Global context
The rise of e-commerce has been rapid and can be quantified by the amounts of money changing hands electronically. In 1999, e-commerce transactions among the world’s 300 million Internet users totalled US$ 110 billion. In 2017, global business-to-business (B2B) e-commerce was estimated at about US$ 7.7 trillion, with business-to-consumer (B2C) e-commerce accounting for another US$ 2.3 trillion, according to UNCTAD The growth of e-commerce can also be illustrated by the emergence of global platform providers that serve as the link between sellers and buyers. When Alibaba, the Chinese e-commerce giant, listed on the New York Stock Exchange in 2014, it was initially valued at more than US$ 200 billion, making it one of the 20 biggest companies by market capitalization in the United States and the eventually it had the biggest IPO in history. And of course you’ve probably heard of Jeff Bezos the architect and founder of the monolithic e-commerce giant Amazon which has become the default buying site for just about anything and has made Bezos the richest man in the world.These two companies may be the two biggest in the east and the west but there’s a whole host of giant companies and even knew industries that have been birthed from this 2.7 trillion-dollar market, that still continues to grow. Clearly this is the future of retail, those that don’t adapt are sure to fall, the new world is going to eat the old. And that begs the question, what is Africa doing to take advantage of this global shift or are we about to miss the boat?
Rising e-potential in Africa
E-commerce platforms have emerged as an equalizing force between large and small companies and offer the tantalizing potential for enterprises from Africa to reach profitable segments in international markets. Today’s estimated African population of 1.2 billion represents about 15% of world’s total: this will rise to 1.6 billion by 2025, or around 18% of the world’s total population (Population Reference Bureau, 2013). Many African countries qualify as developing or least developed countries: GNI per capita in Africa at $3,010 (at PPP)… about one quarter of the world average gross national income (GNI). Estimates of e-commerce activity for the continent point to a very low participation in international trade through digital channels. According to eMarketeer (July 2016) the total international B2C trade from the entire Africa and Middle East region represented only about 3.2% of the world’s total in 2016. Hopes are high that African countries and companies will be able to seize the opportunities presented by this gap to enhance their economic fortunes. Frost & Sullivan, an American market research and consulting company, estimates that the African e-commerce market rose from US$ 8 billion in 2013 to US$ 50 billion in 2018 Africa’s e-potential is as yet, untapped. Firstly, only 31.2% of the continent’s 1-billion-plus people are currently connected to the Internet, compared to a global average of about 51.7%. This means there is considerable potential for expansion, assuming that the continent can develop its information society broadly, starting with growth in the number of Internet users and mobile connections. Second, increasing use of the Internet (and related technologies) is typically accompanied by a rise in ecommerce activity, and this is likely to apply to Africa as well. Traditional retailers in the developed world have moved online and have widely accepted the future as e-commerce rather than brick and mortar stores. According to a McKinsey’s Lions go digital report, online shopping could account for up to 10% of retails sales (with a value of around US $75 billion) by 2025, as more Africans gain access to the internet.A third reason for believing that e-commerce will soon start to have a major impact on Africa is the growing number of e-commerce platforms developed from within the continent itself, supported by foreign investment. In 2014, American hedge fund Tiger Global Management invested US$ 100 million in South African online shopping company Takealot. At the same time, Nigeria’s Jumia was valued at nearly US$ 550 million, including a EUR-120 million investment in November 2014 by Rocket Internet, a German-based global ecommerce investment company. The trends I’ve mentioned are not new to Africa. What is new is the convergence and acceleration of these trends.Some of the main objectives of African governments are to eradicate poverty, provide employment and the promotion of trade. E-commerce hits home on all of them, how could you possibly hit those main objectives without Africa participating in global trade?Lets break it down, lets say you live in Ethiopia and you have a small to medium sized farm and you grow and sell flowers, today that small farmer only sells in his town, or at best he manages to arrange a contract with some distributor or larger farm maybe in addis who has the resources to sell their goods abroad, and of course he sells this for a small margin all because he doesn’t have the resources or brand to reach the end consumer himself. This used to work in the past but now that guy has competitors, and his competitors are not just his neighbours, he has to compete with farmers in Brazil, Colombia, Netherlands who all have platforms to sell their goods abroad, you get the point. E-trade is a riding tide that lifts all boats and brings the continent closer to digital and financial inclusion, and helps carry all countries towards their sustainable development goals.But with all the talk of potential and future projections. We must realise that things are not so rosy and there is definitely infrastructure lacking…
Bumpy road ahead
Well what are some of these obstacles preventing us from reaching that vision
1. Mistrust of online shopping
Many Africans are slow to trust online stores with their personal payment details. This stems from lack of knowledge about online payment systems and advanced security measures.Online transactions have yet to be an area that most Africans deem trustworthy, and many consumers still currently believe that any demand for payment from an online source represents a scam. Fear of fraud will therefore take some time to tackle.
2. Fragmented markets
Africa has a diverse population with different cultures, politics, and economics. As a result, country-specific eCommerce companies have opened up. Across Africa, there is a duplication of resources which affects the economy negatively. Making cross border payments, dealing with tariffs and taxes, and meeting various country-specific legal requirements makes it difficult for countries to operate within the region, outside their own country.
3. People prefer to pay with cash
Africans are accustomed to using cash. It’s more familiar and tangible than digital payments, which are fairly new on the scene. However, CoD (cash-on-delivery) in eCommerce is more expensive and involves a high level of risk. A delivery driver is responsible for the company’s cash, and is more prone to becoming a victim of theft. CoD also makes it easier for customers to decline the delivery and refuse to pay, putting the cost of the delivery and return of the merchandise on the merchant, without any gain.
