Amazon goes to South Africa and e-commerce to boom in Africa

With the launch of operations in South Africa by Amazon, e-commerce in the African continent is all set to hit the big league.

"We are excited to launch Amazon.co.za, along with thousands of independent sellers in South Africa," says Robert Koen, Managing Director, Sub-Saharan Africa, Amazon. "We provide customers with great value, broad selection including international and local products and a convenient delivery experience. From today, customers can count on Amazon.co.za for a stress-free shopping experience, fast and reliable delivery, access to 3,000 pickup points, 24/7 customer support, and easy returns. Customers will also enjoy free delivery on their first order."

For products fulfilled by Amazon, customers will enjoy free delivery on their first order, followed by free delivery for subsequent orders above R500 (about $27), says an official release. "To further ensure a convenient and trusted shopping experience, Amazon.co.za offers hassle-free returns within 30 days via convenient options including home pickup and self-drop. Additionally, customer support is provided via phone, email, and live chat."

Launching the Amazon.co.za store with thousands of independent sellers, customers can choose from a wide variety of local brands including Nomakade, a local business offering organic hair care products. "The heartbeat of our small business enterprises measures the health of our country's economy," says Stella Ndabeni-Abrahams, Minister of Small Business Development, South Africa. "If they are pumping, the nation is growing. We welcome companies that provide opportunities for local sellers and entrepreneurs to grow their businesses. We are counting on Amazon to provide such opportunities to our small enterprises, and look forward to working together to unlock these opportunities. This will create jobs and contribute to the government's objective of repairing the legacy of poverty and inequality. This is the heartbeat we want to hear."

We provide customers with great value, broad selection including international and local products and a convenient delivery experience.
Robert Koen, Amazon

South Africa is the e-commerce giant's first marketplace in the sub-Saharan region, and it will be going head-to-head in the country with local players like Takealot (majority-owned by media giant Naspers), Makro and Bob Group's bidorbuy to tap what is estimated to be e-commerce revenue worth $3 billion annually, TechCrunch reported.

"Amazon is already present in Egypt in a market where Jumia has a strong presence," says Francis Dufay, CEO, Jumia, a leading e-commerce marketplace in Africa. "Competition is above all good news as it validates the opportunity of African e-commerce and helps to grow the market. South Africa is, however, a very specific market, different from most African countries with mature retail networks, stable supply and very competitive e-commerce space."

Jumia eyes growth, lesser losses
NYSE-listed Jumia reported an operating loss of $8 million for the first quarter of 2024, down 71 percent from a loss of $28 million in Q12023. Revenue was up 19 percent YoY to $49 million and gross merchandise value increased five percent to $181 million.

“Jumia is off to a strong start to the year," says Dufay. "Following a transformational 2023, we continued to execute against our strategic priorities focused on strengthening our core business and improving cash efficiency while establishing a leaner organisation primed for growth. Our efforts drove a five percent year-over-year and 39 percent constant currency improvement in GMV in the quarter while order growth and average order value (AOV) also expanded, a clear sign that our strategy is working.

“Our success is more notable when considered against the challenging macro environment in Africa. Significant currency devaluations in some of our largest markets impacted both purchasing power and supply availability, making for a difficult operating environment. However, our ability to secure sufficient inventory and offer a diversified product assortment at competitive prices continues to keep consumers engaged on our platform.

"Importantly, we are also beginning to see early signs of general stabilisation in select markets, leaving us hopeful that conditions will continue to improve. For example, despite the volatile conditions, we are seeing order growth in Nigeria and Ghana, illustrating Jumia’s value proposition. Additionally, in Egypt, the government floated the Egyptian pound and significantly increased interest rates, resulting in higher U.S. dollar inflows from foreign investors.

"We have proven that with the right team and the right strategy, growth does not require heavy spending. Rather, a deep understanding and appreciation of the African e-commerce market, along with a targeted growth strategy leaves us well positioned to drive continued growth in 2024 and beyond.”

Booming markets ahead
Africa's young population, with a median age of 18 years, is pushing digital commerce adoption in a mobile-first environment, according to an analysis by EBANX, a payment technology company.

"Although payments are rather digitised, consumption isn't: only 11 percent of Africans are digital commerce users, per the World Bank. With mobile money and mobile internet more ubiquitous in the continent, it is not a lack of connectivity that explains why digital commerce in Africa has yet to ramp up. The issue consumers face is a lack of offerings — and, more so, a lack of payment connection."

The continent has some of the fastest-growing rates worldwide, and by 2030, Africa will have a potential market of over one billion adults — surpassing China and India.

Underpinning Africa's excellent e-commerce potential is a rapid growth in connectivity, according to an update by FedEx.

"There are likely to be 438 million mobile broadband users in Africa by 2030, which means greater access to digital payments and the benefits of e-commerce. McKinsey also predicts online spending in Africa may reach $75 billion by 2025 as digital payments spread through developing economies."

