Burgeoning African E-commerce Industry Full of Opportunity

Africa has seen huge change since 2000 in the way people access information and do business electronically. The most championed accomplishment has been the widespread take-up of mobile phones. This has given birth to countless entrepreneurs and innovators who are using  phones to help people, do business and sell goods and services.

Not as quick to spread, mostly because of high cost and poor infrastructure, is access to the Internet. While Web access is taken for granted in many wealthy countries and is increasingly commonplace in many developing nations, Africa as a whole still suffers from poor infrastructure for access to the Internet. But this is changing by the month as  more undersea cables connect countries and bandwidth is increased (http://www.submarinecablemap.com/).

Africa’s population can be expected to at least double from 1.1 billion to about 2.3 billion by 2050 – and most will live in urban areas (Population Reference Bureau).

And incomes are rising. Africa is richer than India on the basis of gross national income (GNI) per capita, and a dozen African countries have a higher GNI per capita than China (Africa Rising).

According to the McKinsey Global Institute, “The incomes of these new consuming classes are rising even faster than the number of individuals in the consuming classes. This means that many products and services are hitting take-off points at which their consumption rises swiftly and steeply. By 2025 urban consumers are likely to inject around (US) $20 trillion a year in additional spending into the world economy.”

Research firm Jana (jana.com) – which specializes in emerging markets – studied the consumer preferences of people in Nigeria, Kenya and South Africa. They surveyed 600 consumers in each country, seeking to unearth what their preferences were when it came to using e-commerce services (https://en.wikipedia.org/wiki/E-commerce). E-commerce is the buying and selling of products and services over electronic systems such as the Internet and other computer-enabled systems. This is still a young industry in Africa and one ripe with opportunity for hardworking and innovative players. Many are starting to realize they had better move fast because this is a market that still has much up for grabs and is not – yet – dominated by mature players such as eBay or Amazon.

The survey uncovered five trends driving e-commerce in Africa. These trends address the unique conditions present in Africa and what challenges need to be met.

The first trend the firm identified is cash on delivery. This has become the main way people do e-commerce in Africa because of the lack of trust in the security of online payments. Cash is still king in the region. The second trend is having a proprietary logistics network. This comes in response to the poor infrastructure present in much of Africa. This has meant e-commerce companies need to take charge of the whole process of getting a good to the customer’s home. This is, of course, costly and places a big restraint on any new company in the e-commerce market.

The third big trend is one that reflects the reality of how people communicate electronically in Africa. Mobile phones are king, and this means e-commerce needs to be mobile phone-friendly or lose out on reaching many customers. The fourth trend is related to the fact Africa is still off the logistics route for much world trade. This means e-commerce companies need to set aside space for large warehouses to store the goods so that they are on hand when the customer wants them.

And, finally, the fifth trend is the importance of good customer service as the clincher for success in the marketplace. Word of mouth gets around if a company is not able to deliver on what is promised so it is important to have high-quality customer service to build trust, keep engaged with consumers and let them know problems are being resolved.

South Africa has emerged as the continent’s powerhouse when it comes to e-commerce, according to Jana. Successful players in that country include Zando (http://www.zando.co.za/) an online fashion store by Rocket Internet, MIH Internet Africa’s Kalahari online store (http://www.kalahari.com/) and entertainment and consumer electronics online store Takealot.com supported by Tiger Global. Research firm World Wide Worx (http://www.worldwideworx.com/) calculated that online retail in South Africa is growing by 30 per cent a year.

But South Africa cannot rest on its laurels: the survey found Nigeria is fast overtaking South Africa as its large population takes to the Internet. Impressively, Nigeria’s Government has pledged to expand broadband Internet access to 80 per cent of the country over the next five years.

In East Africa, Kenya’s Rocket Internet’s service Jumia (http://www.jumia.co.ke/) is now one of the top 100 online destinations in the country.

Jana also found there were various key areas for improvement for the e-commerce industry in Africa. One, was the importance of explaining to African consumers the basics of online shopping. Many respondents to the survey seemed confused about making purchases on the Internet and through e-commerce. They also showed low levels of understanding about payment methods and available financial products. And finally, one of the big obstacles to expanding the industry is improving delivery reliability.

But all these problems and challenges spell opportunity for innovators who can solve them and make some money too!

By David South, Development Challenges, South-South Solutions

Published: July 2013

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

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