As one of the world’s largest emerging markets, Nigeria stands at a crossroad. Its rapidly expanding economy and growing disposable income will propel its e-commerce market to reach $75 billion per year by 2025. A large unbanked population and erratic power supply, however, threaten to limit growth.
Nigeria’s e-commerce market has proven hard to crack. Approximately 56% of the population is unbanked, which — combined with low credit card penetration rates and lack of trust in paying online — means cash-on-delivery is king. This poses a risk for retailers and last-mile providers, as cash-on-delivery is associated with higher failed deliveries.
Promising start-ups like Nigerian-based FairMoney and Paystack have developed innovative solutions to address the challenges surrounding online payment transactions. A wider, more trusted range of payment options makes online shopping more accessible, helping to promote e-commerce growth.
The country’s frequent power outages, however, are limiting its e-commerce ecosystem. Outages that take systems offline interrupt operations and processes, creating massive inefficiency and further undermining trust in online payments. Nigerian fintech companies are spending almost $14 billion annually on diesel-operated backup generators.
Recent government reforms prioritizing the energy sector seek to outsource generation, distribution and grid operations to private companies, all overseen by the newly established Nigerian Electricity Regulatory Commissions (NERC). The reforms are a step in the right direction to improve the power sector, though the effects are yet to be observed.
Additionally, the World Bank has approved $750 million in credit support for Nigeria’s power sector.
The country’s e-commerce logistics market is set to grow at a 15.2% compound annual rate between 2020 to 2025, according to research by Transport Intelligence, boosted by rising urbanization, a growing middle class and a young, tech-savvy population. The growth will be even higher if the limits imposed by an erratic power supply and cash-dependent payments can be removed. Should these problems be addressed, Nigerian e-commerce businesses and their logistics partners will stand to thrive.
Beth Poole is a research analyst at Transport Intelligence.
Timely, incisive articles delivered directly to your inbox.