Nigeria’s e-commerce infrastructure challenge

Nigeria’s widespread infrastructure challenges are well known. Longstanding issues from inadequate roads, patchy power supplies and substandard telecommunication networks are limiting the potential of its burgeoning e-commerce market, with major firms like Konga and Jumia creating innovative solutions to overcome this difficult operating environment.

According to management consultancy McKinsey, e-commerce is expected to become big business in Africa, with the continent on track to generate yearly e-commerce sales of $75bn by 2025. Although estimates for the size of Nigeria’s e-commerce sector vary widely, the industry is growing rapidly as incomes rise and a middle-class is slowly being established in the country.

No quick fix

There is no quick fix that will see Nigeria’s most pressing e-commerce infrastructure challenges resolved. Many Nigerians do not feel secure in making payments online and prefer to pay cash on delivery, with the relatively low number of credit and debit cards further curbing online purchasing.

At a more local level, unlike in more developed countries, Nigeria lacks comprehensive address records, which can massively increase the number of delivery mistakes and delay packages from arriving at their correct destination.

“The infrastructure challenges facing e-commerce in Nigeria are substantial – timely and affordable deliveries are central to the business model and Nigeria’s poor transport infrastructure and unreliable power supplies are key impediments to achieving that,” says Richard Marshall, senior infrastructure analyst at BMI Research.

E-commerce companies will not find it easy to overcome these hurdles, but some difficulties are to be expected as the industry is creating a path for itself from scratch. These issues drive up the cost of moving goods in the country and can make it extremely expensive to transport everyday items. Creative solutions, like using drones to make deliveries, can be found throughout the continent, but there is yet to be a development that addresses fundamental infrastructure gaps.

Creating a massive e-commerce company in Africa that is able to leverage economies of scale, like Amazon in the US, will simply not be possible due to fragmented markets. Problems around cross-border payments, tariffs and intra-country differences mean the “Amazon of Africa” may not appear for many years.

Trailblazing a new industry

Leading e-commerce firms are working to create reliable and cost-effective transportation networks across Africa. Nigeria’s biggest online mall, Konga, recently launched an ambitious warehouse infrastructure project called Fulfilled by Konga, aimed at fixing some of the country’s most persistent infrastructure problems. As part of the initiative Konga is set to double the size of its main distribution centre in Lagos to 120,000 sq ft in 2017 and embark on a country-wide scheme to build fulfilment centres in Abuja and Port Harcourt.

For Konga, now is the right time to launch this elaborate project. “Nigeria’s lack of infrastructure has really been a hindrance to all e-commerce companies in Nigeria, not just Konga. We are all operating and, essentially, trailblazing a new industry. We are attempting to bring millions of consumers who are used to only shopping offline, online. This is no mean feat,” says Shola Adekoya, Konga chief executive.

The Western e-commerce market is structurally different to those in Africa’s many countries, with Nigeria being no exception. “We’ve been fanatical about identifying challenges and solving them, as there are no off-the-shelf solutions from Western counterparts that we can apply to our business here in Africa,” adds Adekoya. If all goes to plan, thousands of online sellers in Nigeria who sell their goods through Konga will be able to use Konga’s new and improved warehouses to store their merchandise – resulting in a 90% reduction to merchant order processing times from 40 hours to three hours.

Prospects are improving

Recent capital injections by multinational companies in Nigeria’s e-commerce scene are a clear sign that prospects in this sector are improving, with these investments also providing vital funds for capital-intensive activities, like infrastructure development. Even relatively small advances will reduce costs for e-commerce businesses, make prices more competitive for consumers and increase online shopping uptake.

“Receiving, processing and monitoring orders all require electricity in the e-commerce space, and every hour spent stuck in traffic means the convenience of e-commerce is undermined. However, e-commerce vendors actually have more advantages in this environment than regular business, given their ability to adapt quickly and having less of a ‘fixed’ footprint. For example, companies are not relying on government investments to support their delivery networks,” says Marshall. The Nigerian government still has a key role to play in improving transportation systems and remedying logistics issues, even if its financial capacity to solve these problems is limited. The slowdown in Nigeria’s economy has reduced the country’s ability to borrow and raise funds to meaningfully address the infrastructure deficit. However, the Buhari administration can help support infrastructure development in other ways.

“As we have seen in the port sector – privatisation and a strong regulatory framework can really unlock efficiencies in Nigeria’s infrastructure and this is going to be really important over the next few years. As such drawing in private finance into rail and road projects, unblocking infrastructure bottlenecks and allowing the free movement of goods will be crucial,” according to Marshall.

Potential is there

The difficulties in creating a successful e-commerce ecosystem in Nigeria should not be downplayed but the nascent e-commerce market has the potential to noticeably improve the lives of Africans up and down the continent, through lower prices and greater product choice.

“The business-to-consumer market in sub-Saharan Africa is growing with the emergence of e-commerce and the increased demand for consumer goods. The rise of the SME has also resulted in greater variety and accessibility to new and competing products. Goods are now just a click away, and can be sourced and ordered from anywhere in the world,” says Randy Buday, regional director for West & Central Africa at DHL Express.

Finbarr Toesland