This blog written by Sieka Gatabaki, Financial Services Manager at MercyCorps Agrifin Accelerate Program in Kenya with contributions from Annabel Schiff -Senior Manager, Partners at the FiDA Partnership.
In Part 1 of this blog, Stephen Deng shared insights from our recent trip to China about how e-commerce, and a sophisticated set of last-mile products and services, has helped drive the digital finance revolution in the country. In this blog we take a look at the e-commerce landscape in Africa, and the opportunities and challenges of developing a similar stack of last-mile offerings on the continent.
The growth of e-commerce in Africa is evident. Launched in 2012 in Nigeria, e-commerce platform Jumia now has a presence in 30 African countries and reported 80% year on year growth last year. In 2017 Naspers invested $202 million in South Africa’s online shopping site Takealot, and MNO giant Safaricom recently launched their own e-commerce platform, Masoko. We are also seeing social media platforms such as Facebook, Whatsapp and Instagram being used as informal marketplaces.
Growth, however, isn’t without its challenges. A 2017 report showed that less than 30% of African e-commerce startups are profitable due to issues around funding, logistics and trust. Despite its expansion, Jumia is yet to turn a profit. Naspers’ recent sale of Nigeria’s largest online shopping mall Konga has been attributed to the platform’s lack of growth. When it comes to Africa and its various markets, there are clearly opportunities and challenges within the e-commerce landscape:
From roads to smartphones
The continent of Africa covers 30.3 million sq kilometers, with sub-Saharan Africa comprising of 48 countries. This is a huge land mass with multiple infrastructure and political implications, compared to China’s 9.6 million sq kilometers and single governance. Although Chinese partnerships and loans are helping to finance infrastructure projects, physical transport and road infrastructure in Africa remains a challenge. This is further hindered by a lack of a formal address system in most African markets. Apps like Google Maps and solutions such as OkHi are improving the ability to locate physical addresses, but this still remains a challenge with e-commerce companies often resorting to utilizing drop off points.
The backbone of China’s successful e-commerce landscape has been attributed to smartphone penetration and its supporting infrastructure. While Africa is experiencing increased smartphone adoption and internet penetration, it is far from widespread, with digital literacy challenges adding another layer of complexity.
Opportunities and challenges with distribution and delivery
Leading players such as Jumia have invested heavily in their logistics network. There has also been significant interest and investment in third-party logistics, particularly in Kenya. Lori Systems utilizes returning empty truck capacity to provide opportunities for rural-urban delivery, Twiga Foods, an agricultural e-commerce company, recently raised US$7 Million from IFC and other partners to expand its aggregation and logistics capabilities, and Sendy offers a marketplace for last-mile delivery, allowing customers to send packages using an app that connects them to motorcycle, van and pickup drivers. Sendy now does distribution for Safaricom’s e-commerce venture, Masoko. Global ride-sharing companies, such as Uber and Taxify, are also trialling on-demand courier services in metropolitan areas to cover the gaps in current delivery systems.
Despite the increased presence of logistics services, slow, inefficient delivery systems remain a major barrier to e-commerce. This is especially the case in rural areas – home to over 60% of Africans – where populations are highly dispersed, precluding the route density required for last-mile delivery business models to work. African markets could learn important lessons from Indonesian ride-sharing companies such as Go-Jek, who have overcome some of these challenges to bring e-commerce services to non-urban low-literacy customers. It will also be interesting to see what lessons China’s Didi can provide with their recent investment in Taxify.
Developing a digital data trail
While in China there is a “stack of digital services that help suppliers adapt their previously offline businesses to the digital economy”, in Africa there is a relative “lack”. This is in part due to a dearth of data, and a lack of prioritization of data analytics for segmentation and buyer behavior analysis. While in China merchant payments drove DFS adoption, thus creating a plethora of financial and non-financial customer data, in Africa person-to-person transfers have tended to lead the way. This has resulted in a significant gap in consumer insights, hindering the digital augmentation of such businesses. Data collection, consolidation, and analytics perhaps remains one of the most challenging areas for advancing e-commerce – and indeed sophisticated digital financial services – in Africa.
Kenya is, however, showing some traction in this regard. Over 200,000 merchants are enabled to take digital money – through providers such as Masterpass QR, mVISA and Lipa Na M-PESA, – providing a transaction footprint hitherto undigitized. Additionally the acceptance of M-PESA for payments on Google Playstore and the integration with Paypal should also accelerate the volume of transaction information gathered for behavioral predictions.
Poor user experience across e-commerce platforms
The clunky nature of digital merchant payments is evident through e-commerce behaviour in mobile money markets where 70% of e-commerce payments are still cash-on delivery. The poor user experience also extends to delivery, refund and exchange processes, and a lack of trust. The persistence of cash-on-delivery payments within the e-commerce landscape in Africa is in part driven by this lack of trust and a desire to see goods before paying for them. Perhaps lessons can be learnt from China’s Alibaba who launched Alipay in 2004 as an online escrow service enabling shoppers to claim back refunds if unhappy with their purchases.
The role of government
At the policy level, many sub-Saharan countries are grappling with the need for policy reforms in order for the digital economy, new models of transaction, and e-commerce to thrive. Some governments in Sub Saharan Africa are creating conducive environments for the digital economy to thrive through reforms and policies on digital financial transactions, however the journey ahead is long and fraught with issues such as data privacy and ownership. We have witnessed some public-private partnerships with parastatals, such as the Kenyan Postal Services partnership with Jumia for countrywide pick up and drop off points to facilitate rural ecommerce. However, much more government support will be required if e-commerce is to overcome current last mile challenges in Sub-Saharan Africa.
In conclusion, it may be difficult to predict when African e-commerce will have the enabling last-mile services to bring about a hockey stick adoption trajectory. Many pieces are coming together, but many more need to be put in place. Studies of successful implementations in countries like China provide insights that should be closely watched.