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Africa’s Rising E-Commerce: Understanding the Growth Strategy

E-Commerce Growth in Africa

The Rise of E-Commerce in Africa and Effective Strategies for the Continent Moving Forward

African’s population (young, urbanized, rising middle class and high disposable income) has led to rising e-commerce market. A lot of entrepreneurs, big companies and new start-ups are taking advantage of rising demand by creating online marketplaces to sell their products and render varieties of services.  A lot of young graduates from the continent are making use of technology disruption in this digital era to create wealth.

The good news here is that the real consumer spending has been forecasted that real consumer spending in Africa will rise by 69.9%.  Household spending projected to increase by 45 percent from the year 2015 to peak at USD2.1 trillion by the year 2023.

Africa’s rising e-commerce currently worth more than USD32 billion and estimated to reach USD50 billion by the year 2018 (according to a Global consulting firm, Frost & Sullivan) presents potential business opportunities ranging from mobile payment solutions, retail, agribusiness, renewables, real estate, healthcare and leisure to mention a few.

This automatically translates into huge demand. On the other hand, more demand will push supply for more products both in quality and quantity. Businesses will seize this opportunity and create more online platforms, which will lead to more jobs and more efficiency in the e-commerce ecosystem.

Major players such as Konga, Spree, Jumia, Mpesa, Flutterwave, Jobberman, Andela, MidApp, ToLet, Afriscaper, Levoexpert, Hotel.ng and Tigo Pesa to mention a few are currently providing a wide range of services to meet the continent’s rising demand.  Why this is good news is because several countries in the continent are suffering from shopping mall deficits, good road networks, an ever-busy working class and gridlocked cities.

Other Major Factors

There has been a significant surge in the number of mobile Internet subscribers in the continent. At the end of the year 2015, 300 million people were mobile internet subscribers, with additional 200 million people forecasted by the year 2020.

Access to Android smartphones at relatively cheap prices are also a deciding factor. Android and smartphone manufacturers such as Tekno, Huawei, Vivo, Intex and Xiomi are adapting to local market characteristics such as local taste and features, local content, population, and disposable income.

Low cost of Internet, access to better and faster Internet, and varieties of internet service providers to choose from has helped parachute e-commerce businesses and open the door for new opportunities.

However…

Despite Africa’s rising e-commerce sector, there are several obstacles, the majority of the 1.2 billion in the continent are still offline and without access to Internet services or e-commerce platforms.  Which is why it is important while considering online growth strategies in Africa, it is imperative to have an offline growth strategy.

Various obstacles facing Africa’s rising e-commerce range from distrust arising from online fraud and quality. Several people still have a problem trusting the quality of products online, which is one of the reasons some online platforms offer cash on delivery options, where you have a look at your orders to see if it actually matched the online purchase. Another obstacle is the rampant internet fraud from online transactions.

Logistics is another obstacle, which is caused by rising distribution costs, the postal and delivery system in several African countries are not as sophisticated as in advanced countries. Take for instance, in China, you order a pair of sneakers from Taobao (no1 online shopping platform in Asia), you have varieties of delivery services to choose from and once you pay, you receive within a few days.

Africa is a continent of more than 53 countries with distinctive features such as ease of doing business (setting up companies), different tax systems, cultural and language differences. These in turn have effects on economies of scale – as businesses have to set up country specific strategies.

Growth Strategy

Launching a web business is simply not enough, digital advertisement and blogging may direct huge traffic to your platform but this may not necessarily translate into sales and profits. Therefore, it is important for companies and young entrepreneurs seeking to enter the African e-commerce space to have an offline growth strategy.

Investment in logistics to bring down the distribution costs is one of the growth strategies needed. Setting up warehouses and pop-up stores is a growth strategy to reach out to customers in offline and in remote areas.

Physical Advertisement is very important, which is why one will see the billboard advertisements of booking.com (an online hotel booking company) somewhere in The Philippines or Ctrip (online booking company) making advisement in the national dailies even though most of its customers are online. Therefore it is important to have a strategy to reach out to your customers outside of the e-commerce space.

Localization of products, contents and charges is very important, as this will drive more offline customers to your online business. Many apps are currently launching their products and online in local languages other than English, French, and Spanish (which are the official languages in most African countries).

Online businesses like Qunar.com (an online tickets booking company) are already offering different charges for different languages for air tickets, the air ticket prices in Chinese (is cheaper) than when you browse the English version of the platform.

Furthermore, in a piece published by Harvard Business Review titled “The challenges facing E-Commerce start-ups in Africa” by professor Ndubuisi Ekekwe explained for businesses in e-commerce to reach profitability stage, more efforts and patience is required:

“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 postal system, broadband, and transportation networks; setting up a pan-African system to prosecute fraud and improve business trust in African internet; and most importantly, improving literacy rates. To make the web work for business, African leaders need to focus less on how to improve the number of total domains registered and instead fix the physical business ecosystem which they continue to neglect in order to unleash the wealth-creating powers of the web in Africa”

Total retail sales of Africa internet group

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