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e-Commerce in Africa: The Case of Nigeria

E.O. Ibam1,*, O.K. Boyinbode2 and M.O. Afolabi3

1
Department of Computer Science, Federal University of Technology P.M.B. 704 Akure, Nigeria
21Department of Computer Science, Federal University of Technology P.M.B. 704 Akure, Nigeria
3
Department of Cyber Security and Information Assurance, The Graduate School, University of Maryland University
College, Maryland USA

Abstract

Africa holds 15 % of world’s population with an across sector infrastructure investments average
returns of 15 to 20%. The diverse location of people living within the continent makes intercity,
interstate, or inter-country transactions difficult and where it does happens, comes with huge
transaction cost. This creates a wide gap in Africa’s regional economy, resulting in wide spread of
poverty, intra and inter regional conflicts within the continent. E-commerce provides a viable platform
for bridging the gap in African economies. However, its adaptability and sustainability becomes a major
concern. The level of development of e-commerce and its impact on the economy are analysed. Results
show that e-commerce has made positive impact on the African economies but lack of trust on
transactions within and from the continent is major challenge. Therefore, investment in e-commerce
infrastructure in Africa (with more emphasis on Nigeria) will lead to rapid economic development within
the continent.

Keywords: these Africa, e-commerce index, Information and Communication Technology (ICT), internet, software,
services.

Received on 16 November 2017, accepted on 8 December 2017, published on 5 January 2018

Copyright © 2018 Ibam E.O. et al., licensed to EAI. This is an open access article distributed under the terms of the
Creative Commons Attribution licence (http://creativecommons.org/licenses/by/3.0/), which permits unlimited use,
distribution and reproduction in any medium so long as the original work is properly cited.

doi: 10.4108/eai.5-1-2018.153536

1. Introduction The African continent even though endowed with evenly

distributed natural resources, has a relatively
Electronic commerce (e-commerce) simply means the impoverished groups of people compared to other
transacting of business activities using Information and continents, many of its inhabitants are located in rural
Communication Technology (ICT) facilities. areas, where the benefits to be derived from ICT have not
Globalisation and the information age have posed great been felt. The sparse nature of ICT infrastructural
challenges to businesses in Africa. According to [1], just development in most countries of the continent has
over a fifth of the population in Africa uses the Internet resulted to the major differences in the sizes of the overall
compared to two thirds in Western Asia. economies, in the level of expertise available, and other
development issues.
*
E.O. Ibam. Email:[email protected]

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E. O. Ibam, O. K. Boyinbode and M. O. Afolabi

