#Africa What next for the Nigerian e-commerce space?

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The much-touted Nigerian e-commerce sector took two significant blows early in 2018, both of which raise serious questions about the sustainability of the space, at least in the short-term.

Konga, one of Nigeria’s flagship e-commerce ventures, was acquired by local tech firm Zinox. The company had fallen behind over the last few years, with the acquisition price stunningly low when you take into account Konga had raised around $75 million since its launch in 2012.

Naspers was one of the major investors in Konga, and the multinational was at the centre of the other major event, as marketplace OLX closed its physical operations in Nigeria.

These events are a major blow to Nigeria, which has emerged as an e-commerce leader, according to the Afri-Shopping report released last year by Disrupt Africa. Nigerian e-commerce startups were not surprised by the news, however.

“I knew of Konga and OLX’s troubles and inability to make profit before the news. It was expected, we just didn’t know how it would eventually play out. Jumia is in the same shoes, but they have more funding to last longer, which may help out,” said Luther Lawoyin, chief executive officer (CEO) of Lucy.ng.

Olumide Olusanya, CEO of Gloo.ng, said he was saddened by the news, but said the developments were more a reflection of Naspers internal strategy for Africa than of the likelihood for success of these entities in the long term.

“It may have been an easy decision for Naspers to make considering that the total value at stake in both organisations was much less than 0.001 per cent of their US$75 billion market cap, which may imply Naspers has outgrown the African market as an investor,” he said.

Ola Ogunsemowo, general manager of Gibadi, said he had mixed feelings.

“We’ve seen warning signs of the looming disaster all along. Konga’s wobbling metrics as seen in Kinnevik’s 2016/17 report, massive layoffs, the inability to raise remarkable new funding…” he said.

“As for OLX, Efritin’s withdrawal and the unfortunate “maid from hell” scandal were the warning signs. Personally, I’ve always wondered how OLX is able to generate enough revenue to sustain its operations. I do not mean this critically, but as a smaller player in the industry I’ve got a fair idea of what it costs to keep operations afloat at that level.”

In spite of this, he said it was still a “rude shock”.

“Despite the warning signs, no one expected it would happen so soon for both Konga and OLX,” Ogunsemowo said.

Yet how does the sale of Konga and the withdrawal of OLX reflect on the Nigerian e-commerce space as a whole? Disrupt Africa’s Afri-Shopping report found less than 30 per cent of e-commerce ventures are currently profitable, and Olusanya said anybody who thought the Nigerian e-commerce space would be beginning to fulfil its potential by now – five years after its birth – “has a rude shock awaiting them, which may be the issue here with Naspers”.

“Traditional VC return periods won’t cut it here. Virtually all tech startups in Nigeria that have realised or are realising their potential have taken two to three times that amount of time. So, it’s a question of having the right investment timeframe in mind,” he said. “It definitely will realise its full potential – and more – for those coming to it with an appropriate mindset. Africa is not the US or China – yet.”

Ogunsemowo agreed the developments validated the fact e-commerce was still nascent in Nigeria.

“Infrastructural deficits, coupled with the peculiar nature of the Nigerian market, are major issues. I’m sure the likes of Alibaba and Didi couldn’t have made it this far without the far-reaching influence and policies of the Chinese government. Nigerian startups, generally, can’t make it alone if government is taking a back seat as usual,” he said.

“However, all of these challenges and more are neither the end of the road nor excuses for giving up. Persistent innovation and localisation of e-commerce strategies will eventually win.”

Lawoyin said e-commerce companies were still struggling to find the right model, though he believes Lucy.ng has.

“The huge potential is there, the demography and buying power is there, the internet connectivity is there and getting better, although other problems exists, but e-commerce will eventually win because convenience will. It is the future,” he said.

“There are some fundamental mistakes Konga made that startups like us are avoiding. We are building from the ground up, while Konga and Jumia tried the top-down approach, which has proven really costly.”

Olatunde Ayilara, CEO of WaraCake, is positive for the future, but says e-commerce is a long-term play.

“E-commerce around here is still the early stages, and customers are still struggling to build trust. Pay-on-delivery is a killer, as a lot of e-commerce companies have high goods return rates,” he said.

“I strongly believe e-commerce is here to stay, but you have to be in for the long haul to win.”

The post What next for the Nigerian e-commerce space? appeared first on Disrupt Africa.

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