The major trends shaping the African e-commerce market in 2024 includes:

*Price innovation: Customers are searching for deals; so online retailers must find ways to add value and enhance the affordability of their products. Offer discounts linked to buying in bulk, early-bird purchases, or cross-selling with related products.

*Mobile e-commerce growth: E-tailers should prioritise apps and mobile-friendly algorithms that make it easier to buy and sell on mobile.

*Promo FOMO: Encourage customers to earn discounts through additional spending such as Spend more and get free shipping. Make users feel they will miss a great opportunity if they don’t act promptly.

*Omnichannel approach: In South Africa, physical and online stores are also forming partnerships that combine real-world and virtual shopping.

"Customers want to know they can get their orders as quickly as possible," says Natasha Parmanand, Managing Director, Sub-Saharan Africa - Middle East, Indian subcontinent and Africa, FedEx Express in the report. "If they can't, they'll shop elsewhere. In the European and U.S. markets, customers expect overnight shipment for international orders. This is likely to become a trend in Africa too."

The African Continental Free Trade Area (AfCFTA) protocol on digital trade can provide a framework for the convergence of domestic and regional policies, according to a report by the ODI Advisory authored by Alberto Lemma, Max Mendez-Parra and Laura Naliaka.

"There is a large list of issues that will need to be addressed but at the same time there are a wide range of best practices in global bilateral agreements that could be drawn upon. There is also the question of how deep member states want to commit.

"A deep agreement with binding and enforceable provisions could provide a significant boost to continental integration in general, and the digital economy in particular. There are, of course, significant challenges based on the different levels of readiness to commit and implement the provisions of the protocol. At the same time, the AfCFTA digital trade protocol could provide a guide as countries design their policies and institutions in line with continent-wide efforts."

Payment options and e-commerce boost
Localised payment approaches work in Africa, says Parmanand of FedEx. "It pays to embrace cashless networks like Mpesa and mobile money services like Telkom Pay and MoMo, which have already earned the trust of customers through their ease and efficiency."

Despite the promising growth of e-commerce in Africa, payments remain a significant hurdle and cash transactions are prevalent, says Angela Wamola, Head of Sub-Saharan Africa, GSMA, the mobile industry association. "For our 2023 report on e-commerce in Africa, GSMA Mobile for Development surveyed 1,500 micro, small and medium enterprises (MSMEs) using e-commerce in six African markets: Egypt, Ethiopia, Ghana, Kenya, Nigeria and South Africa. As many as 43 percent of MSMEs said consumers prefer to purchase in-person and the same percentage said that they prefer cash.

"MSMEs need to shift from cash as a prominent payment method to digital payments to improve cash flow, reduce revenue losses and ease financial management as well as enable data-driven business planning. However, high transaction costs, particularly for small purchases, and Know Your Customer (KYC) processes for payments processing deter consumers with limited purchasing power from opting for digital payments. Trust is another huge issue for both consumers and merchants.

"Continuing to address these payment barriers is crucial to unlocking the full potential of e-commerce in Africa. Greater availability of mobile money, greater interoperability of payment systems, and offering recourse mechanisms for fraudulent transactions are key areas to prioritise to boost the adoption of digital payments and enable greater financial inclusion."

Our research at GSMA shows that 60 percent of micro, 49 percent of small and 33 percent of medium enterprises use social media services exclusively to sell online versus online marketplaces and their own websites.
Angela Wamola, GSMA

Among all 150+ mobile money services, 270+ wallets, and 500+ banks in Africa, few of them are actually integrated with digital commerce, providing local payment options for online purchases, EBANX says in its report. "You can transfer money to another person, you can use mobile money as a bank account, but you can't use it to pay for a digital subscription or buy from most websites because the majority of merchants simply don't offer it yet."

JumiaPay transactions in Q12024 reached two million, an increase of 52 percent year-over-year driven by the successful rollout of JumiaPay on delivery in one of Jumia’s largest markets (Kenya), says Dufay. "Ongoing efforts to streamline the user experience and the continued rollout of JumiaPay on delivery to increase cashless orders, positions JumiaPay as a stronger enabler of the company’s e-commerce platform.

"We are focused on making JumiaPay a stronger enabler of our e-commerce platform. We are streamlining the user experience to reduce processing times and the number of steps needed to validate payment, and are in the process of implementing this in Nigeria. We believe that over half of the transactions could be cashless by the end of 2024."

Supply chain challenges for e-commerce in Africa
E-commerce in Africa faces various supply chain challenges including infrastructural limitations such as unreliable road networks and inadequate addressing systems, says Wamola of GSMA. "We are seeing several digital innovations in addressing and logistics. For example, Virtual Postal Address Systems (VPAS) exist and have been implemented both in the private sector and at the national regulatory level. Ghana (AsaaseGPS) and Nigeria (What3Words) have rolled out national VPAS and start-ups are operating VPAS services in many African countries. At the same time, to address the logistics challenge, there are examples of digital innovations such as two-wheels ride hailing apps, which use underutilised assets such as motorbikes and bikes and leverage partnerships with mobile operators such as MTN for payments.