4. Delivery logistics
In some ways, Africa’s transportation and delivery system is not equipped to deal with the booming eCommerce industry. Many African roads are not paved, and the terrain is often difficult for travel. This has created obstacles for eCommerce merchants seeking viable delivery options.
5. Internet connectivity
Less than one-third of the African population has an Internet service that allows them to order goods online. As the Internet is expensive, online shopping has not been an option for everyone.
Solutions
The new digital era calls for new approaches. New types of partnerships, involving governments, local institutions and competing companies, are needed, and should be involved in a series of well-targeted practical initiatives to develop international e-commerce from Africa:
Consumer education: In order to overcome this mistrust, consumers should be educated as to how online payments work. In addition, merchants should offer payment methods that meet high security standards and keeps customer information safe. If customers understand how online fraud is prevented and the techniques that are used to prevent security breaches or fraud attempts, they are more likely to trust an eCommerce website with their payment information.
Cross border markets: To operate across countries and bridge fragmented markets, merchants should use a direct online payment method. Direct Pay Online makes it easy for merchants to serve customers in different countries, allowing for multicurrency cross-border payments and a range of payment options to suit every type of customer. Another step that can be taken to overcome the challenge of fragmented markets is to introduce free trade zones and initiatives whereby tariffs and taxes are eliminated for cross-border transactions. This would greatly benefit the African economy.
Digital payments: With digital payments, transactions are carried out before delivery, and drivers don’t need to carry any money around with them - completely eliminating the risks.To encourage digital payments, merchants could create special promotions, offers or deals for customers choosing to carry out payments online. Merchants should also provide information about online payments on their websites and display trust icons and proof that their sites - and customer payment details - are secure.
Internet connectivity and M-commerce: Infrastructure development is the key to providing Internet to more of the population. Fiber optic networks and other solutions are currently in development. These solutions provide infrastructure and reduce the expenses involved in connecting to the Internet.
The majority of urban Africans have some kind of device that can connect to the Internet. Even in rural areas, where infrastructure is inadequate, Africans can use their mobile phones to connect. If merchants invest in a mobile-optimized online store, and accept mobile payments, they can reach more customers. Much of the growing rate of smartphone adoption among Africans is the result of a concerted effort from operators to roll out networks and develop strategies that enable Africans to consume mobile data. The rollout of 4G is progressing apace: by mid-2016 there were 72 live long-term evolution networks in 32 countries across the continent.
And do you know what’s incredible about this thing? Do you have any idea what this would have cost 20 years ago, millions of dollars… not the parts that make it up, that’s a couple thousand, but the distribution of this thing, you would have had to have an army of trucks, sales men, newspaper adds, radio broadcasts, even send a satellite into space! If you wanted to have the kind of distribution that this device has.
Institutional capacity-building: Traditional business associations need to support the collective access of small enterprises to international e-commerce, by operating marketplaces, sharing ownership of technologies and pooling promotional budgets. They should help local enterprises comply with international fiscal transparency requirements and work with international specialists to create “e-trust” and enable electronic transactions.
Enterprise capacity-building: Enterprises need training on the potential opportunities of ecommerce and how to overcome barriers. They need to know how to package, market and serve customers for international e-commerce, and how to comply with developed countries’ trading requirements.
Technology-sharing: Groups of local enterprises can, with the support of international partners, create locally owned and managed platforms and use open source software libraries and other technologies to list their products on international sites.
Improved access to international transport and logistics: Logistics partners in developed countries can develop optimized transport and logistics solutions, including e-commerce-enabled storage and handling (“e-fulfilment”) in international markets. Such solutions should be tailor-made to the type of goods and marketing strategies of the African firms. Multi-modal transport in particular is important to allow goods to move in and out of the many of the landlocked countries at efficient speed and cost.
One unique and creative new development that can help overcome delivery problems are drone delivery and crowd sourced delivery options. Recently, commercial drone deliveries were launched in Rwanda, by US start up Zipline. This has helped overcome Rwanda’s hilly terrain, which makes it difficult for deliveries to be carried out by cars or motorcycles.These drones are currently being tasked with delivering blood to remote health centers just 30 minutes after receiving a request by text message. But in the future, it’s expected that drones will be used for more commercial applications – including eCommerce deliveries.
Working with policymakers: Useful public-private sector initiatives include enabling laws for the creation of e-commerce cooperatives, reviewing currency exchange controls on digital trade, adopting a model legislation on Electronic Signatures and promoting a conducive environment for ecommerce.
Such enterprises are in the works, one bright prospect form the universal postal union is the E-com@Africa initiative, which takes a wholistic approach to e-com infrastructure development by bringing together stakeholders from government and private sector to address all the barriers to ecommerce today. From, Customs security access to airports, providing regulation and Robust logistic infrastructure to reach all corners of the country.
The aim is to create push a digital market for all Africa and launch an online platform that easily allows SME’S and consumers to easily buy and sell abroad and to have this platform sync with exhaustive backbone logistics infrastructure that supports the platform. This logistic infrastructure is created by establishing super hubs in strategic African countries where warehousing and fulfilment distribution centres will be located, that will hub – and spoke to the surrounding regions promoting global and intra-African trade. Several countries have already come onboard with the programme such as Tunisia, Morocco, South Africa, Cote d’ivoire and Kenya.Projects like these will put Africa on a new trajectory.
Conclusion/vision
The new digital era – with the attendant challenges and opportunities created by fast-moving technologies and the opening of new market channels – calls for new approaches. Small enterprises are powerless on their own to challenge their exclusion from international e-commerce and payment platforms. New types of partnerships, involving governments, local institutions and competing companies, are called for, and should be involved in a series of well-targeted practical initiatives Today majority of the world the rest of the world is focused on the e-commerce industry in Asia or America but I’ll say this…by the time everyone figures out you should go left its too late, you should go right and take an alternative path because that’s where the opportunity lies.