Next up - an African decade in e-commerce

As the world began to shop online and more so after the pandemic, there was a growth of a digital audience in Africa that has affected the fortunes of online retail in the continent. High internet penetration, the rise of smartphones, the advent of digital payments, and the digital disruption caused by the Coronavirus pandemic have all been factors that signal how a new decade of e-commerce may be opening up for Africa.

African nations like Nigeria, South Africa, Kenya, Ghana, Morocco, and Egypt have been leading the charge in having digital audiences who consume online retail.

While internet penetration may be below average, according to the analysis and data platform Statista, the internet users in Africa as a share of internet users worldwide as of 2021 stood at 12.98% and grew from a mere 4% in 2009. The number of online shoppers in Africa stands at 281 million currently, while countries with the highest shares of internet users from the continent were Morocco, Seychelles, and Egypt.

Even if the rates increased considerably in the last year, internet penetration is still under the global average. However, despite being dismal these numbers point to the significant window of opportunity that exists in the creation of the e-commerce landscape and the demand has only escalated owing to the pandemic.

While credit cards may still be uncommon, payments by mobiles and cash-on-delivery and an explosion of the buy-now-pay-later trend have witnessed a high number of takers in the continent.

Further aided by these big retail players, large numbers of informal retailers in Africa are gradually coming online and the promise of e-commerce for Africa's small businesses turning a leaf for economic efficiency and poverty reduction for the continent seems to loom large on the horizon.

E-commerce gets a headstart in Africa
As per Statista, e-commerce will account for 23% of retail gross sales by 2022 and gross sales will hit $7.3trn by 2025 as more Africans have entry to the web.

As per Statista, e-commerce will account for 23% of retail gross sales by 2022 and gross sales will hit $7.3trn by 2025 as more Africans have entry to the web.

Among other key figures from various reports of Statista, of e-commerce revenues that describe the Africa story is that e-commerce ARPU (average revenue per unit) in the 2017-2025 time period in Africa stood at 93.82 Euro or $92.96 in 2022, while the most valuable e-commerce sectors in Africa were fashion, electronics, and media. The annual percentage change in e-commerce revenues in Africa is 52.7% in the 2018-2025 period.

Some of the dominant e-commerce players operating in Africa and Egypt include Jumia, Konga, takealot.com, Kilimall, Souq, bidorbuy, Zando, Amazon, Noon, and SHEIN among others.

Based on various Statista reports analysing the shopping behaviour of consumers, the number of visitors to e-commerce company Jumia was 379 million in the 2017-2020 period, the country with the highest number of visits to Jumia was Nigeria as per a report on 'Visits on Jumia on selected domains in Africa 2022' and the monthly number of visits on takealot.com in 2020-2022 was 11.6 million while the monthly number of visits on konga.com was 2.45 million in 2021.

Alastair Tempest, the CEO of both the E-commerce Forum Africa and the E-commerce Forum South Africa also pointed out that some very active entrepreneurs in Rwanda, Uganda, Mauritius, Senegal, and Morocco and countries like Algeria, Tunisia, Tanzania, Namibia, Cote d'Ivoire that are taking to e-commerce in a big way. Clothing, shoes, consumer electronics, and more recently groceries are popular segments bought online in African nations, as per reports.

Conquering the 'logistics barrier'
Even as the growth opportunity of e-commerce in Africa seems immense, many industry watchers believe that Africa is only just at the starting point of its e-commerce decade.

"Africa is only just starting down the digital commerce road. While there are some really progressive entrepreneurs, supported by solid national policy frameworks (eg. Egypt), good telecom coverage, and active delivery structures, out of the 55 African states, around half are still only seeing eCommerce in the capital city," says Tempest.

More recently a watershed e-commerce moment was when Jumia, the pan-African e-commerce platform which is active across 11 countries in the continent since the last decade, witnessed 1.1 billion visitors on the website in 2021 and has on board more than 100,000 active sellers and saw 34 million orders being placed on its platform and 8 million active consumers in 2021.

