It was not the first unsolicited email I’d received from Nigeria but the first I considered answering.
“I’m running an e-commerce company here in Nigeria. How can we see your film about Alibaba here in Lagos?” wrote the stranger.
“It’s not available there now, but if you cover my travel expenses, I’ll fly over and do a screening with a Q&A,” I responded.
“Really? We can do that. I’ll put you in touch with my team to work out the details.”
When the initial excitement of traveling to a new country wore off, I felt slightly uneasy, not sure what I’d signed up for. Like many people, my only digital contact with Nigeria up to this point had been requests to hand over my life savings to the family member of a deceased Nigerian prince in exchange for the deed to a gold mine. Was this email from Lagos for real? Or was it a complicated scam?
After some quick Googling, I was pleased to learn that, no, this was not a scammer in a Lagos Internet cafe. It was Sim Shagaya, founder and CEO of Konga.com. I’d never heard of Konga, so I reached out to a friend who was connected with Sim on LinkedIn.
“Yes. Sim is a superstar,” my friend said. “Really good guy—humble, super smart, driven, great reputation. We were classmates at Harvard Business School. His vision is to build his company Konga into Amazon for Africa.”
A few months later I was boarding a plane from Houston to Lagos. The flight was packed with US oil executives visiting their Nigerian operations and Nigerian expats headed home to their families, with bags of American swag crammed in the overhead bins.
As we flew into Murtala Muhammed International Airport, we passed over the urban sprawl of Lagos, mostly one-story structures with patched tin roofs and intersecting dusty dirt roads, their red sand kicked up by yellow minibuses and motorcycles. As I disembarked the plane, a man with a Konga sign greeted me at the gate. He walked me to the immigration desks, where Nigeria’s infamous corruption was immediately in evidence. While others waited in a long line, my escort walked me up to one desk, talked to the man there, and got me through. My companion turned out to be an agent whose main job is to whisk people through the line. Within the immigration area there were a number of such agents who helped people through the line, undoubtedly providing kickbacks to the immigration officers (other visitors I spoke to during the trip reported frequent shakedowns for bribes from the immigration officers when they entered without such escorts).
Outside immigration, my escort handed me off to the driver who had come to pick me up. As the sun was beginning to set, we drove down the highway past flaming piles of trash. Nigeria appeared to be a classic developing country, where everyone is an entrepreneur—I saw row after row of small, makeshift mom-and-pop shops, and men selling bottles of water, snacks, and trinkets to cars at stoplights. At major intersections stood police with AK-47s.
In its explicit poverty, Nigeria was much like India. Nowhere was this poverty more apparent than the Third Mainland Bridge, which hovers above the Makoko slum, an informal settlement of thousands of stilted shacks in the Lagos Lagoon. Residents paddle through canals and waterways to sell items from their dugout canoes in one of the world’s largest floating cities, not unlike what I knew from the canals of Bangkok. On the edge of the lagoon, children pick through a giant, smoking trash heap.
This is the legacy of colonialism: a country with ineffective institutions. With an export economy 95 percent dependent on oil, Nigeria has suffered the so-called curse of resources, widespread corruption.
This corruption infiltrates all areas of life, making one of the key building blocks of e-commerce—trust—harder to achieve than in perhaps any other region of the world. I first encountered this while managing the website operations of Alibaba.com. The scams coming from Nigeria were so constant and voluminous that we briefly considered banning Nigerians from membership altogether before dismissing the idea as unfair.
But Nigeria’s corruption goes beyond phishing. In his 2007 book A Culture of Corruption: Everyday Deception and Popular Discontent in Nigeria, Daniel Jordan Smith describes students bribing teachers, police extorting bribes at checkpoints, charlatans scamming patients with fake drugs, wives conning husbands, and gangs of youth shaking down minibus drivers. It’s not uncommon to see THIS PROPERTY NOT FOR SALE painted on the outside of buildings, because Nigeria has a long tradition of people selling real estate that is not actually on the market.
