹⁰⁾

Kaymu is another e-commerce platform to utilise mobile phones as a way to access its market. Seen as the African version of eBay, Kaymu facilitates a shorter connection between the buyer and seller, with the responsibility of delivery assigned to the seller. Mobile phones shape the way business is done on the site with direct messaging introduced between sellers and buyers. Other mobile features include live chat similar to Blackberry’s IM system and a “Snap and Share” to upload a product in a few, easy steps.⁽¹¹⁾ Kaymu is another firm to attribute its success in Nigeria to the burgeoning middle class.⁽¹²⁾

Marek Zmyslowski, the managing director of the online hotel booking platform Jovago, speaking in a panel for Mobile Payment Solutions for the Nigerian Market in September 2014, stated that “e-commerce is the key driving innovation factor for mobile payments.”⁽¹³⁾ Despite this optimism, Nigeria’s e-commerce success faces certain challenges.

The challenges facing Nigerian e-commerce

Aside from the problems that affect most businesses in Nigeria, such as inadequate infrastructure and erratic electricity supply, e-commerce faces certain challenges quite specific to its mode of operation. Transportation and logistical issues are barriers emerging companies in the sector need to overcome. Road quality impacts on a retailer’s ability to provide its goods within the promised time frame. While the number of Jumia warehouses is growing and the business boasts 200 transport vehicles, the heavy traffic in Lagos, from which 60% of its orders come, remains a challenge for timely product delivery.⁽¹⁴⁾

However, the same congestion that causes such headaches for e-retailers also makes it difficult for consumers to travel to traditional shopping outlets such as malls and markets to do their shopping. And even when shoppers are willing to battle the traffic, with 60% of all the vehicles on Nigeria’s roads being found in Lagos,⁽¹⁵⁾ parking is also a major problem in the city of about 21 million people. Thus, while creating a logistical hurdle for e-retailers, the heavy Lagos traffic also plays to Jumia’s advantage because, as the company’s co- CEO Nicolas MartinÂÂÂ states, “with our logistics, it’s easier than for the Nigerian customer”⁽¹⁶⁾ to navigate the traffic. The e-commerce model is particularly relevant in Nigeria because of the convenience it offers shoppers. And since, as Jumia’s other co-CEO Jeremy Douttea points out, “Nigeria is one of the only emerging markets where people shop online for convenience, and are ready to pay the price,”⁽¹⁷⁾ it is not only in Lagos where convenience is likely to attract Nigeria’s middle class to online shopping.

Maintaining trust with its consumers, given the Nigerian prevalence of online scammers, represents another challenge for e-commerce firms. In 2005, financial fraud was reported as one of the three largest industries in Nigeria.⁽¹⁸⁾ One 2014 study found that 59% of Nigerian people doubt the safety of online transactions and 43% are concerned about the quality of the products delivered.⁽¹⁹⁾ Jumia’s solution is to offer a pay on delivery service and a seven-day free returns policy to ensure customer satisfaction in product quality. Jumia also introduced its official Apple store online, claiming that it is the first online retailer to be authorised by Apple to sell their products. This step encourages customers to trust that they will receive the quality goods that they have ordered and highlights international companies’ growing interest and trust in Nigerian e-commerce.

However, not all Nigerians are sceptical of online payments. The lack of trust in online payments is mainly a hindrance to consumers’ transition from cash payments to credit card payments; only 30% of Nigerians are willing to use credit cards as their main means of payment. More tech-savvy individuals, also those probably more likely to use online retailers, petitioned PayPal via Change.org, the world’s largest petitioning platform, to make its services available in Nigeria. And the petitioners claim that their actions worked. The recent entry of PayPal, with its reputation for secure online payments, into the Nigerian market may change payment preferences.⁽²⁰⁾ Kaymu is already tackling the challenge of a lack of trust in online payment methods with the introduction of Kaymu Safepay as a means for customers to pay securely into the online platform’s accounts, only forwarding payment to the seller when the buyer is satisfied with the product.⁽²¹⁾

