Operators in the e-commerce ecosystem have attributed the apathy of local investors to the lucrative and booming e-commerce sector to high failure rates of tech start-ups including the fear and doubts about the viability and investment value of the sector.
According to e-Marketer’s 2014 forecasts, worldwide business-to-consumer e-commerce sales will increase by 20.1 per cent to reach $1.500 trillion. Growth will come primarily from the rapidly expanding online and mobile user bases in emerging markets, increases in m-commerce sales, advancing shipping and payment options, and the push into new international markets by major brands.
Last year for the first time, consumers in Asia-Pacific spent more on e-commerce purchases than those in North America, making it the largest regional e-commerce market in the world. This year alone, B2C ecommerce sales are expected to reach $525.2 billion in the region, compared with $482.6 billion in North America.
China will take in more than six of every 10 dollars spent on e-commerce in Asia-Pacific this year and nearly three-quarters of regional spending by 2017. The country’s ecommerce market is second only to the US, but this is not expected to last much longer. Beginning in 2016, China will overtake the US in spending. Massive gains in China, as well as in India and Indonesia, will push Asia-Pacific’s growth ahead. These countries, along with Argentina, Mexico, Brazil, Russia, Italy and Canada, will drive e-commerce sales growth worldwide. E-commerce markets in other countries included in eMarketer’s forecast are nearing maturity. The strength of sales in emerging markets is largely due to their large populations coming online and buying there for the first time.
Asia-Pacific will claim more than 46% of digital buyers worldwide in 2014, though these users will only account for 16.9 per cent of the region’s population. Penetration will also be low in Central and Eastern Europe, Latin America, and the Middle East and Africa. For now, North America and Western Europe are the only regions where a majority of residents will make purchases via digital channels.
In Nigeria although the market is gradually picking up, but Nigeria has about 20 percent investment in the internet business against the 60 per cent which should be the ideal had they decided to invest earlier in the sector.
Operators, who spoke to Financial Vanguard, said that at the moment, there is still lack of understanding and sheer pessimism among Nigerian investors about the local internet business. They argue that although the sector requires relatively high investment capital, the growth could be quicker and tremendous compared to other areas like property and oil and gas.
“It is a daunting task securing investment from Nigerian investors. We secured seed funding from friends and family who believed in the idea. I would say Nigerian investors don’t understand internet business and the economics of it. This makes it difficult to secure investments from them. It will take a wave of investments from foreign investors to open their eyes to the opportunities that abound in the Nigerian technology space,” said Femi Taiwo who is the Co-Founder and Chief Executive Officer of Nigeria’s property website, www.private property.com.ng.
He told Financial Vanguard that he was able to eventually secure $100,000 investments from a South African investor, Justin Clarke who is now Chairman of One Africa Media.

“From 2011 when the investment was finalised,” he said, “we have been growing by triple digits Year on Year since then.”
Taiwo noted that “the fears of Nigerian investors are more around return on investments since these companies have high failure rates and it usually takes a while for many of them to turn a profit.” He however noted that in spite of this, Nigerian investors should understand that every business involves some levels of risks, and that it has become imperative for Nigerians to invest in the tech space “because Nigeria is leapfrogging the development learning curves most developed countries went through due to worldwide rapid technological advancements.”
“There are still numerous issues and problems faced by Nigerians in various sectors of the economy that can be easily solved by technology,” he added
Over the last the three years, the e-commerce sector has recorded unprecedented growth. Pioneered by the Rocket Internet backed retailer, jumia.com, the sector has driven online shopping in Nigeria to about 35 percent valued at over N100 billion, according to recent statistics.
Despite this, local investment has remained relatively low. According to Financial Vanguard investigation, there are over 120 e-commerce sites in the country, majority of them have not even the least capital investment of between $5, 000 to $20, 000 (N1 million to 3 million) which experts say is what is needed to break successfully into the e-commerce business. As a result, most of them will not survive their first year and those who do, will manage for much longer period before breaking even.
Investigation has also revealed that most of the big names in e-commerce in Nigeria today are completely foreign owned or have some foreign equity stakes. For instance, online ventures like, Kaymu.com, a marketplace, Jumia.com, retail, Lamudi, real estate, Easy Taxi, Transport,
Carmudi, auto marketplace, Jovago, hotel booking and hellofood.com are all under the stable of German owned Rocket Internet’s Africa Internet Group.
On the other hand, other ventures like Konga.com which is being hailed as Nigeria’s indigenous internet success story has at least 50 percent of its stake owned by South African Venture Capital firm, Naspers. And with additional $60 million and $40 million new venture fund raised in January and October, 2014 respectively, it remains to be seen how much indigenous stake the online retailer still retains.
Investigation has also revealed that Naspers also supports a whole range of other profitable online ventures in the country including the online classified, OLX, price comparison site, Pricecheck, a news portal, News24, and the recently launched online job marketplace, Careers24. Even other ventures like the car marketplace, Chekki, and online job market, Jobberman are also being backed by One Africa Media from South Africa.
“Nigeria has already lost out on the internet business. We seem to have this habit of putting money in a business where we are sure the entrepreneur doesn’t need the money or have started making money. And even if they do put their money in it as it could happen sometimes, they deals you get in that regard are very unfavourable. They want to make little investment in it and then want to take at least 50 to 60 percent. So what is the point?” lamented Lanre Aknilagun who started drinks.ng last three years with $50, 000 investments from SPARK.