The Economic Commission for Africa, through its (mastercard, Visacard etc.) by African banks has actually
African Information Society Initiative (AISI), has bridged the gap in trade and payment methods between
identified e-commerce as one of the four key areas in the continent and the western world.
Africa to exploit ICTs to best advance social and
economic development.
2.1. Obstacles to e-Commerce in Africa
2. e-Commerce in Africa
The obstacles to e-commerce are many and varied:
In the past five years, Africa has had the most rapid Legal Frameworks: Most countries are yet to
Internet growth rate in the world. Yet, Internet penetration institutionalize legal frame works that will handle issues
rates remain low compared to other global regions. The concerning Intellectual Property Rights and Consumer
main means of Internet connection in Africa is Mobile, as Protection in the digital arena, digital signatures and
fixed connections make up less than 10% of the total contracts on the cyber space.
Internet subscriptions in many countries throughout the Financial Environment: e-commerce is yet to take its
continent, such as South Africa and Tunisia [2]. proper shape in Africa due to skepticism on the use of
The rapid growth in internet connectivity has lead to Credit cards for online transactions and payments. Major
consumers and producers seeing the advantages of e- gaps exist in most African countries. While some
commerce with convenience forming the major enticing economies in the African continent have embraced the
factor for online businesses, for instance in Nigeria and cashless society as experienced in developed countries,
Kenya. But even at that, only few Internet users many economies are almost entirely cash-based. In such
in Africa have made an online purchase. cash-based economies, credit cards are virtually non-
Two main factors are identified as the major barriers to existent and central bank clearing facilities are very
wider acceptance of E-Commerce in Africa: delivery limited.
infrastructure and secure payment methods. Several Information Infrastructure: there is high cost of
countries lack even an organized physical address system, equipment and connectivity of e-commerce as relates to
and cash on delivery is the main payment method that physical goods or teleservices in the African continent.
online merchants such as Takealot, Jumia and Konga Limited bandwidth adds to the problem of providing off-
among others, must deal with [2]. line teleservices and online teleservices as such services
Any business transaction conducted within the African demand high quality fast network access.
continent that involves the use of electronic Transportation and Delivery System: The placing of an
communications processes and facilities (and especially instant order (and perhaps the equally quick debiting of
the Internet) fall into three categories of interest. the consumer’s account) has to be followed up with
According to [3], these categories are: appropriately quick delivery of the goods. While this is
Trade in Physical Goods. People living in African eminently feasible for virtual goods such as music files, it
countries can now buy and sell goods from anywhere on is far from that when it comes to physical goods.
the globe by placing orders and paying over the Internet. Airfreight is risky, infrequent and expensive in Africa;
Also product advertisements, shipments of these goods customs clearance procedures are long and complex; local
can now be done electronically providing a leeway for warehousing facilities hardly exist [3].
African entrepreneurs to tap into the vastly larger markets Human Capacity: brain drain has become a major
for their goods. setback in the attempt to bridge the digital divide among
Trade in Offline Teleservices and Virtual Goods. The countries in the African continents and the western world.
lower wage environment of African countries provides The right people required for effective implementation of
opportunities for them to offer goods and services at e-commerce have to be ICT compliant, deeply oriented
significantly better rates than equivalent workers in towards the digital economy and conversant with web
United States and Europe. Virtual goods like languages and technologies. Most people who have these
downloadable music files and digital images, capturing skills leave their countries in search of greener pastures in
medical records data, digitising architectural drawings, Europe and America.
translations, etc can be created anywhere for electronic
delivery to the client. African countries can themselves
acquire these virtual goods with no concern about
2.2. e-Commerce in Nigeria
physical location.
This The growth of Internet usage in Nigeria continues to
Trade in Online services. Online forex trading, Online
increase, recording over 90% growth from 2000 to 2008
airline ticket booking and reservations, online banking
and up to 2016. While businesses in Nigeria are reported
services, online taxi/bus booking services, online auctions
to have online access with opportunity for e-commerce
and supplies have become fully operational in African
activities, customers in the country however access
countries facilitating efficient trading by providing timely
business websites only to source for information but make
access to vital business information. The massive
purchases the traditional way [4], [5].
deployment of globally accepted electronic payment cards

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 e-Commerce in Africa: The Case of Nigeria

