Seyi Taylor: E-commerce in Nigeria – It’s not a bubble

by Seyi Taylor

Understand this, no one starting an internet business in Africa today should hope to solely reach the “current market” for the business.  That’s a recipe for death and disaster.

Or is it?

I’ve watched with some amusement as some of the smarter people in the room have insisted that the current rush into e-commerce in Nigeria is “a bubble”.

I think the first thing to do would be to define what a bubble is. Wikipedia (who else?) says:

An economic bubble (sometimes referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania or a balloon) is “trade in high volumes at prices that are considerably at variance with intrinsic values”. It could also be described as a trade in products or assets with inflated values. (Emphasis mine)

Now I understand that the term “bubble” is being used loosely; apparently, what is meant is that there is significantly more activity in the sector than any possible reward; that there are too many players and that this level of excitement is unsustainable.  Perhaps.

It depends on how you look at it

E-commerce is a very tiny business in Nigeria.  I would be very impressed if it turned over N1bn per year.  In that context, the current activity in the sector cannot sustain the number of players in the market.  In fact, almost all “e-business” cannot be sustained at their current size.  But if you consider them disruptors of larger markets, the picture changes dramatically.

Understand this, no one starting an internet business in Africa today should hope to solely reach the “current market” for the business.  That’s a recipe for death and disaster.  The aim should be to take people doing something in the traditional, offline way and get them to use the “internet version” of the service.

So how big is the “Commerce” market?

Last week, I came across some research done on Nigerian markets.  What I found interesting was the data about the daily turnover of Nigerian markets – Balogun (fashion), Alaba (electronics, furniture, media), Onitsha (general goods, fashion), Dei Dei (?) and Ariaria.  It was estimated that Alaba (alone) does a turnover of about $600m (about N96bn) every day.  (Remember that none of these markets is a major food market)

Now if these numbers shock you like they shocked me, you’re going to want to discount them; just so you don’t feel like your education went to waste and all of that.  I decided, after a little bit of deliberation, that ALL the markets (not just Alaba) could be assigned the $600m/day turnover.  I also decided that the figure was still overstated (because some goods would be bought and sold a few times between traders before leaving the market) and decided to slash the number by half.  Below are my calculations:

  • original “Alaba alone” figure $ 600m/day
  • my own “all markets figure $ 600m/day
  • divided in 2 for my peace of mind $ 300m/day

So how big is this business?

  • $ 300m per day
  • $ 9bn per month
  • $ 108bn per year

Now, let’s return to my original estimate.  Let’s say that, by some magic, the current ecommerce business in Nigeria turns over N1bn per year.  If they are able to capture just 1% of the trading business, the players turn over $1bn between them and would have grown the business 150 times.  2% and you get the idea.  That’s definitely worth playing for.

Getting to 1%

Getting 1% of that money will not be easy.  There are issues with logistics, payments, trust etc. but the prize is worth it.  Look across to America and you’ll see that one of Walmart’s real competitors is Amazon.  Retail is huge business and there are lots of players trying lots of approaches – from mega malls like Shoprite to small branded shops like Addide.  Ecommerce is just another approach to getting a piece of a massive pie.

If there’s anything that the proliferation of ecommerce sites has shown me, it’s that Nigerians are (again) getting more comfortable with the idea of seeing goods on the internet and receiving them at home.  I don’t see this trend reversing itself any time soon.

Some of the players will die on the road to 1%.  Some will get bored and move on.  Some won’t be able to take the losses.  Some will be small but profitable niche players.  But I think the key take-away is that by their combined action, these players will eventually grow the e-commerce market.

I don’t see a bubble.  I only see an opportunity.

 

Op-ed pieces and contributions are the opinions of the writers only and do not represent the opinions of Y!/YNaija.

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Comments (3)

  1. Wondering what interminable growth it can truly render without steady power and adequate telecomm services..Hmmmm.

  2. Hmmm, you sound like you know what you're talking about but i wish you also explained some terms here, like what do you define as 'e-commerce'? Does it include business centers and all dem.

    Also, ur assumption that it may barely generate N1bn is just that though, an assumption. This one that Alaba is generating N600bn a day, I won't be surprised if the figures for e-commerce are higher.

    But I do agree with your conclusion, over in America, the threat of e-commerce becoming a bubble is understandable. But here in Nigeria, it's just starting and has so much potential to grow.

  3. It is going to be real easy for Nigerians to make it through and i hope we tap fully into the opportunity.

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