November 16, 2015

Economic downturn hits growth of e-commerce

Economic downturn hits growth of e-commerce

…E-commerce website traffic in recession
…Over 500 jobs lost in 3 months
…Growth remains resilient – Operators

By Jonah Nwokpoku

Nigeria’s declining economic fortunes has begun to threaten the strong growth being recorded by the nascent electronic business sector, which has become one of the major drivers of the economy in the last three years, Vanguard investigation has revealed. Five major operators cutting across retail, hotel booking and classifieds who spoke to Financial Vanguard, all reported about 25 to 30 per cent reduction in their websites’ traffic over the last six months.



Financial Vanguard investigation has also revealed that the current economic reality has also compelled some operators to downsize their workforce as shown by the recent staff layoff by two major operators, iRokoTV and Jumia Nigeria. iRoko, it was gathered, last month fired  its Vice President of distribution, Lead of Partnerships, Lead of Offline, Lead of YouTube, its CTO and its engineering lead, the telesales team and content operations.

Technology news platform, Techmoran had reported that hundreds of jobs were cut by the Nollywood content provider quietly as the firm strategized to move into profitability, cut down its operational costs and shift base to London. In a similar move, Nigeria’s online retailer, Jumia on October 16 sacked over 300 of its staff in a bid to cut operational costs.

The management of Jumia was quoted by one of the affected staff as saying that “things have become rough for the company because the economy is no longer favourable to them.” The management had said “there was need for the company to reduce operational costs because the business model which Jumia operates needs readjusting.” It was also gathered that part of cost cutting measures by the online retailer included some retained staff taking a salary cut of at least 20 per cent.

Investigations showed that over all; an estimated 500 jobs have been lost in the sector over the last three months. The operators who spoke to Vanguard attributed the continued decline in growth to decline in disposable income and several other factors including the devaluation of the Naira and lack of economic policy direction of the new government, six months after it was inaugurated. The impact however varies based on the sector which an e-commerce firm operates in.

Immediate past Managing Director of Nigeria’s online real estate marketplace,, Obi Ejimofo told Financial Vanguard that the economic impact differs from sector to sector. He noted that while disposable income continues to play a significant role on the fortunes of e-commerce, the real estate sector has suffered significant decline since after the elections and upon further devaluation of the Naira.

He however noted that “the decline in online visits and demand for real estate were mostly recorded in high value end of the market while the low to middle class rental market continues to show strong growth.” Investigations have also shown that the online vehicle marketplace has also seen some traffic decline resulting from the general bad economic tone and the Federal Government’s increase in tariff for imported vehicles.

Growth remains resilient

But inspite of these trends,som operators who spoke to vanguard maintians that growth in the sector will improve as soon as the state of the general economy begins to improve. Osamede  Evbakhavbokun,  who is the  Director of online marketplace,, said inspite of the current realities, he  does not think that it is a proof of any threat to the growth of e-commerce.

He said: “What is happening, in my opinion, does not mean that the growth seen in e-commerce is dwindling. What is key to note however, is that the volume of sales today is commensurate to the level of disposable income in the hands of our consumers. We must understand that the reason for this growth is that consumers see great value using e-commerce as a channel for shopping.

It is also important to note that as disposable income goes up, then sales will go up. If it goes down, then sales will come down as well. This means that companies have to have proper cash flow forecasting done and optimize their costs in line with their projections and market realities.”

He however added: “The Central Bank Nigeria has forecasted a possible recession in the economy in 2016 and if that happens, rightly so, there will be massive down-sizing so that companies can stay alive to offer same value to consumers. In any case, over bloated companies will begin to look for other possible sources of generating revenue or better optimize existing staff strengths for optimal results and if results are not coming the way they expect, they will have to down-size.”

In the same vein, Chief Executive Officer of, Mark Essien said the hotels and travels sector continues to witness strong growth despite what is happening with the general economy.

He said:   “The space for online travel agencies is markedly different compared to that for other e-commerce space. We have an upward projection, and even if we experience a subdued spurt, we have never flat-lined. Every day, the work we do ensures that fresh people know about our service offering, which means that we meet new customers every day. We are adding new customers to our already established returning customer base.”

Why companies are downsizing

Essien said: “Technology in Nigeria is in its nascent stage and what some of these companies are experiencing are characteristics of this stage of their growth. A lot of work has to go into actually expanding and re-orienting the market and during this growth phase, some businesses would experience a break-even flat-line that will go upwards as soon as the legacy systems have been firmly established. In that short lull phase, a lot of restructuring will happen, and when companies move their weight around, a few people tend to fall off.”

He added: “As a counterintuitive as this would seem, this is an indication of growth in the sector. This year, market share expanded incrementally and so did competition – two indicators of the increasing value of this sector. As a result of this more robust setup, companies that have been experiencing an unbridled growth phase are shifting into a leaner approach.”

Also speaking, immediate past Managing Director, Jovago Nigeria, Marek Zmyslowski said: “What happened to the general economy had to affect the e-commerce sector. First we had some slow down before the election because everyone was waiting to see what would happen and once the election happened, everyone was waiting for what the new president would do. This is taking some time and there are still changes and decisions that people are waiting for and I think this affects the economy as a whole.”

He however pointed out that the prevailing economic condition affecting the entire economy does not mean that the opportunity is diminishing. Instead, he said, those venturing into e-commerce should understand that it requires long term investment and that even though harsh economic conditions may affect it, it will continue to show strong growth.

According to him, “I would not say that what is happening makes e-commerce shrink because e-commerce will still grow even if the economy is shrinking. I would say that in the long term, it won’t affect because it is not a short term business. People do not come to do business in Nigeria and hope to cash out in six months.

This is not possible. If you are doing business in Nigeria, you are only doing it in the long term, especially in online sector. People build companies in online sector because they see the huge potential and although the market is very small but they imagine where the market will be once they educate the market, and there is electricity and internet becomes cheaper.”

On the downsizing by some operators, he said: “When a start-up announces a layoff, it’s a different situation compared to when a coal mine that has been in the market for twenty years.”

This is because when you come back to the definition of start-up, it is a company that is not profitable yet, that is still trying to figure out if the business model is working or the business model at this particular market is working. This is because it is either you are coming to the market with a crazy idea and you are trying to find out if it is going to work or not or you go with a business model that is already working in other market but you do not know how to tweak it. So when a start-up downsizes, it is not because the economy is going down.

The start-up is probably restructuring because they need to rethink their business model.” This experimentation that characterises technology start-ups was echoed by the iRokoTV Founder, Jason Njoku who said:   “iROKO is one big experiment. That’s the very notion of a start-up. Sometimes those experiments don’t work out. But that’s not abnormal iROKO is no different. We grow teams, on occasions we have  to say goodbye.”

But one of the downsized staff of an online company who did not want her name in print lamented that, “The challenge with this is that while the start-ups depend on these experimentations to survive, the means by which this downsizing is carried always looks inconsiderate and in most occasions do not take into account the fact of job security and infringement on labour laws.”

E-commerce debuted in Nigeria in 2012, with the launch of online retailer, Since then, e-commerce has grown into a formidable force, growing at over 200 per cent per annum and attracting over N200 billion in foreign direct investments, according to recent statistics. It has seen the emergence of strong brands like including other emerging brands in online retails, classifieds, hotels and travels creating a trend of almost every service online driven especially by increasing penetration of broadband and mobile technology in the country.

These virtual companies have created thousands of jobs within a few years but the prevailing economic realities means that not only are these jobs threatened, the much needed FDIs already attracted and continues to be attracted through the sector are also under threat.