In recent time, in Nigeria, many online shopping sites fast growing e-commerce industry with an estimated 25%
have sprang up and many more are still developing, annual growth could stimulate the growth of a non-oil
offering online shopping and business services to millions economy adding to diversification in the medium to long
of internet users within and abroad. However considering term. “While counting the gains of e-commerce to the
the population of Nigeria with over 180 million, it is Nigerian economy, it is important that its weaknesses
expected that the number of people involved in e- are measured also as the challenges of e-commerce are yet
commerce activity would have increased in proportionate to be combated.”
order with the population size. The problem is that many
Nigerians still treat the issue of e-commerce with much
scepticism. Many doubt the security of their accounts 2.4. Business – to – Business (B2B) e-
while making payment through an e-payment site. Others Commerce
include high cost and inefficient means of transportation
(predominantly road transport on dilapidated road This is the body text with no indent. This is the body
networks), the genuineness of the business and the text with no indent. According to [9], Business to
business partner involved in the online transaction. Business or B2B refers to e-commerce activities between
ICT plays a pivotal role in the growth, development businesses. These transactions are usually carried out
and sustainability of e-business all over the world. through Electronic Data Interchange or EDI. This allows
According to [6], ICTs can reduce business costs, more transparency among businesses involved; therefore
promote transparency, rules-based systems, and improve businesses can run more efficiently. Electronic Data
communication. Governments need to work with the Interchange (EDI) will require agreement between trading
private sector to create an investment climate and a partners (buyers and suppliers) in order to govern their
business environment that encourage the use of ICTs electronic trading relationship. It is a standard format for
within private firms as well as in government. The exchanging business data. EDI is one form of e-commerce
potential of ICTs can then be realized through adequate that also includes e-mail and fax. EDI data exchange
infrastructure and skills, and a commitment by among parties that know each other well and make
governments to making markets work effectively. arrangements for one-to-one connection. EDI is the inter-
Many factors have actually contributed to the recent organizational, computer-to-computer exchange of
slight growth of e-commerce in Nigeria. These factors business documentation in a standard machine processed
include: format.
• Rapid growth in the number of Internet users
• Availability of broadband technology 2.5. Business –to – Consumer (B2C) e-
• Mobile revolution (Rapid uptake of Internet-
enabled mobile phones (smart phones)
Commerce
• Increasing awareness and use of social
Business to Customer or B2C refers to e-commerce
networking media
activities that are focused on consumers rather than on
• Governments’ involvement in provision of e-
businesses. Figure 1 shows that Business to Customer
government services allowing for online
(B2C) e-commerce sales have been geometrically
transactions
increasing in developed countries like Asia-Pacific,
• Growth in the number of e-commerce firms Western Europe and North America but slowly growing
and secured e-payment systems. in Eastern Europe, Latin America, Middle East and
• Legal framework for combating of cyber- Africa.
crime.

2.3. e-Commerce Growth and Economies in

Africa
[7] observed that the global growth rate of e-commerce is
16.8% while Africa’s e-commerce space is growing at a
rate of 25.8%. Nigeria, South Africa and Kenya are the
top three countries that shop online which has contributed
immensely the growth of their economies.
[8] observed that e-commerce is at the rudimentary stage
in Nigeria, with an overwhelming impact on business
transactions in the country. According to him, the
Nigerian Bureau of Statistics reported that ICT enabled
online businesses contributes about 8.4% of Nigeria’s
Figure 1. E-commerce sales by region 2011 and
GDP and recorded a 16.4% growth in 2014, and the
2016 [10]
industry boasts of about 300,000 online orders daily. The

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2.5. ICT and e-Commerce Challenges in