Yet despite the struggles of day-to-day life, Nigerians consistently top worldwide polls for happiness and optimism. In just a few hours on the ground there, you can feel the abundant laughter and smiles, and the outside perceptions of Nigeria give way to a much warmer and happier reality. And in early 2014 this optimism took firm root in e-commerce, which had attracted hundreds of millions of dollars of investment after years of being ignored. Was Africa, and Nigeria in particular, on the verge of an e-commerce golden era?
If there was going to be a boom, Nigeria was the logical place. With 173 million people, Nigeria is Africa’s most populous country and by some definitions has the largest economy in Africa, surpassing South Africa’s. As the headquarters of the Economic Community of West African States, it is also the gateway to a trading bloc of fifteen countries, from Benin to Togo, with a population of 340 million people.
The popularity of mobile Internet increased the percentage of Nigerians online from 20 percent in 2009 to 41 percent in 2014. The middle class was growing fast, and it had a taste for international brands. With all the foreign investment, e-commerce in Nigeria was on the verge of surpassing $500 million in 2014—a low figure, but a sign of life.
Perhaps more important was the striking lack of organized physical retail: 98 percent of retail sales in Nigeria and Cameroon occur in small, local, and informal outlets and mom-and-pop shops. The figures are 96 percent in Ghana and 70 percent in Kenya. (As with many things, South Africa is an anomaly, with 60 percent of total retail sales occurring in formal retail shops.) Throughout the continent, 90 percent of the $823 billion in annual transactions in Africa are made through informal channels.1
And the organized retail that does exist leaves much to be desired. One of the malls most popular with the elites of Lagos, the Palms Shopping Center, is falling apart and takes an hour to reach by waiting in traffic on a small two-lane road. Although South African grocery chains are beginning to make some inroads in Nigeria, poor roads and infrastructure have hampered their growth.
My first conversation with Stanley, the driver I’d been assigned, made it clear that Nigeria was ready for e-commerce. When he found out I’d previously worked at Alibaba, he pointed at his jeans and said, “Really? I bought these jeans on AliExpress.”
He’d had them sent from China to Nigeria? Why? I asked. Aren’t lots of jeans available here in Lagos?
“Yes, but these are much cheaper,” he told me. “I had to wait a few weeks but they arrived and are fine. I even bought a computer on AliExpress. Unfortunately, the guys cheated me. But AliExpress gave me my money back.” He seemed unfazed. Stanley was even beginning to think about starting his own business, exporting kola nuts online. He asked for my advice, and although I’d never been in the market for kola nuts, I encouraged him.
When I arrived at the Southern Sun hotel, it was clear that the economy was booming. Located on the island of Ikoyi, on the more foreign and elite side of Lagos, Southern Sun was an average hotel by international standards. The hallways were dilapidated and rooms small. Yet the rate was more than $500 per night, driven up by a recent surge of investors visiting the city. And with Boko Haram raging in the countryside, it was comforting to know that two guards toting AK-47s stood outside the main gate.
As I was plugging in my computer, the power went out. Not just in the hotel but in the whole city. The lights flicked on and off all night long, which begged the question: Is it possible to run an e-commerce company without the e?
But that hadn’t stopped African entrepreneurs from trying. One of the earliest e-commerce companies, which survives to this day, is the South African auction marketplace Bidorbuy. The company was founded in 1999 and, like so many e-commerce companies of the time, was modeled on eBay. Andy Higgins, the founder, was living in London and helping to roll out several auction sites in Europe when he was contacted by investors eager to start an eBay for Africa in his native South Africa. He did and soon expanded his marketplace internationally, creating a series of marketplaces from Australia to India. The dot-com crash brought Bidorbuy back to Earth, forcing Higgins to shut down most of his marketplaces and cut his staff to him and one other person.