Jumia, the pan-African e-commerce platform which is active across 11 countries in the continent since the last decade, witnessed 1.1 billion visitors on the website in 2021 and has on board more than 100,000 active sellers and saw 34 million orders being placed on its platform and 8 million active consumers in 2021.

Apoorva Kumar, EVP Jumia, Group Chief Operating Officer, told the publication, "The market opportunity and growth potential in Africa for e-commerce is huge as e-commerce is very under-penetrated right now. In terms of cost and in terms of difficulties, it is extremely challenging to operate. Logistics is a big entry barrier in Africa. However, our logistics solutions and operating models are very unique and very focused on African geography and African consumers."

He adds, "We work with local 3PL partners and have hundreds of them in Nigeria, where we have a very strong pickup station network. In some countries, we use a lot of bicycles to deliver and roller skates in some of them. So the logistics models are extremely, focused on the local situation and have been tailor-made for that."

As per numbers shared by Jumia, 27% of deliveries in 2021 were made in remote areas where choices of products are currently extremely limited for consumers.

Jumia's logistics network includes over 600 logistics partners ranging from individual entrepreneurs to large companies and it has more than 3,000 pick-up stations and drop-off locations to facilitate deliveries for its sellers and consumers and this logistics services arm is also open to third parties.

Kumar explains the various models it employs to serve Africa, "The operating model number one is where we own the delivery centre. We employ the drivers, they own the bike, and they deliver for us. The second operating model is where we engage with an entrepreneur or somebody who wants to do logistics in Africa, in a franchise model where they use our technology, our SOPs, our processes, but the team, the infrastructure, the capex, and the budget is theirs. The operating model number three would be where we work with certain large logistics companies like the DHL's, FedEx's and the UPS of the world, where we give them packages and they distribute them over their network."

Among other encouraging developments that have been creating ripples in the e-commerce logistics landscape of Africa is the much-awaited entry of US behemoth and world's largest e-commerce platform Amazon which is now turning its focus on the African continent as it looks for new consumers. Amazon is reportedly preparing to launch its South Africa marketplace around February 2023.

Amazon is reportedly preparing to launch its South Africa marketplace around February 2023.

Further, South African retail and wholesale group Massmart has also recently announced that it had reached an in-principle agreement with American retail giant Walmart to acquire all the remaining ordinary shares in Massmart. Walmart had acquired a 51% stake in the publicly-listed Massmart for $2.5 billion in May 2011.

Interestingly Massmart had announced its intentions to enter the e-commerce industry back in 2021. With several of these big retail giants training their lens on South Africa's online retail market growth prospects, it's ultimately the customers who are likely to benefit from the ensuing e-commerce battle.

Trust, regulations & transportation hurdles
However, for online retail to happen several simultaneous and essential processes like warehousing, packing, sorting, inventory management, labelling, billing, shipping, payment collection, order management, facilitating returns and exchanges need to work in tandem to deliver the ultimate e-commerce delight to its consumers, at scale.

Tempest observes, "Cross-border online trade (part of digital trade) is certainly a major driver for the African Continental Free Trade Area (AfCFTA). Transport infrastructure is one issue that you are looking at; telecoms infrastructure and data costs are a challenge. But the three major barriers are customs procedures which are often very antiquated and create delays; payment services which can cause delays of days even while payments clear; and regulations. Often these three elements are interconnected with other challenges."

As per Statista, the internet users in Africa as a share of internet users worldwide as of 2021 stood at 12.98% and grew from a mere 4% in 2009.

Tempest adds, "For example, while national customs authorities promote e-documentation, smart contracts and pre-clearance, weak telecoms coverage means that some frontier posts have little or no internet connection. Banking regulations, particularly those covering remittances from abroad, cause unnecessary delays and it is frequently the case that a payment in country A's currency has to be exchanged into US Dollars/UK Pound sterling or in Euros in order to be sent to the country B. The new PAPSS system (Pan-African Payment and Settlement System) set up by the AfreximBank (the African Export-Import Bank) does away with that sort of added cost."

