According to IMF’s World Economic Outlook Report of 2017, 11 of the 25 fastest-growing economies are countries in Africa. It is estimated that Africa’s iGDP (Internet’s contribution to GDP) will reach USD 300 billion, 10% of Africa’s overall GDP by 2025. Online marketplaces could drive inclusive growth across Africa with electronic commerce likely to create as many as 3 million jobs by 2025. Already, estimates suggest as many as 264 e-commerce start-ups are operational across the continent, active in at least 23 countries.
What is Ecommerce?
Ecommerce, also known as electronic commerce or internet commerce refers to the buying and selling of goods or services using the internet, and the transfer of money and data to execute these transactions.
Types of Ecommerce Models
There are four main types of eCommerce models that describe almost every transaction that takes place between consumers and businesses.
- Business to Consumer (B2C)
When a business sells a good or service to an individual consumer (e.g. you buy a pair of shoes from an online retailer). Example konga.com
- Business to Business (B2B)
When a business sells a good or service to another business (e.g. A business sells software-as-a-service for other businesses to use). Example pesapal.com, dpogroup.com
- Consumer to Consumer (C2C)
When a consumer sells a good or service to another consumer (e.g. you sell your old furniture on eBay to another consumer). Example kupatana.com
- Consumer to Business (C2B)
When a consumer sells their own products or services to a business or organization (e.g. an influencer offers exposure to their online audience in exchange for a fee, or a photographer licenses their photo for a business to use). Example bantuphotos.com
Examples of Ecommerce
Ecommerce can take on a variety of forms involving different transactional relationships between businesses and consumers, as well as different objects being exchanged as part of these transactions. These include Retail, Wholesale, Dropshipping, Crowdfunding, Classifieds, Subscription, Physical products, Digital Products, and Services.
Electronic commerce started in the first place in developed countries, characterized inter alia by:
- Mature markets with heavily banked consumers with high purchasing power,
- Internet access by the population, giving rise to a mass of connected consumers,
- A network of quality infrastructure, technology, and logistics networks to supply and delivery these new customers.
It’s no lie that electronic commerce in developed countries is a real thing. According to PPI Radically Pragmatic of September 2017, it estimates that eCommerce jobs in fulfillment centers and eCommerce companies rose by 400, 000 from December 2007 to June 2017, and fulfillment jobs pay 31% more than brick-and-mortar retail jobs in US.
The eCommerce sector has shown tremendous success in developed countries such as the US (eg. amazon.com) and China (eg. Taobao.com) but in Africa, it’s another story, we have seen many startups come and go due to a lack of profitability. Old local e-commerce giant Kalahari shuts down its operation on 2011, Jumia Technologies retrenched its operations in Africa in 2019 due to severe loss. Why is it very hard for eCommerce businesses to penetrate the African market? Why eCommerce giants like Amazon.com and Alibaba.com are not opening their operations in Africa?
According to Geo Poll’s 2016 survey of 1, 251 people from five African countries (South Africa, Ghana, Kenya, Nigeria, and Uganda), the two main reasons for the reluctance of these populations to use e-commerce are:
- Lack of trust (poor trust of customers in the quality of products) and
- Lack of security (customers’ feeling of computer insecurity especially when making online payments)
The reality of internet business in Africa deviates from what is obtainable in the Western world. The following are the top electronic commerce challenges in Africa that make too many start-ups unprofitable, and how merchants can overcome them.
Low consumer trust and e-skills
Apart from the poor trust of customers in the quality of products sold online, also many Africans are slow to trust online stores with their personal payment details. This stems from a lack of knowledge about online payment systems and advanced security measures.
In Nigeria, for example, where phishing is common, people are skeptical about putting their credentials online. To mitigate this challenge, some companies such as Jumia.com.ng and Konga.com offer COD (cash-on-delivery) payment options.
To overcome this, consumers should be educated as to how electronic commerce and online payments work. 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.
Despite all the efforts to make Africa appear as one market, it is not. A company has to set up country-specific sites because of barriers from cross-border payments, languages, cultural differences, and other factors. This affects economies of scale and impacts efficient allocation of capital with duplication of resources across the region.
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. And merchants should use PSP (Payment Service Provider) which operates internationally.
Uncompetitive delivery infrastructure
Many of Africa’s transportation and delivery system is not equipped to deal with the booming electronic commerce 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. Nonfunctioning postal systems in Africa make most of the online businesses operate delivery motorbikes, which increases the cost of doing business.
To overcome delivery problems, we can use new developments such as drone delivery and crowdsourced delivery options. Crowdsourced delivery, also known as crowdsourced shipping (crowd shipping) is an emerging method of fulfillment that leverages networks of local, non-professional couriers to deliver packages to customers’ doors.
Low internet penetration and affordability
Only a quarter of Africa’s population regularly uses the internet. Costs are high. On average, 1GB of data is 9% of monthly income (e.g Econet charges USD 165 for a 1.15GB monthly bundle in Zimbabwe). As the internet is expensive, online shopping has not been an option for everyone.
Infrastructure development is the key to providing the 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.
E-commerce in Africa could be very profitable, it will just take time and effort. Leaders of the continent must understand that besides launching websites, there are many elements entrepreneurs need to be profitably successful. These include more integration of the disparate African economies; investing in infrastructures like the postal system, broadband, and transportation networks; setting up a pan-African system to prosecute fraud, and improving business trust in the African internet.
The internet is redesigning the world’s business and will continue to reshape the industrial sector. In the next 10 years, electronic commerce will be the next big thing in Africa.
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