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| CFI, Fola Daniel |
Chuks Udo Okonta and agency report
Time has come for the National Insurance Commission (NAICOM)
to license an Online Insurance Company
to target e-commerce shoppers, a business put at over N40 billion.
The new insurance trend which has taken root in China and
other climes takes care of the ever increasing e-commerce shoppers.
This giant step must be considered by NAICOM and
operators, even as effort is made to register Micro-insurers to deepen the
industry.
Statistics have shown that Nigeria’s Internet business
industry – e-commerce is estimated to be worth over N40 billion ($250 million)
and this can be harnessed through the microinsurance scheme that is being
planned by the industry.
Taking a cue from the Chinese online insurance firm,
which was designed by Zhong'an Online Property Insurance to address issues
concerning e-commerce, mobile payment and Internet finance for companies as
well as private customers, Nigerian insurers, can also explore such
opportunities which have been provided by the rapid growth of the
telecommunications sector.
The Chinese firm has a registered capital of 1 billion
yuan (164 million U.S. dollars) and its shareholders include top e-commerce
company Alibaba Group Holding Limited., the world's second-largest insurer Ping
An Insurance (Group) Co., and the country's largest Internet firm Tencent
Holdings Limited.
The firm’s portfolio ranges from enterprise property
insurance to cargo transportation insurance and liability and guarantee
insurance products, according to its Chief Executive Officer (CEO) CEO Yin Hai
"The company will not simply sell insurance online
but will provide customized services for Internet enterprises, platforms and
individuals," he said.
Initiated in April 2012, the company was assigned by the
China Insurance Regulatory Commission (CIRC) as a pilot for online insurance in
February 2013. It was then officially approved by the CIRC in October to get
the first license in this sector.
"The authorities have always encouraged
transformation in the insurance industry," Yin said. "The setting up
of Zhong'an will bring about more chemical reactions between the Internet and
financial sectors."
According to Ventures Africa, Nigeria, which is Africa’s
second largest economy with a Gross Domestic Product (GDP) of $263 billion, is
one of the world’s fastest-growing economies. According to the World Bank and
Euromonitor International, the country’s middle class has risen by 28 percent
while its GDP based on purchasing power has increased by 21.67 per cent in the
last four years. The rise in consumer spending, coupled with the convenience of
online transactions, has boosted the growth of Internet-based businesses in the
country.
Industry Players
Nigeria’s Internet business industry is estimated to be
worth $250 million. General merchandise online retailer Jumia, co-founded in
June 2012 by a Ghanaian Harvard Business School graduate, Raphael Afaedor,
together with Berlin-based Internet start-up incubator, Rocket Internet, is
currently the largest ecommerce company in Nigeria. With cash-for-equity funds
from investment giants such as JP Morgan, Summit Partners and Millicom, the
company has raised over $50 million in the last 12 months.
It ran multi-million dollar marketing campaigns that
boosted its online store to the fourth most visited local site in Nigeria and
processed over a million transactions within a year. In June, the company
revealed its 10,000-square-foot ecommerce campus and a 90,000-square-foot
warehouse, located in Lagos.
Jumia’s local competitor and Nigeria’s second-largest
ecommerce operator, Konga Shopping Company, founded by former Google Africa
lead Sim Shagaya, also secured funds from Kinnevik – a Swedish investment group
– and Naspers MIH Internet Africa – the Internet investment arm of South
African media giant, Naspers – to grow operations, though the value of the
investments is still undisclosed.
Below these two big players are numerous companies with
multimillion dollar valuations. iROKO TV, Africa’s largest movie digital
distributor, received $8 million in funding from Tiger Global in 2011 and now
generates over $2 million annually.
DealDey.com, which received $1 million from Kinnevik in
late 2011, had generated $1.27 million in gross revenue by the last quarter of
2012. iReportersTV, a YouTube-like start-up, announced in June that it had
recorded over 1.5 million views and received an investment of $8.5 million.