Higgins did manage to sell off his India operations to a local competitor, Baazee. And he decided to do the bare minimum to keep Bidorbuy afloat, running the business while pursuing an MBA. The company managed to survive and by 2010 had grown to more than 1.1 million unique visitors a month, with a GMV of $2 million per month.2 Still, even with his surviving foothold and perhaps the best e-commerce opportunity (on paper), e-commerce represented only about 0.59 percent of total retail sales in South Africa in 2014.3
Far up the coast from South Africa was one of the continent’s most celebrated success stories, Kenya. With the fourth-largest economy in sub-Saharan Africa and a population of 44 million people, Kenya is often touted as the third-most-attractive e-commerce market in sub-Saharan Africa, behind Nigeria and South Africa. Its most remarkable contribution to e-commerce on the continent is the payment system pioneered by M-Pesa.
Safaricom, Kenya’s largest mobile network operator, started M-Pesa in 2007 as a way to allow small entrepreneurs to repay their microfinance loans by phone. By 2013 two thirds of the country’s adult population was using it, with transaction volumes equaling 25 percent of Kenya’s GNP.4 The service was so successful that it quickly expanded beyond loan repayments to become a mobile payment platform. Users fund their accounts and make withdrawals by visiting Safaricom’s more than forty thousand agents. Its growth accelerated when elections turned violent in 2008 and Kenyans became skeptical of banks; they saw M-Pesa as a secure way to send money to friends and relatives trapped in Nairobi’s slums.
Over time, M-Pesa expanded far beyond mobile money transfers and is evolving into banking services. In cooperation with its banking partners, it now extends loans to individuals and small businesses, using the threat of discontinuing phone service to discourage loan defaults. By 2013 it had accumulated about $50 million in savings and had extended about 300,000 small loans, averaging $12. That was nowhere near the $92 billion that Alibaba raised from people investing in Alipay’s money market savings accounts but a start nonetheless. Based on its success in Africa, Safaricom was taking its model to other emerging markets, including those in India, Tanzania, and Afghanistan. While it faced the challenges all e-payment systems confront—people trying to use them for money laundering and fraud—Safaricom’s success shows that e-commerce in Africa will be mobile. And it is a rare example of an e-payment system that preceded e-retail.
But in terms of financial payout, perhaps the greatest e-commerce success story in Africa belongs to the South African media conglomerate Naspers, known more for its investment in China than in Africa. Founded in 1915 as a publisher and printer of newspapers and magazines, the company grew into a media and pay-TV conglomerate. Naspers has been widely criticized for not opposing—and even occasionally supporting—apartheid in South Africa, a controversy it tried to move beyond in 2015 with an apology.
Naspers’s most famous investment, and the one that has catapulted the company to titan status, was its early investment in Tencent. In a deal rivaled only by Softbank’s investment in Alibaba, in 2001 Naspers purchased a 46.5 percent stake in Tencent from the Hong Kong tycoon Richard Li for $34 million. After reducing its stake to 34 percent over the years, the value of its investment in 2016 still was about $81 billion, helping make Naspers the largest company in Africa. Naspers has used the proceeds from reducing its stock in Tencent, and its rising status, to do its part to spread e-commerce to other emerging markets. Among its notable investments are India’s Flipkart and the Middle East’s Souq.
Naspers’s own investments in Africa have achieved mixed results. It shut down its first major Nigerian e-commerce company, Kalihari.com.ng, in February 2014 after it failed to take off. Naspers hoped to redeem itself in the region with its investment in Konga.com, and its money helped Konga bring me to Nigeria.
On my second day in Lagos, I visited the Konga offices, based in the Yaba district. The distance from the hotel to Konga should be a ten-minute drive across the bridge from Ikoyi. But with Lagos’s insane traffic, it can take as much as one hour.
Once at the office I met Sim Shagaya for the first time. Sim is tall and charismatic, with a deep voice and a big smile, and he immediately struck me as a born leader. I wasn’t surprised when some influential bloggers in the region began calling him one of the “10 Most Powerful Men in Africa.”
The son of a Nigerian army general, Sim was born in Nigeria and went on to serve in the Nigerian Army after graduating from the Nigerian Military School. He then studied at George Washington University and Dartmouth College before taking an MBA at Harvard Business School.
Sim started his career at the Rand Merchant Bank in South Africa but returned home to head Google in Africa in 2006. He also founded a successful billboard advertising business that he later turned into his first successful e-commerce company, DealDey, which he started in 2011. DealDey was an African Groupon funded by investors in the billboard company. In July 2012 he started Konga.com, for which he followed Amazon’s retail model.
