E-commerce revolution

BY LUKE MULUNDA

There is a new wave that is slowly but surely sweeping across Africa – and it’s not even the latest cryptocurrency mania. It’s something you possibly, innocently, do every day – or someone you know does.

When more than half of the one billion Africans with access to Internet go online, more than half of them are likely to be checking out something to buy – and most end up closing the purchase online. With their fingers tapping phones, phablets and computers, Africans, considered the poorest people on earth, are fueling a new revolution in shopping that promises to change how people buy and how retailers sell stuff.

Even then, market analysts say e-commerce in Africa is far from a success story. As experienced by the four major players – including Jumia and Kilimall – replicating the success of Amazon in Africa was a challenge. But for those who stayed the course, the benefits are slowly trickling through.

Seventy-four percent of the respondents in recent straw poll on the impact of the Black Friday sale promotion on the e-commerce industry said they have purchased an item online before. Among the 74% of respondents who have purchased an item online before, a majority (22%) are those who buy something only once a month – that’s a drop in the ocean compared to US, Europe and Asian markets where e-commerce has exploded and given rise to multibillion dollar behemoths like Amazon, e-Bay and Alibaba.

Interestingly, a significant number of online shoppers are now turning to Facebook groups. At 32%, Facebook is the second leading online retailer in the leading e-commerce market. Through informal entrepreneurs who utilize this leading social media channel to either sell through their groups or similar interest groups, Facebook is proving to be a formidable albeit odd player in this space.

Mobile phones usage in Africa has been growing significantly – and will continue doing so as the cost of phones and mobile services reduces. The Sub-Saharan region is also home to some of the least Internet connected nations in the world. Beyond the low Internet penetration levels in some countries and the high data costs, e-commerce is presenting an opportunity for online retailers to reach the youthful African consumer population, which is mostly online.

Despite the numerous challenges that this nascent industry has faced in the region, there is a silver lining thanks to the expected rise in the use of technology on the Continent. Global e-commerce concepts such as the Black Friday sales are also picking pace in creating awareness among the target market as brick & mortar stores join in seeking a piece of this pie.

Africa is the next e-commerce revolution and 2018 is the year for entrepreneurs to start making this rapidly expanding market a priority. With a billion people across 54 countries and the 21st century has seen a remarkable industrial transformation. Africa, a young and high-growth continent, is at the cutting-edge of global consumer behaviour, without the burden of entrenched distribution channels or legacy infrastructure for entrants to overcome.

The region has one of the fastest growing middle-class consumers markets in the world. Their buying power is significant and they are driving demand for content on mobile platforms. The explosion in mobile usage is not only important from a consumer perspective, but beyond that, it’s extending into payments innovation. Nearly 60% of the world’s active mobile money accounts are in Sub-Saharan Africa alone, according to research by Ecobank, M-Pesa has been hugely successful in Kenya and is expected to be replicated across the board for mobility payments in Africa.

The World Economic Forum (WEF) reveals that e-commerce sales worldwide hit an estimated $25.3 trillion in 2015 and are likely to have grown since. It figures e-commerce industry in Africa is expected to soar to $50 billion in 2018, from just $8 billion in 2013.

“The Internet makes buyers and sellers more visible and accessible to each other locally and globally,” say WEF analysts.  Kimberley Botwright, Policy Analyst, Digital Trade, International Trade & Investment, World Economic Forum and Sean Doherty, Head of International Trade and Investment System Initiate, Member of the Executive Committee, World Economic Forum Geneva have authored an interesting piece on the WEF, in which they give five ways countries can use to make e-commerce more vibrant in their economies.

The opportunity to connect quickly and efficiently to multiple markets can be a boon for smaller businesses and a great attraction for consumers, they argue. “Without e-commerce, establishing a physical presence in multiple markets can be costly, while consumer demand might also not always be clear. Survey after survey has shown that the number one limitation to buying and selling across borders is information – exactly what the Internet excels at.”

Surge of Internet penetration

With the surge of Internet penetration on the continent and usage, many Africans are easing into the habit of shopping online almost involuntarily. 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 $75 billion) by 2025, as more Africans gain access to the Internet.

The increasing access to the Internet is stimulating a rapid emergence of e-commerce sites eager to tap into the continent’s growing online consumerism. The likes of Nigeria, Kenya, and South Africa are at the forefront of this evolution. Companies such as Jumia, a Lagos-based online retailer, are dipping their fingers in almost all major markets on the continent, cutting themselves an enviable piece of every pie. Jumia is also among Africa’s best-funded e-commerce sites, having raised $150 million in funding in 2014.

