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"Amazon in Nigeria"

African online retailing platform opened Has e-commerce finally taken off

December 27, 2013

Category : ABP's insight

Author: Yukari Umemoto

Two Nigerian enterprises are getting attention: JUMIA and Konga, e-commerce services providers started by the Nigerian youth.

Website of JUMIA (above) and Konga (below) 
JUMIA: https://www.jumia.com.ng/
Konga: http://www.konga.com/

Mobile phones and the internet have become daily necessary items in Africa. Today, smart phones are used even by the youth in slums. It is said that the diffusion rate of mobile phones has reached 80% and the ownership ratio of Facebook accounts is 50%. The current popular social network service is 'WhatsApp', which is similar to 'LINE', a booming service in Japan.

The mobile banking service using mobile phones for money transfer and saving, which is represented by the Kenyan 'M-Pesa', has already been introduced in 37 countries among 54 African countries. Nowadays, even electricity bills and school fees are paid by mobile phone. Along with the increased coverage of M-Pesa, which is safe and quick, and allows small-scale account settlement without a bribe, services like microfinance, agricultural insurance and educational service through mobile phones are expanding. There are a lot of young people in urban area who try to start a business through mobile phones and IT services.

However, in Africa, it was e-commerce that did not take off easily. E-commerce has a character more similar to classic retail business than internet business. It requires holding stocks and distribution centers, setting up a supply chain, making efforts of cost reduction by regularly improving the operation, and continuing to train the staff for good customer service.

In order to realize them, it needs accumulation of detailed knowledge by experience and large capital. Further, the business infrastructure such as roads, the distribution system, the procurement and account settlement system, human resources, and fund-raising is a prerequisite requirement.

First of all, the reason why mobile phones and IT services spread rapidly in Africa is because the basic infrastructure necessary for retail business was missing. Although there are demands of transferring money, there are no ATM machines and having a bank account is close to impossible in the countryside. Poor road infrastructure causes disruption of traffic of people, goods and information, and it generates mismatching of supply and demand in addition to asymmetry of information. IT service has solved such challenges because it can satisfy the needs without such infrastructure.

Therefore, even if the IT industry is well flourished, e-commerce, which requires physical infrastructure, hasn't achieved enough sales to meet costs and had a repetition of its business generation and disappearance. It could only function for ticket sales, which do not require shipping and storing goods. 

Miracle of a direct sales model in Nigeria

However, in Nigeria, the market scale of e-commerce is estimated to reach USD 1 billion in 2014. Its leading actors are JUMIA and Konga, which were started only one and a half years ago.

Nigeria has population of 170 million, which is ranked 7th in the world, and receives high expectation as a potential consumption area. Due to that, it attracts investment from all over the world. The growth of JUMIA and Konga well represents the current difficulty and future opportunity of retail business in Nigeria.

Both of the companies continue to expand their businesses. They started their business a month apart from each other and both celebrated their first anniversaries this summer. During this period, JUMIA has expanded their 4m2 warehouse in Oregun, which is an industrial area in Lagos, to an 800m2 distribution center. Konga had to relocate their office three times and their staff number has now exceeded 300. When I visited their new office, I saw 20 to 30 desks piled up without being used, but they will be occupied in no time. 

Both companies are based on the direct sales model like Amazon (they also deploy the marketplace business like the Rakuten in comparison). They purchase commercial products from the manufacturers and manage them at their own storages, and deliver them on orders.

The delivery area covers the whole country in Nigeria. While the companies use external shipping companies like DHL, they own trucks and motorcycles and deliver the products by themselves in Lagos, which accounts for the highest in terns of number of orders.

Consumers access the website by using a PC, a tablet or a smart phone and choose the products they want. They can choose the payment options of a credit card, a bank account, and cash on delivery. It will take between 24 hours to five days until the customers receive the products after their orders.

The items that they deal with are mobile phones, PCs, electrical appliances, fashion and beauty related products, books, household article, etc. Overseas brand-name items such as Apple's iPhone and Macbook, Bose's speaker, Nikon's single-lens camera, ZARA's one-piece dress, Cartier's perfume, and Body Shop's skin care products are popular. Both companies are said to cover over 100,000 items.

As you see, they provide almost the same e-commerce as we normally use. However, if you are a person who knows Nigeria, you would think that realizing such a service in this country is like a miracle.

Blackout, traffic jam, advance payment rule ... a number of difficulties that stand in the way of retail business

The business infrastructure that I mentioned and necessary for materializing e-commerce are not enough in Nigeria, either. Moreover, the business environment is hard for retail business in the first place.

A large shopping center in Lagos (Photo: ABP)

Lagos is said to have a population of 12 million or 17million and the city has reached the stage where they see consumers who are eager to obtain 'a commodity that is a notch above the others'. Accordingly, many foreign brand-name companies are entering into the market. Nevertheless, a power cuts occur for a half-day and water supply is not yet set up properly. In-house power generators and water tanks support mass consumption. Poor city planning results in severe traffic jam, and the roads are very crowded to the extent that one cannot figure out whether they are roads or parking lots depending on the time of day. Delivering goods on time is difficult. As people and investment are gathered in limited area, house rents are expensive.