By the time I met Sim, Konga had moved into several stories of offices in a simple, nondescript building in the Yaba district. Inside, the company felt like any start-up in a developing company at this stage—employees crammed behind small desks in a space with plain white walls, because they were growing so quickly that no one had time to decorate or even hire a decorator. A web of tangled extension cords and wires ran across the floor. Outside, neighbors lived in makeshift shanties, cooking and eating outside, and bathing behind enclosures cobbled together from odds and ends of tin and plastic they had found in the neighborhood.
Sim brought me up to speed on Konga. The company had invested in a large warehouse that was full of inventory and was working on modernizing its inventory system. Konga ran its own delivery fleet, vans and motorcycles that could easily weave through traffic jams to make deliveries. While the sales figures were growing, so were the company’s losses, as managing an entire operation from end to end is costly. The company was still trying to figure out which products to purchase and the categories it should carry. And while some fashion items carried high margins, they were also more likely to sit on the shelves.
The costs of running such a model were especially high in Nigeria. For instance, Konga needed generators to keep the website running in the event of a power outage. Although Sim didn’t say so directly, I sensed that Konga was feeling pressure from its investors, Naspers and Kinnevik, the Swedish investment firm, which wanted to see a path to profitability.
The main question at the time was the same one being asked at Lazada in Southeast Asia, Flipkart in India, and Jingdong in China—to what extent should the company try to expand into a marketplace model? And if it did, should it follow Amazon’s example and build a hybrid marketplace/retail model? Or should it be more like Alibaba, a pure digital marketplace?
It is important to note that Konga was not operating in a vacuum. It had significant competition from Jumia, another Rocket Internet e-commerce venture, which started in May 2012, two months before Konga. A mirror image of Linio in Latin America and Lazada in Southeast Asia, Jumia was using Nigeria as its African base to roll out retail operations in more than ten African countries. Jumia was funded with multimillion-dollar investments from Rocket, Konga’s investor Kinnevik, and other investors, making it a formidable foe.
These challenges were on Sim’s mind as we walked to the Ozone Cinema, just a few blocks away, to screen my film for an audience of Konga staff and the start-up community in Lagos. A bit old and rundown, the theater had undoubtedly shown its fair share of the nearly two thousand Nollywood films produced each year on budgets that sometimes are less than $20,000 per movie.
“Pretty much all of the Nigerian tech start-up community is here in this room tonight,” Sim told me as we surveyed the packed theater. “This is the first time we’ve all gotten together.” There was Jason Iroko, who had started his iROKOtv, his own version of Netflix in Nigeria that specialized in home-grown Nollywood films. Heads of travel websites, real estate websites, and Google were there too. It was an honor to address the crowd and exciting to see that the tech start-up revolution was universal and even making inroads in Nigeria, after almost two decades.
When Sim addressed the crowd, the significance of what e-commerce could bring to Africa became clear to me from what he said. “We have a duty to our country, especially from the point of view of commerce,” he said. “Africa has had a very long romance with commerce. Sometimes that commerce has been unholy—slavery. And sometimes it has been great. And for us that mission is to use commerce to redeem this land and get all of us, irrespective of tribe or religion or ethnicity or age, talking to each other and making life a bit better for each other. And I suspect strongly that if I keep thinking about it like this, and my colleagues at Konga keep thinking about it like this in the context of the very long term, then we will be fine.”5
I have to admit that his hopeful message had me rooting for Konga over its German adversary. Call me an idealist, but my travels had convinced me that to build a company with lasting value, it has to have a soul. And Rocket’s cut-and-paste approach, so geared toward pleasing investors, didn’t.
After the screening Sim invited me to spend a few weeks consulting with his team on various projects and providing insights from China as Konga expanded to a marketplace. It meant the company was facing some tough decisions, such as deemphasizing the retail operation it had built and potentially eliminating jobs. But it also meant unleashing the entrepreneurial energy of Nigeria.