Jobberman.com, Nigeria’s leading job search website, has grown by 1,000
percent, also receiving a $1-million injection in 2011. This was after it
closed a $63,000-seed-fund investment in 2010. Pagatech, a Lagos-based mobile money
service that also runs Internet services, recently closed a $20-million
investment.
One thing can be said with certainty: the massive inflow
of cash from foreign venture capitals and investment companies has gone a long
way in helping to build the online business industry in Nigeria.
Naspers MIH was the country’s first investor. Valued at
around $18 billion, the Group owns over a third of China’s largest online
gaming and social network company, Tencent, and at least 29 percent of the
Russian internet service, Mail.ru. It only just divested from Facebook earlier
this year.
In February 2010, Naspers MIH established the Nigerian
subsidiary of its successful South Africa-based general merchandise online
store, Kalahari.com. Unfortunately, it shutdown the business the following year
due to poor patronage and unforeseeable profit in the near future. In February
2013, it pulled the plug on another of its Nigerian online business –
Mocality.com.ng, citing similar reasons. Naspers MIH returned to the Nigerian online
retail space in January 2013, making an undisclosed cash-for-equity investment
in Konga Shopping Company. Reports emerged that the South African investor had
acquired 50 percent of the Nigerian retailer, but Sim Shagaya says it is
significantly less.
One of Mocality’s main competitors in the business search
engine space was Vconnect Nigeria, founded in 2010 with a seed-fund of $63,000
followed by several other injections from the Tolaram Group.
It is currently Nigeria’s largest online business directory
with over 700,000 listings. Vconnect CEO, Deepankar Rustagi, believes that
Mocality failed because they did not know their market well enough. “Mocality
didn’t know the terrain so well. Consequently, they couldn’t get sufficient
data and when there is no data, there is no revenue,” he says. “Also, I don’t
think they were patient enough.” Rustagi spent the first two years of his
company’s life conducting market research, interviewing and registering small
business owners on its database.
“We knew we weren’t going to make a dime in the first
year,” he says.
“We ignored massive marketing expenses and just focused
on gathering and organising information on all SME businesses, starting with
Lagos. No one has this kind of data.”
In 2012, Rocket Internet entered Nigeria with a $10
million investment in Kasuwa (now Jumia). Founded in 2007 by the Samwer
Brothers, Rocket Internet replicates successful online business models in
emerging markets.
The company’s Amazon-esque Jumia, for example, operates
in Nigeria, Ivory Coast, Egypt, Kenya and Morocco, though Jumia Nigeria is
currently the largest. Rocket Internet’s aggressive global expansion is driven
by the belief that scarcity in the availability of retail infrastructure in
emerging markets like Africa, the Middle East and Southeast Asia will increase
ecommerce share in retail in those markets. In July, Rocket Internet announced
plans to triple its 75-company-strong portfolio by 2018 and disclosed that it
had raised over a billion dollars in the last 12 months from collaborators such
as Summit Partners, JP Morgan and AB Kinnevik.
More than 50 percent of AB Kinnevik’s assets are situated
in emerging markets. The group, which also owns a 24-percent stake in Rocket
Internet, has interests in several sectors of the Nigerian economy, including
oil and gas, financial services and advertising. Its first-known funding in a
Nigerian Internet business was a $1-million investment in DealDey in 2011. The
following year, it closed a $2-million fundraising commitment with iROKO, while
Konga received a single-digit, million-dollar investment a few months later.
Seeing Growth
The Euromonitor Nigeria 2011 report revealed that
Nigerians spend $6.3 billion per year on clothing. According to both Jumia’s
Afaedor and Konga’s Shagaya, clothing accounts for the largest orders on their
online stores. While the proportion of actual sales of site visits via mobile
is 20 percent in South Africa, the conversion rate is up to 30 percent in
Nigeria, and industry players expect it to jump higher still.