Despite the challenges, the future of Nigerian e-commerce looks promising. Indeed, by adapting to the local context challenges can become advantages. The success of e-commerce firms in a city as large and densely populated as Lagos will provide lessons for other African countries hoping to branch into the sector. Nigeria’s growing middle class and consumer base will continue to demand convince and quality from retailers. E-commerce in combination with e-payments is an ingenious way of meeting the emerging needs of the Nigerian market as well as ensuring the sector’s future in Africa’s largest economy.

Written by Susan Sebatindira ⁽¹⁾

Notes:

(1) By Susan Sebatindira. Contact Susan through Consultancy Africa Intelligence’s South African office (offices@consultancyafrica.com). This paper was developed with the assistance of Stephen V. Houten and Gerald Flanagan. Edited by Nicky Berg. Web Publications Manager: Claire Furphy.
(2) Mashable website, http://mashable.com.
(3) Oyendinmmakachukwu, ‘Nigeria’s middle class lead 1.3bn monthly online spending’, Ventures Africa, 10 September 2014, http://www.ventures-africa.com.
(4) ‘E-commerce in Nigeria: How Rocket Internet’s Jumia, Kaymu and Jovago are taking over Africa’s biggest market’, Innovation is Everywhere, http://www.innovationiseverywhere.com.
(5) Busayo, ‘Jumia secures fresh $150m investment from shareholders’, Ventures Africa, 27 November 2014, http://www.ventures-africa.com.
(6) Ncube, M., Lufumpa, C. and Kayizzi-Mugerwa, S., ‘The middle of the pyramid: Dynamics of the middle class in Africa’, African Development Bank Group, April 2011, http://www.afdb.org.
(7) ‘Why does Kenya lead the world in mobile money?’, The Economist, 27 May 2013, http://www.economist.com.
(8) Southwood, R., ‘E-commerce takes root in Nigeria’, Tech Central, 24 October 2014, http://www.techcentral.co.za.
(9) Kay, C., Spillane, C. and Kew, J., ‘Trying to build the next Amazon – In Nigeria’, Bloomberg Business, 21 November 2013, http://www.bloomberg.
(10) ‘E-commerce in Nigeria: How Rocket Internet’s Jumia, Kaymu and Jovago are taking over Africa’s biggest market’, Innovation is Everywhere, http://www.innovationiseverywhere.com.
(11) Ibid.
(12) Oyendinmmakachukwu, ‘Nigeria’s middle class lead 1.3bn monthly online spending’, Ventures Africa, 10 September 2014, http://www.ventures-africa.com.
(13) ‘E-commerce booming in Nigeria’, IT News Africa, 14 September 2014, http://www.itnewsafrica.com.
(14) Southwood, R., ‘E-commerce takes root in Nigeria’, Tech Central, 24 October 2014, http://www.techcentral.co.za.
(15) ‘Lagos bans car horns to combat city’s deafening traffic noise’, The Guardian, 15 October 2014, http://www.theguardian.com.
(16) Cocks, T., ‘Awful Lagos traffic a boon for online retail – Jumia’, Reuters, 10 April 2014, http://www.reuters.com.
(17) Ibid.
(18) Botha, J., Bothma, C.H. and Geldenhuys, P., 2008. Managing e-commerce in business (2nd ed.). Juta & Company Ltd: Cape Town.
(19) ‘Pay on delivery to drive growth of Nigeria’s e-commerce’, 13 October 2014, Africa Business.com, http://africabusiness.com.
(20) ‘E-commerce booming in Nigeria’, IT News Africa, 14 September 2014, http://www.itnewsafrica.com.
(21) ‘Kaymu, Nigeria’s Safest E-commerce Platform Celebrates 2 Year Anniversary’, The Business Aim, 9 February 2015, http://thebusinessaim.com.ng.