"However, infrastructure, addressing and logistics challenges still hinder the efficient movement of goods, particularly in rural areas. Logistics networks also struggle to meet the demands of e-commerce, impacting timely deliveries. Overcoming these supply chain hurdles requires investment in infrastructure, improved logistics, and innovative solutions to enhance efficiency and reliability."

Jumia Logistics is serving as a powerful enabler of the e-commerce platform. "Our localised, integrated logistics network is effective in harnessing the power of local partners to expand our footprint and drive commerce beyond major urban markets," says Dufay. "To improve network optimisation and reach more underserved communities, we have increased the number of pick-up station deliveries. We are also improving our proprietary systems to drive scalability, enhance warehouse staff efficiency and reduce packaging costs.

Reliable internet access and efficient physical road networks are crucial. While Africa is making strides in this area, there's still room for improvement, especially in rural areas which generally have poor road infrastructure and inefficient addressing systems.
Francis Dufay, Jumia

"We are also investing in new warehouses, revamping some of them in different countries and further streamlining our logistics network to make it more efficient for our expansion upcountry. For example, in Nigeria, we are revamping our logistics capabilities to reach even more cities with shorter lead times and at a lower cost. Our network of boots on the ground agents, known as J-Force, is a key asset to these expansion efforts. By serving as an intermediary between customers and Jumia, our J-Force is a key enabler of e-commerce adoption. By the end of 2024, our goal is to have improved our efficiency and cost base across several cities to effectively reach a broader customer base, while getting the most out of the markets in which we currently operate.

"Partnering with logistics companies of all sizes allows Jumia to offer wider coverage and cater to more sellers, ultimately reaching more consumers. Our partners bring valuable experience and local knowledge to the table. This collaboration fosters innovation and helps us continuously improve our logistics solutions.

"Some of our partners are local entrepreneurs who are growing their businesses alongside Jumia. This fosters economic development and creates job opportunities within Africa. As of 023, Jumia had over 300 3PL partners across Africa who help in last-mile delivery to consumers. Jumia’s expansion to secondary cities and rural areas in Africa reinforces the need for these partners who better understand the local context and can deliver to even the remote communities."

Social commerce and Africa
Social commerce is predominant in Africa's e-commerce landscape with micro-businesses leveraging platforms like Facebook, WhatsApp and Instagram to sell products online, adds Wamola of GSMA. "Our research at GSMA shows that 60 percent of micro, 49 percent of small and 33 percent of medium enterprises use social media services exclusively to sell online versus online marketplaces and their own websites.

"Alongside social commerce, other models such as marketplaces catering to both B2B and B2C and direct sales on company website markets are gaining traction. These diverse models cater to the varied preferences and needs of African consumers, highlighting the dynamic nature of the e-commerce ecosystem in Africa."

B2B or B2C - what works in Africa
Both B2B and B2C segments draw attention in Africa for distinct reasons, says Wamola of GSMA. "B2B e-commerce platforms, particularly those digitising the distribution layer of the fast moving consumer goods sector, target small retailers and street vendors, addressing their specific needs for efficient procurement and sales (e.g. Wasoko). On the other hand, direct-to-consumer B2C platforms tend to serve urban and affluent consumers, offering a wide range of products and convenience. Both segments play integral roles in driving e-commerce growth in Africa, catering to different market segments and fostering economic development."

E-commerce challenges for Africa
Africa's e-commerce landscape is brimming with potential but there are challenges that still need to be overcomed, according to Dufay of Jumia.

*Infrastructure development: Reliable internet access and efficient physical road networks are crucial. While Africa is making strides in this area, there's still room for improvement, especially in rural areas which generally have poor road infrastructure and inefficient addressing systems.

*Digital literacy: Equipping consumers with the knowledge and confidence to shop online is essential. Jumia utilises innovative solutions like J-Force (independent sales consultants) to bridge the digital divide.

*Payment methods: Cash on delivery remains dominant but trust in digital payments is growing. Jumia offers innovative and secure payment options to create a seamless experience for consumers.

Dufay says: "Jumia, as a pioneer in the African e-commerce space, is well-positioned to play a leading role. We're constantly innovating and expanding our offerings, with a focus on:

*Reaching underserved communities: Jumia initiatives like J-Force are ensuring everyone has access to the benefits of e-commerce, regardless of their location. More than 50 percent of the population in sub-Saharan countries lives in rural areas.

*Empowering African businesses: E-commerce and marketplace like Jumia provide a platform for African entrepreneurs to reach millions of potential customers and grow their business, create jobs.

*Driving financial inclusion: Through JumiaPay, which is a strong enabler of our e-commerce business and collaboration with financial institutions, we will continue to offer inclusive payment solutions.

"The population of Africa is expected to reach 2.5 billion in 2050 with huge needs for their everyday shopping, and e-commerce can be an enabler and a solution for the consumers. We are still just at the beginning of the story of e-commerce in Africa."