E-commerce in Africa: Growth and Challenges

E-commerce in Africa: Growth and Challenges
February 7, 2017 gnuworld

In Africa, 40 percent annual growth in e-commerce activity is predicted over the next decade. To realise the benefits fully, though, e-commerce businesses and entrepreneurs will need to overcome a number of challenges.

Africa’s great e-commerce potential

Globally, roughly 45% of people are connected to the internet. In Africa, with its population of well over a billion, that percentage drops to an estimated 26.5%.

However, this is set to change as African countries (outside of South Africa) experience a rise in discretionary spending, increased urbanisation, marked growth in the communications infrastructure and rapid smartphone penetration.

Growth in local markets and e-commerce platforms

Growth in local markets for e-commerce is being accompanied by the rise of some hugely successful African e-commerce platforms.

Development of these platforms has been given a boost by foreign investment. In 2014, for example, American hedge fund Tiger Global Management invested R1.35 billion in South African online shopping giant, takealot. The German e-commerce investment company, Rocket Internet, invested about R 1.73 billion in Nigerian online retailer, Jumia.

McKinsey’s Global Institute predicts that by 2025, Africans could be buying R1 trillion worth of goods and services online annually. As soon as 2018, it’s estimated that the value of the African e-commerce market will reach R673.54 billion.

Challenges facing e-commerce in Africa

Among the challenges for African e-commerce are expensive internet, poor or lacking infrastructure, high delivery costs, security and supply chain issues, high illiteracy rates and highly fragmented markets.

Expensive internet

One of the major challenges facing African e-commerce is the high cost of internet services, which makes online shopping considerably less affordable.

With continued investment in fibre optic networks and pressure on governments to pursue lower internet costs, this may become less of a barrier over the coming decade.

Infrastructure deficit

According to the International Road Federation, fewer than a quarter of African roads are paved. Also, electricity supply and postal services are unreliable in many parts of Africa.

These infrastructure issues affect people’s access to online platforms and the timely delivery of items to customers.

One solution is to use a dedicated courier company, like ACT Logistics, that already specialises in efficient, cost-effective deliveries to local markets.

High delivery costs

In the 2015 South African E-commerce Awards survey of over 90 000 South African online shoppers, high delivery costs ranked as the second most likely factor to cause shoppers to abandon their online purchases. This was followed by lengthy delivery times.

High delivery costs are a particular challenge in countries such as South Africa and Kenya, where the formal retail industry is well developed and able to compete with online retailers.

Since 2013, forward-looking African online retailers have been experimenting with different shipping options, such as drone delivery and crowd-sourced delivery services. These efforts could have a profound impact on the viability, affordability and popularity of e-commerce in Africa.

Security and mistrust issues

In countries like our own, people are all too familiar with online scams. Accordingly, they may hesitate to provide their financial and other personal information online.

To overcome security and mistrust issues, African e-commerce businesses need to ensure that their online security systems are especially robust – or consider alternatives such as cash on delivery.

Supply chain issues

In countries like Nigeria, where the majority of goods sold online are imported, e-commerce companies run the risk of dead inventory and financial loss if they can’t find ways to bring in stock quickly enough to meet demand from customers.

To overcome supply chain issues, businesses will need to use reliable suppliers, manage their inventory carefully and monitor and predict sales.

High illiteracy rates

Large numbers of people with low literacy may struggle to interact directly with businesses online. Government investment and improvements in education are crucial for supporting long-term economic growth.

Highly fragmented markets

A final challenge facing African e-commerce is the enormous cultural, political, and economic diversity of the continent. This creates barriers of language and issues regarding cross-border payments.

To overcome the potential difficulties, it’s likely countries will need to form effective regional economic blocs and become more inclusive.

How ACT Logistics can help e-commerce businesses

ACT Logistics provides businesses with expert delivery and logistics services, across southern Africa and internationally.

Drawing on nearly two decades of experience, we can serve as a one-stop logistics solution for e-commerce businesses, meeting all their parcel delivery, storage, packaging, distribution and freight requirements.

To discuss your e-commerce delivery and logistics needs, contact us online or call us on 0860 99 99 22.