The Nigerian market has scared Naspers away, again

The African technology space has been greeted by two shocking major developments this week – the acquisition of pioneering e-commerce player and now, the abrupt closure of OLX’s offices in Nigeria and Kenya.

Employees of the classifieds sites leaked information on Tuesday that they were informed of their immediate employment termination that morning.

OLX Asia, Middle East and Africa CEO Sjoerd Nikkelen has also confirmed the development. In fact, OLX Nigeria’s twenty-something employees have already been offered “meaningful financial and other support” as compensation, according to Njoerd.

Naspers made heavy investments in both Konga and OLX with hopes of winning the Nigerian market. So far, $91.2 million of the South African investor’s funds have gone into betting on Konga and the Nigerian market. According to competitors, OLX runs on a budget of at least $2 million per year, each in Nigeria and Kenya. However, after five years of operating, the portfolio companies have not attained expected results.

By 2016, Konga had managed to acquire only 186,000 users out of Nigeria’s 180 million market. The company was plagued by a harsh economic environment, low technology adoption and a terrible local currency devaluation that plummeted its valuation and skyrocketed operational cost. Sim Shagaya the founder of Konga was fired as the chief executive and in December the business pivoted to a classifieds model to cut operational and logistical costs accompanying e-commerce businesses. But it was all to no avail. By January, investors Kinnevik and Naspers had counted their losses and offloaded Konga to Zinox Technologies, a Nigerian OEM.

Though the OLX team has successfully built a household name in Nigeria, the high cost of operation without accompanying revenue has not impressed Naspers. A close source who did not want to be named shared OLX Nigeria marketing expenses between 2016 and 2017 reached N500 million ($1.4 million). Yet, OLX Kenya with way more site visits and earnings made only $197,000 within the time frame.

This is not Naspers’ first attempt at the Nigerian internet business market. In February 2010, Naspers MIH established the Nigerian subsidiary of its successful South Africa-based general merchandise online store, Unfortunately, it shutdown the business the following year due to poor patronage and “unforeseeable profit in the near future”, according to an official statement. In 2011, it launched business directory platform and deals site in Nigeria, spending, reportedly, $1 million per year, running each. By¬†February 2013, it pulled the plug on the sites citing similar reasons.