The 2017 Accenture Digital Consumer Survey finds that in countries such as South Africa, smartphone acquisition increased from 52% in 2016 to 63% in 2017. Some of the more technologically advanced nations like Kenya and Nigeria boast a smartphone uptake of more than 44% and 30% respectively. Across the continent, the number of smartphone users saw a nearly twofold increase, reaching more than 226 million. This spike in smartphone penetration is steering a digital revolution on the continent, exposing users to the endless opportunities the Internet provides.

The growth of online shopping has also started hurting offline retailers, and by extension the commercial rental market. Vacant spaces in shopping malls are expected to increase as more retailers explore online shopping options to reach consumers, a new sub-Saharan report on real estate shows.

The Fusion African Monitor report, published by equity firm Fusion Capital, notes there is an oversupply of malls in the country, which has not attracted developers’ enthusiasm for the sector.

There are over 20 malls in Nairobi alone, all barely five years old. In the last two years, Kenya’s construction and real estate sector received Sh54 billion from three top Chinese companies namely AVIC International, China Wu Yi and Twyford Ceramic.

With Jumia Kenya and Kilimall dominating the Kenyan online retail sector at the beginning of 2017, the year closed with four companies all seeking to control the sector this year. The other two include OLX, and Safaricom-owned Masoko which was unveiled last November. Recently, Sokoni online retailer just launched in Kenya. A number of companies such as Deacons have also adopted e-commerce platforms to sell their products across the four major platforms.

Trust levels a hindrance

Amidst the growth, online retail outlets are still grappling with their biggest challenge yet: trust. Among the 26% (531) of respondents in the GeoPoll who indicated they had never purchased any items online, the top reasons cited were that they did not trust the sites (29%), and they did not know how the sites worked (20%). This trend was also observed at the individual country level.

The low trust levels towards online retails can be demonstrated by the most preferred payment options. When people shop online, a majority prefer to pay in cash upon delivery at 50%. Mobile money comes in a far second at 21% and debit cards a distant third at 14%. In Kenya and Nigeria, 52% and 51% respectively, of respondents indicated they preferred cash on delivery.

The most effective channel for creating awareness among online consumers is social media. According to GeoPoll, 55% of respondents who participated in the Black Friday sale month said they first found out about it through that medium. Websites and TV ads were the second and third common mediums of awareness at 15% and 13% respectively.

“The (Black Friday online) sale is now attracting brick and mortar retail stores with many hoping to cash in on the new craze,” says GeoPoll. The report says 70% indicated they visited an e-commerce website while 30% indicated they went to an offline store/outlet. In Kenya and Nigeria, 75% and 73% respectively went to an e-commerce website to do their Black Friday shopping. In South Africa, clothing and footwear was more popular among online shoppers.

The most sought-after items bought online include electronics and accessories at 34%, household appliances (21%), and clothing and footwear (19%). In Kenya, electronics and accessories ranked the highest at 46%. In Nigeria, the most sought-after item was electronics and accessories at 29%.

Safaricom, a leading telecommunications company also recently unveiled a product dubbed Masoko seeking to tap in Kenya’s growing online shopping. Established e-commerce enterprises such as Jumia cheered the move, saying it is positive for the growth of the industry.

When more people get online, it is not just Masoko or any other new entrant that will benefit, but the whole spectrum of online marketplace as shoppers traverse from one online store to the other, says Jumia managing director Sam Chappatte.  “We welcome anyone because as an industry, our main battle right now is to educate the market. We want to explain to people why they should buy online,” said Chappatte.

Locally, things appear to be looking up. Unfortunately, the WEF analysts say, international e-commerce isn’t having it easy. Cross-border e-commerce represents around 7% of total business-to-consumer e-commerce, even less in some regions.

Even in developed and highly integrated markets such as France and Germany, try to buy a book or film across the no longer visible physical border and you’ll find it’s still very present in cyberspace. “Suitcase traders” ferrying online purchases from one country to another are still an active community, WEF analysts say.

The issues holding back cross-border e-commerce range from limited access to e-payments, delivery logistics and costs, warehouse access, product returns processes, complex consumer protection regulations, fees for e-commerce platforms, retailers protecting price differentials, lack of technical skills and business knowledge.

“So although global e-commerce potential is warming up, we’re not quite there yet,” the WEF analysts say. “And certainly, more could be done to ensure that these new tech-driven opportunities are widely utilised.”