Figure 1 above shows that developed economies Africa
dominate the market but emerging economies (Asia-
Pacific) will catch up by the year 2016. [12] identified the following challenges facing e-
According to [10], in China, e-commerce has grown by commerce in Africa: distrust, cost of broadband, logistics,
120% a year since 2003; set to surpass US in 2013 as Africa’s open market, fragmented market and literacy
largest e-commerce market. China, India and Indonesia rate.
are expected to grow fastest in 2013. Latin America’s e- [8] observed too that distrust is a serious challenge
commerce market grew from $1.6 billion to $43 billion in facing e-commerce in Africa. According to him, in
past decade. Brazil accounts for largest market share Nigeria, the Inter-Bank Settlement System (NIBSS) in
(59%), while Middle East and Africa has its share in 2015, reported the high level of fraudulent transactions,
global e-commerce expected to rise from 1.6% to 3.5% by which amount to 8.8% of online transactions.
2016. This projection by [10] has been confirmed as [11] It therefore becomes crystal clear that the major
observed that Today, China is world biggest ecommerce challenge that has persistently kept many from buying and
market led by e-commerce subsidiaries of Alibaba group; selling online is distrust, which is tied to the security
namely Taobao, Alibaba.com, Tmall and others. With a system of online payment platforms. It is a case that
35% of annual growth, China is also one of the fastest seems to defy all measures being put in place to curb
growing ecommerce markets with annual online sales of financial fraud resulting from cyber crimes. According to
$672 billion and e-commerce share of total retail sales of [12], phishing is very common in Nigeria, where people
15.9%. Coming fourth on the list is Japan and also the are skeptical about putting their credentials online. As a
leading m-commerce player in the world, which of course result of this, many companies offer cash on delivery to
is the future of e-commerce. Rakuten is Japan’s leading e- alleviate this challenge. E-commerce sector therefore
commerce platform, which over the years has acquired becomes attractive mainly to students and younger
many e-commerce websites across the world. It has population.
annual online sales of $79 billion and e-commerce share ICT software in particular provides the much needed
of total retail sales of 5.4%. The country with the fastest platform for e-commerce development and sustainability
wireless internet speed, South Korea comes at seventh in Africa. However, this all important sector (software
place on this list. South Korea is also one of the leading development) is grossly being under developed in the
m-commerce markets. Biggest e-commerce names in the continent.
country include Gmarket and Coupang. It has annual The [6] report identified limited access to venture
online sales of $37 billion, e-commerce share of total capital as the biggest challenge to the software sector of
retail sales of 9.8%. the Information and Communication technology industry
In the [1] report on e-commerce Index for various in African countries and this situation has not changed.
countries across the globe, computed using the following The report shows that ICT software and services are
formula: dominated by the developed world with some developing
A1 = share of individuals using internet (% of population) economies catching up. It further highlighted that
B1 = share of individuals with credit card (% age 15+) enhanced access to ICTs in developing countries is
C2 = secure internet servers per 1 million people widening opportunities in areas including health,
(normalized to 100 by rescaling the value) education, governance and business creation and
D1 = Postal reliability score expansion. “Software production can contribute to the
structural transformation of economies, that is, weans
B2C Index  ( A1  B1  C2  D1) / 4 . (1) them away from(1) dependence on low-technology goods
and on a limited number of products for export.” It
Nigeria emerged top in Africa with a B2C E-commerce identified Kenya and South Africa as top suppliers of
Index of 30.4 and ranked 100th position out of the 137 software and services for domestic consumption in the
countries covered in the study. It also had an average of continent, especially in the areas of smart phones and
3.8 million online shoppers as at 2014. tablets, as well as mobile applications driven by mobile
However, with the current economic recession in the broadband Internet services.
country and the unfriendly foreign exchange policies that Piracy, poor ICT infrastructure and inadequate protection
restrict the use of naira denominated debit and credit cards of intellectual property rights are some of the major
for online transaction on e-commerce sites involving challenges hindering ICT software development and
foreign exchange, the e-commerce sector of the economy service (e-business) expansion in Africa [13].
has suffered great losses.

3. The Way Forward

E-commerce has come to stay and the Africa continent
cannot work in isolation. There is urgent need for a
paradigm shift in our approaches to business and methods

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 e-Commerce in Africa: The Case of Nigeria

of business transactions, to conform to the modern way of commenced a work on developing a highly secured e-commerce
transacting business which is more efficient, timely and system model for the continent. The objective of the work is to
globalized. Investments in ICT infrastructure and develop a highly secured payment platform that will leverage on
appropriate legal framework to guide and protect the the Biometric Verification system of banks (commencing with
Nigeria) to ensure that e-commerce transactions are carried out
emerging e-commerce in the continent have therefore by the real account holders linked to their payment cards. It will
become inevitable. ensure that any e-commerce transaction (both ordering and
For effective development and utilization of e- payment for goods) originating from the captured country(s)
commerce potentials in Africa, the following issues have within the continent must pass through biometrics-based
to be addressed: verification process that will never allow any transaction via
• ICT infrastructure (Internet, broadband) proxy. This will go a long way in curbing identity theft and other
should be made affordable and available even cyber crimes and ultimately boost the trust level of e-commerce
the remotest parts of the region sites users.
• there should be massive and continuous ICT
literacy training programmes among
producers and users (consumers)
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