Nigeria’s e-commerce sector struggles amid hope to survive
February 9, 20181.8K views0 comments
The week has not been favourable for the Nigerian e-commerce sector, which has much evident potential but facing substantial difficulties.
Konga, one of the country’s flagship e-commerce companies, was acquired by local tech firm Zinox, which is now set to be merged with Yudala, another Zinox’s e-commerce platform .
Acquisitions are usually signs of having done well, but that is not so in Konga’s case, according to AFKInsider. While rival firm Jumia seems to be on a smooth ride, raising vast amounts of funding, even as it still strives for profitability, Konga has fallen behind.
At the end of 2017 it cut nearly 60 percent of its staff, and though the undisclosed acquisition price is likely higher than the $10 million or $15 million being touted on social media, it is still very unlikely any of the investors made a profitable exit.
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Konga has raised about $75 million since it was launched in 2012, with Naspers and Kinnevik the major losers.
Naspers was also at the heart of the other major e-commerce story of the week, the news that its marketplace OLX was shutting down its physical operations in Nigeria, as well as a host of other African countries. Those in the know say the company is guilty of a lack of patience when it comes to the Nigerian e-commerce space, AFKInsider reported.
“In my opinion, the Konga acquisition was bound to happen, and mostly because the investors were not prepared to wait for the African market to mature,” Mark Essien Hotels.ng chief executive officer said.
“The African market for internet goods is still a bit early, and even though big internet brands are being built, they currently do not have revenues or returns that foreign investors are used to in other parts of the world. So at some point they lose faith and decide to pull out of a market.”
Essien believes the exit was premature, and if Naspers and Kinnevik had stayed in the game for longer, they would have achieved a lot more.
Marek Zmyslowski, who previously headed up Jovago – now Jumia Travel – and founded HotelOnline, agrees there was little surprising about the Naspers move.
“Let’s not forget they are the most successful tech company in Africa, and they do deals because it’s best for them, not because they have to. Having said that, they haven’t built their position on being overly patient towards their specific assets,” he said.
Patience, however, is what is required in African e-commerce. Nigeria is a clear leader on a continent where 264 e-commerce startups are in operation, according to the Afri-Shopping report released last year by Disrupt Africa.
Though there is an evident eagerness to launch e-commerce ventures, given the potentially huge opportunity awaiting those that scale, it is a very long game. According to the Disrupt Africa report, less than 30 percent of Africa’s e-commerce ventures are profitable to date, and investor confidence in the space is changeable, though the total raised by such companies did increase in 2017.
Current lack of profitability aside, most remain confident that Nigerian – and African – e-commerce will soonest fulfil its vast potential.
“Every year millions of people exit universities in Africa and enter the workforce. This new, younger demographic is very used to the internet, and they are making it rapidly grow. I believe in a few years it will be obvious that it is quickly turning into a very major market,” said Essien.
Zmyslowski agrees that the potential is obviously still there, and that the sector is getting ever bigger. Yet he believes it is lacking the momentum and growth to keep the hype.
“The bigger your scale, the harder it is to solve typical Nigerian e-commerce problems like fulfilment, customer retention, payments, and logistics, so it’s harder to deliver over-promised KPIs to the investors, so it’s harder to sugarcoat them to get another round,” he said.
“I’m not taking specifically Konga here, it’s an issue with many players currently. Many Nigerian e-commerce companies nowadays have delays in paying suppliers and employees, and that is never a good sign. Nigerian macroeconomics haven’t been helping lately either.”
It is these concerns, and the slow procession towards eventual profitability, that have persuaded Naspers to scale back on its involvement in Nigerian e-commerce. The likes of Essien and Zmyslowski remain optimistic for the future, but quicker development and more success stories are necessary to keep the sector on track and in investor thoughts.