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E-commerce’s contribution to Nigeria economy, the challenges and need for government intervention

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E-commerce platforms have proven to be critical enablers of economic growth and social development for Nigeria in spite of the myriad challenges occasioned by the tough operating environment.

A key player, Jumia is fostering cashless and financial inclusion by encouraging Nigerians to move from brick-and-mortar malls to selling and shopping online and making payment for goods online thereby promoting the digital economy.

With Jumia online marketplace, usage of electronic transactions in Nigeria continues to increase, banks are becoming more innovative with electronic banking products and services while more fintech companies are investing in the economy.

Jumia is promoting the growth of MSMEs and large businesses by offering sellers its online marketplace, logistics and last-mile platforms to increase their customer base, reach the target market faster and become more competitive, profitable and sustainable.

Support for enterprises and the Jumia system are solving the critical high unemployment problem especially among the youth by creating direct and indirect jobs. Jumia’s over 5,000 employees form a significant critical mass of employment.

National Bureau of Statistics (NBS) reported that SMEs in Nigeria contributed about 48% on average to the national GDP in the last five years and accounted for about 50% of industrial jobs and nearly 90% of activities in the manufacturing sector.

E-commerce is becoming a potent tool for government to optimise digitalisation as a key component of economic diversification, and also to meet the new compelling need of enforcing social distancing as a key measure in flattening community transmission of COVID-19.

The Presidential Task Force on COVID-19 has issued several warnings of increasing number of unsuspected asymptomatic carriers of coronavirus with Nigeria now at “active community transmission” stage.

Thus, online shopping, digital payment/virtual transactions and online interactions hold the ace for the future to promote social distancing and avoidance of crowded places such as brick-and-mortar shopping malls, supermarkets, open markets and banking halls where the possibility of contracting the virus is high.

COVID-19 outbreak has significantly disrupted global supply chains among other activities. The Economist indicated that online retailers including Jumia boomed in the wake of the Ebola outbreak in Nigeria, in 2014, as more consumers shopped online for fear of contracting the deadly disease. Orders on Jumia reportedly tripled due to increased demand for hygiene products like hand-wash, bleach and other cleaning products.

The same trend also played out recently during the peak of lockdown in Nigeria. Scarcity of protective items like hand sanitisers, facemasks, gloves and reagents, and hoarding and price gouging of essentials like tissue paper and sanitary products was reported in some parts of Nigeria due to surge in demand amidst supply shortages.

Through its online marketplace and partnership with sellers such as Reckitt Benckiser, Procter & Gamble, Unilever, The Coca-Cola Company and other sellers, Jumia helped to mitigate supply crisis by facilitating movement of inventories from the factories to its warehouses and online marketplace and then to the consumers.

Jumia also ensured the sellers maintained fair pricing policy while it reported some sellers to the Federal Competition and Consumer Protection Commission over price gouging.

Jumia defied constant harassment of its field workers transporting groceries and other agricultural produce from the hinterland to the cities, by security agents enforcing interstate border movement restriction, who ignored government’s designation of e-commerce and logistics operators as essential service providers.

Jumia Food was on the move delivering food packages to millions of Nigerians observing lockdown, thanks to partnership with third parties like QSR outlets and kitchens.

With JumiaPay and Contactless Delivery platforms, social distancing and cashless transactions were significantly promoted, thereby limiting person-to-person contact and containing further spread of COVID-19.

Jumia’s Q1 2020 financials indicated that the e-commerce and e-payment system indeed increased demand for brands and caused uptake in delivery of essentials to more people. Sellers also sold faster while more brands and sellers were eager to join the Jumia marketplace and logistics/supply value chain to boost access to market.

There was also strong demand from offline convenience retailers to join the Jumia on-demand platform and increasing advertisers’ interest for online channels as a result of consumption shifting online.

Visa in a June 2020 survey affirmed that 71% of consumers interviewed among the banked population in Nigeria shopped online for the first time as a result of the pandemic.

 

However, despite showing high growth potential and occasional spikes in online shopping in crisis times, these cannot be interpreted as long-term sustainability for Nigeria’s retail e-commerce.

 

E-commerce operators are faced with challenges that are inimical to their growth and the larger economy given the interplay between e-commerce and MSMEs.

 

Dearth of critical infrastructure like roads, inefficient transportation and insecurity inhibit movement of groceries from rural areas where food crops are planted to the cities and movement of goods across distant locations. Erratic electric power supply and multiplicity of tax also increase the cost of doing business in Nigeria.

 

PricewaterCoopers in its June MSME Survey 2020 with the theme, Building to Last: Navigating MSME Growth and Sustainability – A New Decade, noted that lack of infrastructure, inadequate skilled manpower, multiplicity of taxes, high cost of doing business among others still persist and hindering SMEs growth and development.

Barriers to obtaining bank loans is a major obstacle to small businesses including e-commerce operators thereby limiting their capacity to expand their infrastructure. “In emerging markets and developing economies, 55% to 68% of formal SMEs are either unserved or underserved by financial institutions, leading to a total credit gap estimated to be USD5.1 trillion,” PwC noted.

 

It estimated the financing gap for Nigerian MSMEs to be about N617.3 billion annually (pre-COVID-19 pandemic), adding that, based on analysis of data from the CBN annual statistical bulletin, small businesses accounted for less than 1% of total commercial banking credit in 2018. The NBS added that less than 5% of SMEs have been able to access adequate finance for working capital and funding business growth/expansion.

 

Low consumer trust about the quality of online goods and the activities of cyber fraudsters as well as low purchasing power of Nigerians as a result of loss of income or job due to COVID-19 inhibit new customer acquisition and retention. Many times, ROI for huge marketing and advertising spend on customer acquisition is nil.

 

E-commerce platforms’ fatality has been recorded within the last eight years. For example, Efritin.com, an online marketplace, shut down after barely 16 months in Nigeria. Its Swedish investor, Saltside, attributed that they “didn’t get desired returns on their investment.”

 

Nevertheless, the time looks good to spur e-commerce growth in Nigeria. Forecasts show that online retail stores will grow due to expected influx of online shoppers due to post COVID-19 new normal.

 

But governments must promote an enabling environment for e-commerce and MSMES to thrive. Fix critical infrastructure such as roads, transportation, power and telecommunications. Ease of doing business initiatives including tax incentives for MSMEs, harmonisation of taxes, improved security and increased access to credits must be implemented.

 

Encourage adoption of online shopping and electronic payment among Nigerians, and digitisation of businesses to strengthen cashless and financial inclusion policy.

 

In light of the expected take-off of Africa Continental Free Trade Agreement (AfCFTA) regional trade market come January 2021, the growth of e-commerce directly impacts SMEs capacity, competitiveness and quality of services they render.

 

With Nigeria’s current online commerce estimated at $12 billion, and projection to reach $75 billion in revenues per annum by 2025, according to McKinsey, the economic outlook for the country looks good post COVID-19 and beyond. But removing barriers in the way of e-commerce and SMEs is exigent.

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