With many big e-commerce companies in Africa burning big money and struggling even as the world reels from supply chain constraints and inflationary pressures, Girraj Sharma, Head Of Supply Chain at Omnibiz Africa told the Logistics Update Africa, cautions, "You cannot build your own logistics and scale. You need to bring more partners on board and then begin to start scaling them and scaling logistics on the ground is quite different. Africa has its own challenges, people are fighting for day-to-day survival, for jobs, and e-commerce in many ways is still like a luxury for many. We also have to factor in the cost of transportation and delivery and the cost of food is also undergoing inflationary pressures. There is also a lack of a middle class with purchasing power, whether they are super rich or poor, there is nothing called the middle class in many places."

Alastair Tempest mentions that trust in e-commerce remains an issue although the pandemic may have helped in shifting gears. "If we look back at the start of e-commerce, the mail order business was very well established in North America, Europe, and some parts of Asia. It hardly existed in Africa. So there was no experience of distance selling (trusting payment/delivery of products, etc)," he says.

Road networks are also largely used to deliver online purchases so it is only prudent that road networks, transport laws, and good infrastructure come together to facilitate and smoothen online retail. But larger distances are another challenge faced by eCommerce logistics players.

The number of online shoppers in Africa stands at 281 million currently, while countries with the highest shares of internet users from the continent were Morocco, Seychelles, and Egypt.

"On average in Europe, for example, the distance between major cities is 1,300 km; in North America is 2,200km, in South Asia, it is 3,700 km and in Africa, it is 4,100 km. The roads in Europe and America are well developed and easy to navigate, in Africa, although there are some great new projects underway, most major roads are not easy to navigate, while roads to smaller towns and villages are extremely difficult to navigate. The same goes for trains as the railroad service in America, Europe, India and some of Asia is extensive – which is not so in Africa," Alastair adds.

While the wheels of e-commerce may be moving slowly, customer demand has also spurred the advent of quick commerce recently. Apoorva adds, "Quick commerce is happening right now in Africa. We do believe that in some of the countries, the trend is really catching up. In the last two years, we have really accelerated the grocery and FMCG segment. So today there is a shift like people are buying groceries, people are buying food, cosmetics and beauty products from us and that segment is really growing fast."

Largely confined to cities
Despite the halo surrounding the growth of the e-commerce sector in Africa, online shopping remains under the global average even in some of Africa's most competitive markets.

It is also still a city phenomenon as per Alastair Tempest who says, "With a few exceptions, e-commerce is confined to cities due to the problems of transport logistics outside cities. Usually, the main contributing factors are cheap data and good telecom coverage; a strong literacy environment; a budding middle class, and an entrepreneurial spirit. Some countries also have a weak brick and mortar infrastructure that therefore favours e-commerce (an example is Nigeria, where there is a large market for luxury goods but relatively few retail outlets, especially outside Lagos)."

Apoorva concurs that the growth of online shopping in Nigeria is faster than offline. "Somehow, the brick and mortar retail and online started together and online really took over some of the countries like Egypt, Morocco, and Kenya. So the offline evolution started before, and the online is catching up."

Advantage Air Cargo
According to trade.gov, Africa is forecasted to surpass half a billion eCommerce users by 2025, which will have seen a steady 17% compound annual growth rate (CAGR) of online consumers in the market.

According to trade.gov, Africa is forecasted to surpass half a billion eCommerce users by 2025, which will have seen a steady 17% compound annual growth rate (CAGR) of online consumers in the market.

However, Africa's air cargo sector has been slow in reacting to the growth of e-commerce cargoes as the continent takes a leap to a new post-Covid era. More needs to be done in terms of adding capacity and connectivity to and within Africa as some of the carriers have not fully recovered and returned to pre-Covid levels.