Akinlagun told Financial Vanguard that, “the problem is that Nigerians have lots of money but they have little appetite for risks. They only allow themselves to be aware of what they know is guaranteed. That is why stealing and corruption is a guaranteed source of revenue. They wouldn’t put money into something until someone else has done it.”
“Most Nigerian investors look for a safe landing when investing. Most of them do not look at the bigger picture. They mostly look at the short-term gains. When Raphael Afaedor and Tunde Kehinde founded Kasuwa.com and Sabunta.com, how many Nigerian investors were willing to take the plunge? Investment can come not only in the form of financial investment. Intellectual investment from investors and mentoring are also forms of investment,” said Chiebuka Nworah, Founder/CEO of EtyresNigeria.com, an online automobile tyre retailer.
He told Financial Vanguard that he and his friends: Godric Echefu, Olaseni Odukoya and Eze Peters Dike pulled their savings up to the tune of N1 million in July, 2014 to start the business. He said although challenges remain, the investment has been worthwhile as growth has been exponential. “Sales revenue,” he maintained, “is over 200 percent from our projections, “as total units of tyres sold have grown by more than 300 percent since we took off.”
According to Nworah, “It is very, very difficult to secure investment from Nigerian investors because most of them are skeptical about investing in the Nigerian Tech Space. Take a look at Facebook for example. I always argue that if Facebook was the brain-child of a Nigerian, that vision would have died. It took Facebook over 5 years to become profitable. How many Nigerian investors are willing to wait that long?”
He maintained that it is important that Nigerian investors begin to consider the tech space, “because Information Technology is the future.”
“We are living at a period where everything would be characterized by software, the Internet and Information Technology. Four of the most valuable companies in the world are IT companies. The business model of Information Technology is emerging as a mainstay in the world economy,” he added.
More so, he said, “The Ecommerce sector in Nigeria is still untapped. We have barely scratched the surface. There are still lots of niches and services to be filled and made available to Nigerians via the e-commerce sector. The percentage of investment is very low but the signs are encouraging. There are still numerous opportunities to invest in only if the investors could be discerning enough and look at the bigger picture instead of the short-term gains.”
He said: “Investors should support small businesses in their own little way. For instance, Strive Masiyiwa supports businesses all over Africa by blogging about business principles on his Facebook page. He is investing his intellect and business expertise on small businesses all over Africa. Nigerian investors should also learn to do same by investing finance or their business expertise/intellect on startups. It would greatly enhance the Nigerian start-up ecosystem.”
On his part, Odebode Ademola, the Co-Founder of NerdBervy said: “Tech space will always evolve. And the thing I love about Technology is that there are a lot of problems we see around us that solutions can be created for. At NerdBevy, for instance, we have different ideas that would make a lot of changes and affect many lives positively. These solutions stem from the problems we see around us. So really, investing in Tech space gives you a pool of viable ideas to choose from. Every Tech idea that brings about a solution to a particular common problem if well planned out would definitely be a success.”
NerdBevy, an IT firm that specialises in supply and maintenance of IT equipments including development of web applications and solutions, launched RepairAm.com, an online gadget repair service in February, 2014. Unfazed by lack of investment, he and his partners raised N500, 000 from their friends and families to start NerdBervy and have within one year achieved over 60 percent growth.
In this situation operators and industry watchers alike believe that the role of Venture capital firms and private equity cannot be underestimated. Some even argue that there should be legislations including an enlightenment process to encourage them to also invest in the space.
“What we need is increased political stability in Nigeria. This is because no one is going to invest in a country where they are not certain of its political future. There also need to be a platform to educate high net worth individual in the country of the immense opportunities in the sector and its potential for growth. There should also be some sort of legislation encouraging indigenous Venture Capital firms to actually invest in online services,” said Suleiman Balogun who is the Co-Founder of Nigeria’s letting agency, www.tolet.com.
He said: “What we have realised is that most Venture Capital firms in this country invest mostly in oil and gas. That needs to change. Even in real estate development, what we have found out is that the money that is being used for the biggest projects in the country is coming from overseas. Yet we have individuals in this country who have the capacity and the wherewithal to shoulder all these costs and make significant returns on their investments. It is not exactly encouraging.”
With such steps taken especially by authorities, things will definitely improve for this sector that has so much to offer but with little support. At the moment, however, some indigenous Venture Capital firms are also stepping in to fill the vacuum and are already beginning to create completely independent and viable indigenous online companies.
For instance, in 2013, iRoko TV entrepreneurs, Jason Njoku and Bastian Gotter, introduced SPARK, a $1 million backed company created to support and develop aspiring Nigerian tech and internet entrepreneurs. Based in Lagos, SPARK is a company that has set out to build companies and to fill the vacuum that currently exists in the country’s angel investment ecosystem.
Over the past two years, the company has lived up to its dreams by building and supporting some of the most profitable online businesses in Nigeria especially hotels.ng, foto, tolet.com.ng, drinks.ng and a host of others.
At the unveiling of SPARK, Jason had noted the creativity, talent, and the spirit of entrepreneurship is in Nigeria but Nigeria’s business ecosystem isn’t set up to adequately support start-ups in their earliest days, adding that its intention with SPARK is to act as the catalyst to a period of aggressive and exciting growth in Africa’s Internet sector.
Perhaps with more SPARKS, Nigeria may not completely lose out on the internet business.