Industry analysts and experts did not foresee such a
massive growth surge in the online retail sector. In recent times, dot-com
companies have taken to television, radio, print, Internet and even billboards
to drive traffic to their online platforms. “It’s a combination of strong GDP
growth, right timing, significant investment, [mobile] Internet penetration and
perfect execution,” says Manuel Koser, founder of South African retailer
Zando.com, and SilverTree Capital, an investor in Nigeria’s glamour.com.ng and
sunglasses.com.ng.
Nigeria’s Internet subscriber base grew from 200,000 in
2000 to over 44 million by 2010. But the ecommerce industry was far from an
instant success. Many of the country’s earliest online businesses were small
and poorly funded and did not experience much growth, primarily due to a lack
of online infrastructure, expertise and trust. This state of affairs
discouraged operators from pursuing it as a viable option for their businesses,
though perhaps the biggest problem lay with secure online payment facilities.
Until as recently as 2009, online buyers made payment by
depositing cash into the bank accounts of ecommerce companies before online
transactions were processed. The process was painfully manual, taking away the
crucial competitive advantages of online transactions: speed, ease and
convenience.
Nigeria’s notoriety for online fraud further hindered
growth. In 2005, PayPal (a global ecommerce operation that allows payments and
money transfers to be made through the Internet) closed all Nigerian accounts
and denied registration to any user traced to a Nigerian IP address. Financial
services avoided the country and orders received in from a Nigerian IP address
triggered red flags at the backend of numerous online payment companies. This
method of payment was thus no longer an option for local online retailers.
The move by Visa-backed ValuCard Nigeria, Interswitch and
eTransact to provide online switching and payment systems is slowly changing
this state of affairs. The Central Bank of Nigeria’s policies such as the
CIBSS, which enables online financial transactions across local banks, as well
as the launch of Internet banking from local lenders like Guaranty Trust Bank
and First Bank, has further supported the adoption of ecommerce.
What the Future May Bring
According to Shagaya, Konga has to raise between $100
million and $150 million over the next six years in order to scale its
business. But he says investors have not been enthusiastic about the prospects
of investing long-term in Nigerian ecommerce. Investors responded to Konga’s
funding appeal by saying that they were looking to invest in India and
Indonesia and not Nigeria, because they felt ecommerce was at a premature stage
in the West African country. “The emergence of Nigeria’s ecommerce [industry]
will take 10 years to build,” says Shagaya. “Even Russia and China are still
rated as early ecommerce markets. Ecommerce in Nigeria will grow not only on
deep Internet penetration but also on the increased disposable income of the average
resident.”
Some online start-up founders, such as Pagatech’s Tayo
Oviosu and Raphael Afeador, believe that ecommerce is a gamble on Nigeria’s
economic future and that short-term profitability has not been a reality of
local ecommerce companies. They further feel that the exponential growth of the
companies is all that has encouraged the investments received so far. Analysts
have also cautioned that, given the number and size of international
investments (with more still to come), the government should intervene with
legislations to guard against capital flight.
On the other hand, Nigeria’s Minister of Finance, Ngozi
Okonjo- Iweala, sees the emergence of dot-com companies as contributors to the
development and diversification of the country’s economy. Economists also posit
that Internet-based companies could help mitigate the country’s youth
unemployment problem. Jumia and Konga, the largest employers within the online
business industry, have a staff of 500 and 300 respectively, with most
employees below 30 years of age.
iROKO ‘s Jason Njoku has great passion and vision for
Internet business growth and its impact on the economy. He raised $1 million to
seed-fund SPARK, a hub of 13 Nigerian ecommerce start-ups offering services
from accommodation, to bus tickets, to online gaming. Currently, the SPARK
network has some 150 employees with the average age below 30. Njoku’s goal is
to grow the companies to create employment for 1,000 young talents by 2015. “I
don’t own a house or land for that matter, so I literally bet on tomorrow’s
Internet titans,” he says. “Nigeria’s fledgling tech scene doesn’t need words
of wisdom, inspirational talks or well wishing from friends and family. It
needs cold, hard cash. That’s all.
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