eCommerce in India is booming. 20 marketplaces in India have reached $1bn or more in sales, per a recent Forbes article, and the total eCommerce market size was around US$100bn last year - the 8th largest in the world. According to Statista, the total DTC market alone in India is projected to grow to US$100bn in 2025 (the US DTC market was around $100-125bn last year).
Many large African markets, like Nigeria, share some commonalities with India. Nigeria emerged from British colonial rule in the 20th century and is facing persistent inequality. Both countries have high percentages of young people in the working population. Both are also growing fast - Nigeria is projected to be the world’s 8th largest population by 2050. And both Nigeria and India are switching to cashless payments - Nigerians go cashless for 37% of payments, while 42% of Indians have switched to digital payments.
But, Nigeria’s eCommerce market is projected to reach just US$9bn in 2023. That means each Nigerian person is spending a little less than 2/3 online than an Indian person.
I have a couple of hypotheses about what’s going on here:
- Nigeria is getting much less VC funding. Africa accounts for just 1% of global VC funding. Nigeria makes up a large portion of that, with US~$794mn raised in 2021 (likely close to $1bn in 2022). India, though, received ~US$35bn in 2021 - over 5% of total global investment. While VC investment in India fell significantly in 2022, the amount invested per capita is still significantly higher than the whole African continent. Why is this the case? I think that needs another post, but I believe general economic outlook and ease of doing business play a big part.
- India has more (employed and employable) tech talent. India is producing millions of STEM graduates per year. Nigeria produces a fraction of this in total, but roughly 0.2% of the country graduates from higher education per year - so not very dissimilar.
- India manufactures more - and has China closeby. Both India and Nigeria make a significant portion of their GDP through manufacturing - 14 and 15% each, respectively. However, that’s a lot more in $ terms for India. And India is right next to China, the biggest manufacturing country in the world. Nigeria, by contrast, is the biggest manufacturer of it’s type on the continent (followed closely by Egypt, but without many other large players), and relatively far away from the hubs of Asia. The types of products that typically work well on eCommerce (electronics, specialty apparel, accessories, etc.) can be imported cheaper to India, which makes margins more favorable to cover the cost of eCom operations.
- Logistics are a challenge in India and Nigeria - but India is is investing more into the problem. Large distances between major cities, electricity issues, lack of internet connectivity, preference for cash-on-delivery, poor road infrastructure, lack of formal addressing systems - these are all significant challenges in Nigeria and India. However, India’s government has a number of task forces specifically working to bolster the growth in the eCommerce industry - looking at digital payments, hyper-local delivery infrastructure, and getting more merchants online. As far as I can tell, Nigeria (and most other African countries, even South Africa - which is perceived to be more developed) has no such initiatives in place (if I’m wrong here - and that would be awesome! - please let me know).
What’s probably more important is how many of these are and have been employed. India’s youth unemployment has been hovering around 22% for the last several years. Last year, it shot up to 28%. This is bad, but compare to Nigeria, where 35% of people between 18 - 34 are unemployed (and a further 28% of that age bracket is “underemployed” - working 20 - 39 hours per week).
When I graduated, I sure as hell didn’t know how to run a business, let alone start one from the ground up. It takes years of employment for most people to learn the ropes. High youth unemployment means that many talented people in tech aren’t prepared to start and run companies, especially complex businesses like eCommerce ones.
A prediction on what the future holds
Some voices in the industry are noticing a shift towards B2B eCommerce in Africa. Investors and operators are realizing that it’s easier to serve local retail stores or informal retailers who themselves serve hundreds of customers. Aggregate the demand and cut out the middlemen, and you can drastically improve order volumes (improving margins), create scalable delivery infrastructure (since you have fewer customers to deliver to) while creating a low-cost solution that gives customers and end-users what they want (cheap products, always in supply).
I think we’re going to be hearing a lot more about B2B eCommerce in African markets in the next few years, while marketplaces and DTC brands continue to face significant growth hurdles. This could be the next frontier for retail on the continent and be the key to unlocking a nimble eCommerce infrastructure that improves access to goods at a lower cost for customers.