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Konga and Nigeria’s e-commerce industry – Challenges of doing Business

Konga and Nigeria’s e-commerce industry – Challenges of doing Business

In my column of last month, I wrote about Nigeria’s retail industry and its potential to become the country’s next big industry. I also touched briefly on the gains made by the domestic e-commerce sector. Unfortunately, soon after the column was published, one of Nigeria’s top e-commerce companies, Konga, was acquired by Zinox Technologies Limited, an integrated information and communication technology (ICT) solutions conglomerate.

The deal to purchase Konga was reportedly worth a paltry $10 million. Furthermore, OLX – a leading global online classified advertising platform owned by South Africa’s Naspers, which also owned a majority stake in Konga – announced it was shutting down its Nigeria office. Nevertheless, OLX said its platform will continue to operate in Nigeria, although without an office.

I was jolted by these two news items. I also received a couple of emails from friends asking if I still believed the Nigerian e-commerce industry could survive the tough business environment.

Available details on the Konga deal indicate that Zinox Group, which is also an Original Equipment Manufacturer (OEM), would take over Konga.com, Konga’s e-commerce platform; KOS-Express, the logistics arm of the company; and KongaPay, its integrated mobile money payment channel. Some industry watchers and analysts have flayed the acquisition fee for Konga as being too low.

Some people have claimed Konga was mismanaged. Others say there is a flaw in the e-commerce company’s business model. Still, there are some who think e-commerce cannot thrive in the current Nigerian marketplace. While we cannot confirm the mismanagement charge, the issues regarding the business model and whether or not the Nigerian economy is ready for e-commerce are subjects for rigorous debates.

To put things in proper perspective, let’s take a look at Konga’s funding over the years. After its launch in 2012, the company raised $3.5 million in seed investment from Kinnevik AB, a Swedish investment company. In 2013 the company raised $10 million from another round of fundraising from Kinnevik AB and Naspers. Over a five-year period, Kinnevik AB reportedly invested a total of $36.1 million in Konga, while Naspers invested $91.2 million. All in all, Konga was estimated to be valued at $200 million.

If there is any veracity to the $10 million acquisition fee by Zinox, it would mean Konga lost 95% of its valuation. This is why some commentators have viewed the diminishing fortunes of Konga as a bad omen for Nigerian technology startups. How can a company, once referred to as a giant in the e-commerce sector, a few years ago be sold for a measly sum in 2018? There is a lot for industry watchers and technology entreprenuers to be concerned about.

Konga has been a beacon of hope in the Nigerian e-commerce ecosystem. Today, I can attribute my first e-commerce experience in Nigeria to Konga. Last year was the first time I shopped on Konga when our office furniture was ordered on the e-commerce platform. The transaction was seamless and the items were satisfactorily delivered.

Apart from the harsh operating environment in Nigeria, Konga’s ever-changing policies could also have been responsible for its challenges. For instance, the stoppage of the company’s pay-on-delivery system, among other frequent changes, could have irked many customers and merchants alike. Moreover, it was a surprising disclosure that Konga had an active customer base of 184,000, according to Kinnevik AB’s 2016 second quarter report. This customer base is less than 1% of Nigeria’s population. This is disappointing not just for Konga as an e-commerce company, but also for the Nigerian e-commerce market.

Like every other SME, Konga must have faced challenges. But some of the challenges peculiar to the e-commerce sector include poor road infrastructure, weak electronic payment infrastructure, inadequate power supply and broadband internet, inefficient postal service, and security challenges. Given all these factors that pose a definite growth challenge for technology startups in the country, internet businesses need to come up with solid business models that will stand the test of time. Such companies should also realize that financial success will not come immediately.

Just last year, Kinnevik AB said in its report that Konga was just on its way to profitability, after years of losses. Konga’s rival, Jumia, posted a net loss of about $61 million during the same period. Meanwhile, Yudala, also a large e-commerce platform, doesn’t see much profitability until 2020.

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