As there is no trust base for later payment, the deal is basically done by advance payment. For example at hotels in Lagos, the guests are requested to deposit not only their accommodation fees but also room service fees regardless of having a meal or not. It is the same in doing business.

Cheap Chinese products and smuggled goods that make way from customs duties are all over market and hard to compete with in terms of commodities. Even if you want to target the middle or higher classes, markets are very dispersed regardless of recent development of shopping malls, thus it is hard to deliver the products to the group that wants them. Inland shipping costs jump up in cases where the delivery happens out of cities.

The government movement is hard to capture. Since 1980s, Honda has been selling two-wheeled vehicles and generators. However, motorcycle taxis known as 'Okada', which were running around the city, disappeared in this one year. This is because the government has prohibited the motorcycle taxies entering into the city. Instead, tricycle taxies from India have increased in number and the ratio between the motorcycle taxies and the tricycle taxies has become totally reversed.

This year (in 2013) , Honda has stepped on the accelerator of vehicle sale by launching a sales company of four-wheel vehicles. However, in November, the government issued a notice that the import duty of finished vehicles would be suddenly increased double from 35% to 70% at the maximum.

Doing business in Nigeria is costly, it is hard to realize a contact point with target customers, and there is a risk of change of rules. Even in this environment, Nigeria attracts big investment because of its large population and growth of spending power. 

If there is no infrastructure, a company has to deal with it on their own

Ajinomoto has owned its repacking factory of 'Ajinomoto' since 1990s and is conducting the production and the sale of its products. Very recently (in 2013) , they announced that they would start the production and the sale of instant noodles in Nigeria as a joint venture with Toyo Suisan. Instant noodles are processed foods will increase people's food expenses. Even so, the population that eats instant noodles in their daily lives has greatly increased.  

Asinomoto and instant noodles sold at a local market (Photo: ABP)

JUMIA has received funds from Rocket Internet, German tech incubator, J.P. Morgan Asset Management, etc. The South African media giant, Naspers, invested in Konga.

They are solely expanding their scale of business. They are continuously investing so that the business scale reaches the point that e-commerce becomes operational and by aiming to fully develop the infrastructure and supply chain, which are missing at present. Even if traffic jam is serious in Nigeria, they try to use trucks and motorcycles in different occasions, allocate personnel, and try to realize on-time delivery. They sometimes have to leave at five a.m. in order to deliver products in the morning. Initially, there were no local companies, which they could entrust the distribution; they started e-commerce business by managing the entire process on their own.

They have realized cash on delivery service for those who don't have credit cards or who don't like advance payment and are willing to pay only after receiving products because of their suspicions. They have also set up service shops all around the town, in which customers can pay cash in exchange for products. 
Recently, they also developed an application for smart phones. Both companies' e-commerce sites are attracting customers and the websites are ranked within top 20 in Nigeria. 

Opportunity to Japanese enterprises

There are many things to be realized because of the e-commerce. As traffic jams and high population are discouraging people to go out for shopping, there is, on the contrary, a great chance for e-commerce business. The diffusion rates of PCs, tablets, and smart phones among the middle or higher classes are high. Product warranties and customer services, which are required in Nigeria where there is no trust base, are well compatible with e-commerce.

As many foreign firms for consumption goods were already ready for exporting goods to Nigeria, this has helped e-commerce to enable the procurement and shorten the lead-time. There are many enterprises that hold storages in Nigeria, thus doing procurement within a few hours is possible in case of PCs, home electronic appliances, etc. 

Direct procurement from manufacturers helps to reduce a risk of purchasing fake products. Both JUMIA and Konga put warranty to prove genuine brand-name products and provide a sales channel to meet consumers' expectation of purchasing 'real products'.

Delivery infrastructures that are owned by both companies have the potential to be a front-runner of coming home delivery business in Nigeria. At their offices, young Nigerians put their desks together and are moving around busily. Looking at how they responded to my interview, I sensed that they were filled with a feeling to be proud of their works, which is typical among successfully growing enterprises. When I asked difficulties in conducting this business in Nigeria, they answered, 'That is how e-commerce works, isn't it?

There is a shifting trend in Nigeria that more and more consumers do not want 'something' but want products with better quality, durability, user-friendliness, good designs, and non-pirated but brand-named. In the past, in order to access such a consumer group, companies had to strive to open stores in shopping malls under harsh conditions, where tenant fees and utility costs were both high, and there was an only way to wait for customers coming all the way through traffic jams. 

Further, there was no way to deliver goods to the countryside. E-commerce sites now attract clients of the middle or higher classes, who used to be difficult to target. Of course, it is possible to sell Japanese products through JUMIA and Konga. New business opportunities are arriving for Japanese companies, which were reluctant to join retail business for consumers in Nigeria due to difficulties peculiar to the country.

Source: http://business.nikkeibp.co.jp/article/report/20131225/257561/
(The article was published at Nikkei Business Online in Japanese on December 27th, 2013)

List of Japanese Enterprises Doing Business with African Continent and Countries

Japanese companies' list doing business in Africa, edited by ABP[Detail]


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