To enter the $29 billion e-commerce market in Africa, you must know this!

There are many reasons why Africa lags behind e-commerce, such as lack of Internet access, poverty, high illiteracy rate, and low logistics efficiency. Most of these problems persist, but technological advances, especially smart phones, have allowed more Africans to access the Internet and mobile payment systems.

As a result, the continent may become the next emerging market, achieving major developments in online shopping. The research company Statista estimates that in 2017, the revenue of e-commerce in Africa will reach 16.5 billion U.S. dollars, and it is expected to reach 29 billion U.S. dollars by 2022.

Africa has 54 countries and a population of 1.25 billion. The Internet penetration rate is only 35%. Only a few consumers have desktops or laptops. Therefore, Africa is mainly a mobile e-commerce market.

Obstacles to the development of e-commerce in Africa

Due to the difficulties of fraud and distribution, Africans are not assured of online shopping.

Most African countries lack a national street address system, which is also a major obstacle. The delivery person and the seller must usually keep contact with the mobile phone on the day of delivery, coupled with the lack of paved roads, resulting in most countries do not have a global logistics company. The last kilometer is very expensive to deliver, the transportation cost is at least three times higher than in developed countries, and the courier is mostly on bicycles or motorcycles.

Most people in Africa do not have bank accounts. However, nearly 280 million Africans have mobile wallets. Typical African digital consumers are very young, averaging 19 years old. Older consumers prefer cash on delivery, which is the main payment method in Africa.

Due to payment issues (most payment solutions only operate in one country), logistics issues, cultural differences, and taxes, e-commerce sellers must set up websites for specific countries.

Nigeria, Kenya and South Africa dominate Africa’s e-commerce sales

Nigeria has 195 million people and is the most populous country in Africa. It is Africa’s largest economy in terms of gross domestic product. It also has the largest number of e-commerce websites, with 40% of Africa e-commerce companies headquartered in Nigeria. However, the country’s Internet penetration rate is only 48%.

South Africa has a population of 55.5 million, an Internet penetration rate of 54%, a large middle class, and perhaps the best cross-border potential.

There are 48.5 million people in Kenya, and the Internet penetration rate is as high as 79%. This is because Kenya is the home of mobile wallet provider M-Pesa. Emergent Payments data shows that more than 45% of Kenyan adults use M-Pesa.

Safaricom, a Kenyan mobile telecommunications provider, has also recently established a partnership with PayPal to allow Kenyan customers to easily transfer funds between PayPal and M-Pesa mobile wallets.

Africa’s e-commerce platform

Online sales in Africa are not easy. Even Amazon has little interest in the African market. Disrupt Africa’s report shows that 70% of e-commerce start-ups are not profitable.

The Nigeria-based Jumia Group employs more than 3,000 people and is the most funded e-commerce startup in Africa. It operates in 14 countries in Africa and the Middle East, and each country has a website.

In Nigeria, Jumia established a logistics infrastructure with more than 500 motorcycles and trucks that can service customers in eight major cities in the country. Jumia accepts COD, which is the preferred payment method for most Africans. Jumia is also one of Africa’s most funded e-commerce sites, raising only 150 million U.S. dollars in 2014 alone.

Founded in Nigeria in 2012, initially sold only baby and beauty products and operates only in Nigeria, with approximately 1 million customers. In 2014, Konga opened a third-party e-commerce platform, Seller HQ, which has about 1 million customers and has a daily visitor volume of 300,000.

Konga has its own logistics network, KOS Deliveries, with more than 200 vehicles (boxes, trucks and motorcycles). Everywhere in Nigeria, there are pick-up points and distribution centers.

Konga also has its own payment system, KongaPay, and has cooperation with all Nigerian banks.

In March 2018, Konga was acquired by Zinox, a local hardware and information technology service company.

Kilimall, headquartered in Kenya, also sells in Nigeria and Uganda, providing small-scale African companies with seller plans and affiliate programs, and also sells goods from China.

Launched in 2017 by the Kenyan e-commerce startup Sky.Garden, it is a SaaS mobile commerce platform with more than 3,000 sellers on the platform, offering over 23,000 unique products in 30 different categories and accepting only M-Pesa payments from customers.

Tiger Global Management formed South Africa’s Takealot in 2011 due to the acquisition of existing e-commerce companies. In 2014, Tiger Global invested 100 million U.S. dollars in Takealot. After investing, Takealot purchased the existing logistics company Mr. D Deliver.

In addition to distribution, Takealot also provides warehousing, order fulfillment and distribution and customer service to the seller.

Although most of the e-commerce websites in Africa welcome third-party sellers, they are focused on small local businesses. The website focused on UK and U.S. sellers is the Mall for Africa in Nigeria, which offers Africans from about 250 U.S. Buying merchandise with UK sites (including Amazon, Amazon UK, and eBay), of which more than 60 provide DHL Express distribution.

At present, Mall for Africa has pickup sites in 15 countries and regions including Nigeria, Kenya, Ghana, Rwanda and Uganda, so that people with no physical address can get goods. Mall for Africa offers its own debit card Webcard, which can be purchased on over 180 U.S. and UK sites.

China dominates cross-border sales in Africa

The lack of physical retail infrastructure in most parts of Africa has created an enabling environment for cross-border e-commerce, especially for millennials looking to buy Western goods, but they want to buy from local online businesses that offer mobile payment systems, but also in the local currency. Therefore, cross-border sellers are best sold on local e-commerce platforms.

At present, China dominates cross-border sales in Africa because Africans value cheap goods. This is exactly what Chinese businessmen can provide. In countries that used to belong to the United Kingdom, British goods are also highly valued.

Most sales of cross-border sellers should be expected in Kenya, Nigeria and South Africa, and one of the more critical is to establish partnerships with local payment and distribution providers.

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