Social commerce in Nigeria: The present challenges and unlocking potential

BY TOLU RAJI

The future of global retail is online, and Nigeria’s retail landscape is no exception. One notable trend that emerged during the extraordinary time of the COVID-19 pandemic was the remarkable rise in social media use. This increase greatly impacted the e-commerce industry. Statista data shows that the number of online shoppers in Nigeria jumped by 44%, from 53 million to 77 million people, between 2017 and 2019. These trends have played the most significant role in the rapid growth of social commerce.

Fortunately, social commerce has lowered the barriers to entry for aspiring business owners worldwide, bringing sellers closer to buyers than ever before. I can hardly scroll through Instagram without coming across a post or two from unfamiliar accounts advertising products ranging from fashion items to cooked meals and household goods. This trend has led to an explosion of small and medium enterprises (SMEs) in Nigeria. This is a welcome development, as we know SMEs are crucial for driving job creation, innovation, and economic development in any growing economy. However, in Nigeria’s unique economic landscape, this opportunity has not made business any less challenging compared to traditional brick-and-mortar establishments.

Some of the challenges that face the average social commerce business are:

Trust Issues

One of the most significant challenges facing both buyers and sellers in the Nigerian social commerce space, is low trust. The average buyer’s general confidence in craftsmanship is low. A trend that has become quite popular amongst social commerce buyers is receiving items that are different from what is advertised, a concept that has come to be comically tagged “what I ordered vs what I got”. While this phenomenon, as most Nigerian failings, has become a sort of joke among social commerce buyers, and social media users at large, the cost of this low trust to transactions is high, both in the psychological sense, where buyers often feel compelled to seek additional evidence or personal references before rest-assuredly making online purchases, even then uncertain that they will receive the promised product; and in the financial sense where this low trust necessitates additional resources; for instance, buyers needing to physically visit a furniture workshop multiple times to ensure that a job is being done correctly.

Nigeria’s characterization as a low-trust society, is not without reason. According to a World Trust Survey, 85% of Nigerians surveyed responded “No” to the question “Would you say that most people can be trusted?”. How does this affect social commerce? Renowned economist Kenneth Arrow argues that “virtually every commercial transaction has within itself an element of trust.” Trust in a transaction is the belief that the other participant is acting in one’s best interest. The trust deficit in Nigerian society makes social commerce more difficult than in regions where social trust is less of an issue.

Consumer (and Seller) Protection

There is a lack of regulatory bodies to report issues that arise during online transactions. In my experience, the entire purchase process in social commerce typically occurs through direct messaging. Payment methods are often simple bank transfers or cash payments, which pose risks for both buyers and sellers.

In a nation where the rule of law doesn’t readily protect the average person against transgressions by the wealthy, it is no surprise that many individuals are cautious about entrusting their hard-earned money to online business owners.

Infrastructural Deficits

While the initial stages of social commerce transactions occur online, the completion of these exchanges relies heavily on existing logistical infrastructures. It’s well-known that many of Nigeria’s roads are poorly maintained, posing great risks to safety. This infrastructural deficiency also leads to increased costs for goods and services, making exports uncompetitive. The inability to transport goods and people affordably drives up prices for online purchases as well.

Another infrastructural shortcoming is the lack of a reliable, efficient state-owned logistics carrier. Although private sector companies have stepped up to fill this gap, the lack of price control on their services is concerning. The Nigerian Postal Service has not been able to meet standards necessary to provide viable, cost-effective logistics solutions, allowing private providers to dominate the space.

Consequently, many SMEs engaged in social commerce must develop their own logistics solutions. This necessity not only raises their operating costs but also diminishes their ability to compete effectively with businesses in better-supported regions that can capitalize on economies of scale.

A Bright Future?

Does this mean that the future of social commerce in Nigeria is doomed? Not at all. In any landscape where challenges exist, there lies room for innovation.

Trade-related policies are a key component of Nigeria’s economic growth strategies as expressed in its “Agenda 2050”, a road map put in place by the Ministry of Budget and Economic Planning highlighting the nations strategies for accelerated, sustained and broad-based growth and development. Some of the key points in this agenda include developing the domestic market, and facilitating trade.

Forecasts indicate that Nigeria’s social commerce industry is expected to grow by 38.3% year-on-year, reaching a gross merchandise value (GMV) of approximately US$6.03 billion by 2029. As the country continues to seek ways to diversify its GDP away from reliance on oil and gas sector revenues, social commerce presents a prime opportunity to contribute to GDP growth. Given this economic potential and its early stage of development, the government can benefit from implementing structures that support both players in the industry and the broader economy.

In Nigeria, the prevalent means of initiating social commerce transactions is direct messaging the seller, often requiring exchange of a lot of messages before eventual purchase. In contrast, buyers in other parts of the world can purchase items from social commerce stores with just a few clicks, minimizing their interaction with sellers. This convenience makes social buying more appealing to customers looking for a quick purchase. While larger Nigerian e-commerce sites offer these simplified transactions, smaller social commerce stores on social platforms like WhatsApp, Facebook, or Instagram often do not have this level of convenience. This represents a potential area for innovation within the private sector.

On the part of society, for the social commerce industry to continue to flourish and work efficiently, social trust must be increased, this can only be built gradually and requires a reworking of the Nigerian consciousness, as over time our culture has become one of distrust. Rebuilding social trust will require Nigerians to pledge to Nigeria and fellow Nigerians to truthfully and in practice be faithful, loyal and honest.

Tolu Raji, founder of Fancy Tokens, writes from Nigeria