Digital economy, still scratching the surface

The growing appetite for mobile data usage as well as increased network coverage has increased the potential of Nigeria’s e-commerce market.

The potential impact of a thriving e-commerce market is improved trade activity as it provides a cost-effective method of connecting producers and merchants directly to customers and a faster way to increase their visibility.

The industry has welcomed several industry players over the past decade. These companies are spread across retail, content distribution as well as travel and tourism amongst others. Industry sources suggest Nigeria’s e-commerce market value could hit US$50bn over the next decade.

The major benefit of online shopping is the incomparable convenience it provides consumers. Although cashless transactions are gradually picking up, Nigeria is generally a cash dominated economy. For some consumers, cash remains safe and more convenient. To accelerate online retail platform usage, consumers must be open to making payments with e-payment solutions.

This development of e-commerce could be a sign of rapid growth in consumer demand as well as an emergence of the middle class. Alternatively, it is a case of shoppers migrating online from conventional store purchases.

Another benefit of e-commerce has been the creation of a global marketplace where consumers can purchase products across the globe from the comfort of their homes. Mall for Africa has positioned itself as a leading e-retail platform championing this global market connectivity. The retail platform provides access to over 200 premium stores in the United Kingdom and United States.

In August 2017, Mall for Africa partnered with eBay and DHL to allow vendors from African countries sell products on eBay’s US shopping site; Mall for Africa screens and selects the retailer as well as handles payments on its proprietary platform while DHL functions as the shipping partner. This is laudable. However, for Nigerian retailers to leverage fully on this platform, the standard of products created for sale need to be high to ensure a strong competitive advantage.

The potential impact such partnerships could have on growth for SMEs within Nigeria is enormous. Digital platforms could offer a workaround for buyers and sellers to increase business interactions across regions.

The gradual growth of the digital economy is also playing a pivotal role in Nigeria’s e-tourism industry. Based on data from Jovago (a leading hotel booking company), 27% of Nigerians use online platforms to book and pay for hotel rooms while 73% pay on arrival. In addition to this, 51% of Nigerians prefer to book less than a week in advance. Mobile data usage has had a positive impact on the e-tourism market, deeper internet penetration will accelerate migration of offline travellers to the e-travel space.

Internet subscriptions directly correlated with electronic transactions stood at 98 million in December 2017, according to the Nigerian Communications Commission. This translates into a penetration of 53%. Recent data indicates that 462 million transactions valued at N29trn were recorded on electronic payment channels in the final quarter of last year. Meanwhile, mobile payments recorded 12 million transactions from the total electronic transactions, valued at N307bn (US$1bn).

Although the initial intent was geared towards entertainment, social media has emerged as a commerce channel for most businesses. Globally, internet users now spend more than four hours per week on social networking sites, this is considerably higher than hours spent on e-mail communication. User time on smartphones is heavily concentrated on social media apps such as Facebook, Instagram, and Twitter, as well as entertainment brands such as Google’s YouTube. Given their large audiences, these apps have become attractive to advertisers.

Based on industry sources, as at Q4 2016, 84% of Facebook’s US$5.6bn in advertising revenue came from mobile compared with 80% recorded in the corresponding period of the previous year. Facebook isn’t the only social commerce platform, a few companies also utilise Twitter to sell their products. Increased mobile data consumption growth is sure to boost social media marketing.

Social media offers different values to firms, such as enhanced brand popularity which in some cases translates into increased sales. Furthermore, consumer behaviour can be tracked to an extent by business strategists on social media.

The expansion of the digital economy should stimulate the much needed growth of Nigeria’s non-oil economy and contribute to its diversification in the medium to long term. There are still several roadblocks slowing expansion. Data security, logistics issues mainly due to poor road infrastructure, high costs of sustaining internet subscriptions and customer preferences for cash payment on delivery are a few of the major culprits.

Chinwe Egwim
Macroeconomist and Fixed Income Analyst at FBNQuest Merchant Bank