Guillaume Halleux, Chief Officer Cargo at Qatar Airways told the publication, "E-commerce is the fastest growing vertical in the industry. We are seeing a demand for e-commerce imports into Africa, which is forecast to increase as internet technologies and smartphones become more accessible. There is sufficient room for further growth of e-commerce in Africa. For the calendar year 2021 (January to December), we transported close to 39,800 tonnes of e-commerce shipments, most of these destined from Asia to the West. More than 500 tonnes of e-commerce shipments were transported to Africa during the same period. Electronics, mobile phones, apparel, beauty, and hair products are some of the items being purchased through e-commerce portals by people in Africa. Qatar Airways Cargo has a very strong and innovative product to support the e-commerce boom and we also work with partners such as Cainiao to support their business on key trade lanes."

Sanjeev Gadhia, founder and CEO of a dedicated all-cargo airline based in Nairobi, Kenya, Astral Aviation told the publication, "Astral Aviation has invested in additional freighter aircraft to meet the demand for e-commerce to and within Africa. Astral operates dedicated freighters from Hong Kong and Dubai to Africa with a mix of e-commerce and general cargoes which enables its clients to connect with its intra-African network ex Nairobi."

However, Gadhia highlights slow government action, lack of a harmonized regulation on e-commerce imports, and verification in cargo delays as challenges in this sector.

Gadhia highlights slow government action, lack of a harmonized regulation on e-commerce imports, and verification in cargo delays as challenges in this sector.

"The major challenge faced by e-commerce logistics companies are the customs and revenue authorities which are causing delays due to verification which defeats the value-proposition of e-commerce cargoes which needs an expedited process, different from general cargoes. Due to the lack of a harmonized regulation on e-commerce imports, the duties and additional handling costs are based on verification and can be unpredictable at times. African governments and revenue authorities are slow to respond to the opportunities of e-commerce which will result in new opportunities for development, hence the need to offer incentives to encourage an increase in e-commerce imports," Gadhia adds.

Drones are coming
One solution that can sidestep the current overwhelming 'transportation challenges' and take e-commerce to new heights are drones which have proven their case in Africa. Drones have had a rather successful run in Africa having been used to provide public health mechanisms and in recent vaccination initiatives in remote and hard-to-reach areas of Africa.

It is likely that drones will soon be deployed for e-commerce as well. More recently, in a first for the continent, Jumia has signed up with Zipline to deploy drones for online shopping deliveries in Africa and is reportedly offering delivery of products across Ghana. Jumia is slated to provide a variety of products, from electronics to fashion, using Zipline's autonomous logistics system.

Jumia has signed up with Zipline to deploy drones for online shopping deliveries in Africa and is reportedly offering delivery of products across Ghana. Jumia is slated to provide a variety of products, from electronics to fashion, using Zipline's autonomous logistics system.

"This collaboration of Zipline and Jumia is one of the many things we are doing to grow e-commerce and logistics in every nook and corner of Africa. We are committed to delivering wherever you are in Africa. And today, if you are living in Africa, you can order stuff from China, Dubai, and Turkey, and Jumia delivers it to you. You can order your groceries and they will come to you the next morning, and you can order your pizza and it will come to you in 20 minutes. You can order your quick commerce stuff, and it will come to you in 15 minutes. So all these operating models and logistics solutions are enablers to growing the business and serving the needs of customers of Africa. This drone partnership is an extension of that mission and vision," Apoorva Kumar informs.

All in all, as Juliet Annamah, Chairwoman of Jumia Nigeria and Group Chief Sustainability Officer observed in a recent release from the company, "The first decade of e-commerce driven primarily by the private sector in Africa is drawing to a close. The next decade demands close and positive collaboration between public and private sector partners working together to shape the African digital economy and unlock its full potential for the people."