Those few weeks at Konga reminded me of the early days of Alibaba back in 2000, when not just a company but an entire new industry was being born in China. On one evening during my stay in Lagos, I spent some time with Sim at his house, where we talked shop while chewing on suya, a spicy meat bought from a nearby street vendor. “I don’t want to just build a company that is simply competing against all other retailers in Nigeria,” he told me. “I want to build something that fundamentally changes this country. We have to build a marketplace.” He took me on a stroll around Banana Island, an expensive enclave for Nigeria’s elites. Sealed off from the rest of Nigeria by several layers of security gates, Banana Island is a large, master-planned neighborhood that guarantees twenty-four-hour security and electricity to the expats, elites, and (often corrupt) government officials residing within its high walls. On our walk we passed the massive estate of Mike Adenuga, a Nigerian oil and telecom executive, who had adorned his compound with statues and fountains. The second-richest person in Africa, Adenuga would later go to war with the residents’ association of Banana Island for the right to name his street Mike Adenuga Street. The stroll through Banana Island showed me just how much had to be done to spread the wealth on the continent.
I left Nigeria optimistic that e-commerce would take root. The quick adoption of mobile phones, combined with a booming economy, was good reason to hope that the country’s e-commerce would follow a path similar to China’s. Investment was beginning to flow in and even tragedies, such as terrorism and Ebola, were accelerating e-commerce adoption, providing an important means of doing business that would otherwise be difficult to pursue.
But this optimism was dampened in subsequent years, when Nigeria once again fell victim to the curse of resources. When oil prices crashed, Nigeria saw its economy fall into recession, and investors began to put even more pressure on the companies they had funded. The government imposed strict currency controls, making it difficult—sometimes nearly impossible—to get money in and out of the country. For e-commerce companies this meant that attempts to import foreign goods to sell online in Nigeria usually foundered. And on top of all of that, Internet penetration in the country actually began to decline, a rarity for any country.
With all the negative headlines about Nigeria’s downhill turn, I was disappointed to read in January 2016 that after meeting with his investors, Sim Shagaya was stepping down as CEO of Konga and taking the more symbolic role of chairman of the company. Sim had become a visible symbol of Africa’s homegrown e-commerce and was an inspiration not only to me but, more important, to the budding Internet entrepreneurs throughout Africa.
I emailed Sim in the hope of learning more about his decision to step down, but he didn’t respond. Friends of his have speculated that the pressures of Nigeria’s economic problems had put Sim and his long-term vision for the company at loggerheads with his investors, who wanted to see a faster path to profitability. Others speculated he had stepped down for more purely personal reasons. Whatever the true reason, I felt Africa had lost a Jack Ma of its own when Sim Shagaya stepped down.
But, of course, e-commerce in the ever-volatile Nigeria had found a way to live on, as it had in other emerging markets that had gone through similar downturns. And e-commerce heads in Nigeria were finding opportunity in crisis. Konga was rolling out its KongaPay, an escrow-based online payment system, as a step toward getting Nigerians to trust each other in an online payment environment. Jumia was setting up “customer adoption centers,” where illiterate shoppers or shoppers without Internet access could have a company representative help them shop. And its JForce sales agents were beginning to go door to door with tablet computers to help others go online. Slowly but surely, they were building an e-commerce infrastructure and overcoming the lack of trust in the country.
Whether it is the heads of Konga or Jumia, or others who follow in their footsteps, entrepreneurs in Africa will eventually build an entirely new commercial infrastructure from scratch. And because it is starting from scratch on such an underdeveloped infrastructure, when it is built, e-commerce may prove even more valuable to Africa than to China and India. As Sim Shagaya has said, “Africa does not lack an abundance of people to buy things, sell things, or move them around. What Africa lacks is a twenty-first-century operating system to make it all work.” It will take entrepreneurs with vision and daring, combined with investors who have patience and a long-term vision, to build this system. But as in China, India, Southeast Asia, and Latin America, this change is coming to Africa sooner than most people think. And it will transform the fortunes of entrepreneurs in e-commerce’s final frontier, as it has already begun to do for e-commerce entrepreneurs around the world.