Business Marketing

What Is The Size of the Nigerian Market?

Photo Credit: Bayo Omoboriowo

This article is an attempt to understand how many people are able and willing, or have the creditworthiness to pay for the products being developed for Nigerians. In another way, we want to know how many people can a company realistically target in Nigeria. What is the size of the Nigerian market?

What is total addressable market (TAM)?

Toptal says TAM “represents the entire revenue opportunity that exists within a market for a product or service.” It helps to shed light on the amount of funding and effort required by a business to conquer its market.

The Nigerian Population Is The Curse Of Nigerian Businesses

The United Nations world projection of 2017 estimates the Nigerian population to be 186 million and The World Bank Group says 190.9 million. Going by these numbers, the country’s population accounts for about 2.35% of the entire earth’s population.  “… 1 out of every 7 black people on the planet is a Nigerian.” Tim Urban reported for Wait But Why in 2014 during his visit to the country.

Business executives and government cite these numbers when pitching to investors about potential customers to be reached. “There is strength in numbers.” The Ogun State Commissioner for Education, Science and Technology, Mrs Modupe Mujota‎, once said when talking to investors about the impact of poultry farming in her state. She used it to reference the potential of selling farm produce to more than 180 million people across the country.

These numbers become more interesting when you realise that 45.7% of the population are kids 15 and under. This is according to the CIA World Factbook of January, 2019. That is 86 million people are not eligible to work and do not contribute to the GDP of the nation. This is excluding those who have retired , aged 65 and above, adding them (3.26%) means half of population are by nature economically unproductive.

We are down to a range of 90 to 95 million people. When businesses are looking for paying customers, these are the people we expect them to be targeting.  To remain consistent, let’s use the lower bound. Having 90 million people add value to the economy of a nation should create good purchasing power and increase the standard of living. At this ratio, it would mean that every working Nigerian has at most 2 persons they cater for, may be their child and a surviving parent. This is good for businesses because it then means the working Nigerian has discretionary cash to play with.

But this is not the case. The CIA’s World Factbook says the nations labour force as at 2017 is 60.08 million. Majority (70%) of this labour force work in the agricultural industry. One wonders what the remaining 30 million adults are doing?

The report also states the nation’s dependency ratio stands at 88.2 percent, just below Afghanistan (population: 35.53 million, dependency ratio:88.8) and above São Tomé and Príncipe (population:204,327, dependency ratio: 86.7). Among top 15 most populous countries in the world, Nigeria has the highest dependency ratio with Ethiopia (population: 103 million, dependency ratio: 82.1) coming second.

What does 88.2% dependency ratio mean for Nigeria?

The dependency ratio (d.r.) is the ratio of persons of non working age to persons of working age; it is a tool used to measure pressure on the productive population.

We have established that 60.08 million (32.3% of the population) are economically productive to the nation. Let’s now see how these working class spend their money.

A high d.r. means the government will have to tax more. It also means there will be lower benefits for the elderly; the pensions will be smaller and inconsistent so pensioners will be dependent.

Considering that the “average household size is 5.9 and 4.9 persons in rural and urban areas, respectively”  based on the official data released by the Nigerian National Bureau of Statistics, it means this nation’s labour force has to contend with a lot of familial and societal responsibilities also known as black-tax.

In a country where access-to-credit is almost non-existent (even for SMEs), providing constant electricity, education, housing, and health care packages for your family causes strain on your income. After all the bills are settled, if they can settle it, there is little left for discretionary purchases.

Don’t fidget then when I tell you that the non-working population (~70% as explained above), those who are not part of the labour force, are living below poverty line. This is the figure reported by the World Factbook. These non-workers are dependent on someone whose pay is usually limited. And since the working individual has little liquidity to throw around, the dependents all live in poverty. The points to the reality that if the person(s) supporting the family isn’t financially buoyant, then that family is poor. Really poor.

The labour force is cash based

You may be thinking, “What do I care? I have 60 million people to target and that’s still okay.” But you’re forgetting something. 70% of the labour force work in the agricultural and local commerce sector, so you must understand that most of them receive their remuneration by cash. Yes, Nigeria as at 2019 has a cash based economy. Except you run an agent-network, specifically brick and mortar stores, or a pyramidal networking model, you can not target this cash based economy. This is the model that has worked successfully for the betting industry and the popular MMM.

Through the Nigerian Inter Bank Settlement System (NIBSS), we know also that only 36 million unique individuals have registered for their BVN as at January, 2019. It means if you want to run an internet company in Nigeria, these are the people accessible by you. They are the people to circle on. Because they are the ones you can charge, through their bank accounts, for the services you provide. It is among these bank account owners that we have people who conduct transactions on e-commerce stores.

So you see, there is a divide in the labour force: those who have bank accounts and those who don’t. This is the first glimpse at the market. You must understand that those who don’t own bank accounts have cash, they just won’t give you some of it if your business doesn’t go to their community.

Whom do you want to target?

How much is the labour force earning?

How much is the average Nigerian earning that will allow him take care of 5 people, pay heavy tax to the government and still have enough left to buy the product you are selling?

The World Factbook 2017 classified Nigeria as a lower income earning country. In January 2019 the minimum wage of the country increased by 73.3% to 27,000 NGN ($74.28). The majority of Nigerians earn around this figure.

Only 4% and 1% of the population are earning above 70, 000 NGN ($192.57) and 150, 000 NGN ($412.67) monthly, respectively. The financially stable Nigerians are those in this 4%. But imagine when Ngozi Dozie co-founder and CFO of Paylater, a credit financing company with over 1 million downloads on the Google Play Store,  says “only 2% of people have taken a loan in Nigeria.” That is approximately 3.75 million individuals. The reason why they get loan is because the financial crediting company must have examined them and rate them credit-worthy. It means they have stable income over a certain period of time. Also, it means they have strong collaterals to fall-on in case of default.Are these the people that are able and willing to pay for services. Are these the people that companies, for example consumer internet, should be profiling? Or the market is much smaller than this?

What are we left with?
We are left to wonder where Nigerians are? With the huge population, they seem not to be addressable. The cost of acquiring Nigerians is high. For example, banks and betting companies have to register them offline before selling digital services to them online.

In July 2016, Kinnevik released an annual report of Konga in which they were reported to have registered 184,000 customers. This is after 4 years in operation. That is around 0.1% of Nigerians who are willing and able to buy or sell online. And the cost-of-acquisition per customer was as high as $424.

These numbers are close. Those trading online are those with cards which is actual addressable market for anyone who will like to collect payment online.

In the same report, Ope Adeoye, former product manager at Interswitch, was reported to have said there were only 200,000 active cards in Nigeria. This is number of bank account holders who are actually using their card online. That is 0.005% of the 36 million people with BVN.

When we asked Ope in January 2019 what he thinks, he said “Across all major services – Airlines, Jumia, Konga, Quickteller, 200k cards were ever seen online. It grew to about 350k before I left ISW [Interswitch]… Not sure what it is now. But [number] can’t be far.”

*In  a follow up report we will tell you where these people are. And how you can reach them.