Ecommerce Sector Africa: Africa’s e-commerce sector has now got a foothold in a wide range of countries, some obvious but many less obvious. As with m-money, it will grow in some places but not others. Russell Southwood looks at how things will change and who the winners and losers will be in the telecoms and internet sectors.
This week I met a Kenyan entrepreneur and at the end of our meeting he called Uber to get a car to take him to his next meeting. He said that in this gridlocked city it was safer to take a car that you could get out and walk from. He was a regular user of Uber and had no complaints. The city is also covered with adverts for one of the larger e-transaction operators: you can’t say you don’t know their services exist.
The big investors in the African e-commerce sector include: African Internet Group, Naspers (co-investors with Kinnevik in Nigeria’s Konga), Swiss-owned Ringier, Casino (a French company with e-commerce platforms in Cote d’Ivoire and Cameroon) and One Media Africa (backed by Tiger Global). Naspers has been in and out of Sub-Saharan Africa in this area once already with several unsuccessful e-commerce forays. Those with long memories might remember Mocality.
Other competitors are regionally based like South Africa’s Bid or Buy which has opened in Kenya and Middle East operator souq.com which has a large presence in Egypt. The pattern is that there will be at least one of these larger operators and one or more regional or local operators. As with pay TV, this competition actually helps give e-commerce more attention and helps grow the sector more quickly.
The largest is probably Africa Internet Group which has a physical presence in 23 African countries and employs 5,000 people, more than some regional mobile companies. It has a portfolio of companies that includes Jumia (known as Zando in South Africa), Kaymu, Easy Taxi, hellofood, Lamudi, Carmudi, Jovago and Lendico: it will soon roll out its classifieds site Vendito. The Group has 3 shareholders with equal thirds in the company: Rocket who got the whole thing started and mobile operators MTN and Millicom.
The motive for the two mobile operators getting involved is probably not so hard to fathom. These days most senior mobile operators have things like e-commerce, content and services on a “to-do” list and Rocket offered a more proven way of getting into the market than first-time start-ups. It is noticeable that the other major mobile operators do not have this kind of investment and stand to lose out if they do not get involved.
The largest country spread by operator is Africa Internet Group which has 23 country operations. This is slow and fast lane Africa all over again: the dozen or so obvious markets are easy to spot (including Egypt, Morocco, Nigeria, Ghana, Kenya, Tanzania and Uganda). But there are some surprises for as Africa Internet Group’s Managing Director Sacha Poignonnec told me, the fastest take-up was in Cote d’Ivoire and Uganda.
Investors put up with the difficulties found in bigger countries because the potential markets are so large (for example, Ethiopia, Nigeria, Angola and Mozambique) but smaller countries will lose out unless the pay attention to how make it easy for external and local investors to operate. Kenya and Senegal get Poignonnec’s “thumbs up” on this score because it is easy to complete the process of starting a business but Zambia also comes out surprisingly well. By contrast, although Tanzania is in that obvious places to invest group, doing business there is not that easy.
On this basis, the investors will not go everywhere. When I spoke to Carey Eaton, CEO of One Africa Media before he was killed, he was very choosy about which countries he went into and had chosen eight that were capable of creating real markets for these kinds of services including South Africa, Nigeria, Ghana, Kenya, Tanzania and Uganda. So the question for other African countries is how they create a sufficient critical mass of users to interest e-transaction investors?
Even the seemingly ubiquitous Africa Internet Group will not go everywhere. As Poignonnec told me:”Our logic is not to roll out as many companies as possible or in as many countries as possible.” It’s not hard to see that having done its current country roll-out that the new opportunities get fewer in number.
Another key fault line that will produce winners and losers is the method of payment. Poignonnec is clear that from the customer point of view, cash is king. Its sites may operate on the Internet but many accept cash on the doorstep when physical goods are delivered:”The main barrier to paying online is in the mind of the consumer. Cash is what they use already and seems more convenient so why say they have to pay online?…You don’t want to go against consumers. It’s a mindset change that may or may not happen”.
He thinks that Africa’s online companies might influence a transition to e-payment but only by offering something better for not paying cash, like a price reduction. Places like Kenya are different because the mobile payment habit is much more heavily ingrained.
In these circumstances, mobile operators benefit from increased data usage but do not get a service fee for payment transactions. They have a compelling future interest in improving all forms of e-payment – mobile and otherwise – but you don’t get the sense that they are working on the problem.
The existence of these e-commerce operators encourages smaller start-ups outside the tech space to use them to facilitate distribution and improve revenues. Rukky Ladoja of Nigerian fashion start-up Grey has an affordable line of clothes that she sells on the Jumia platform. The absence of effective “bricks and mortar” retailers across this huge country makes e-commerce an essential channel. Fashion-based clothes and shoes at mid and high level price points are goods that do well on these platforms.
Kenyan Diane Opoti, a fashion communications consultant who runs her own company Artemis Media made the same point about the e-commerce platforms making better “go-to-market” channels with the local spin that since Westgate terror attack high-end buyers are markedly more reluctant to go to the malls.
She also made the point that those who will buy the cheaper clothes online are 18-25 year olds but they are unlikely to be able to afford to do so. Of course, this may change as they get older and get better jobs.
And what will the market look like in 5-10 years time? Poignonnec told me:”The share of e-commerce may be higher than in the Western World because for example of the shortcomings in the retail sector. Online will be a significant share of business for the people we deal with like distributors, taxi drivers and hotel owners. It will shape the way they do business, not only on the Internet, making them run their businesses more efficiently. Lots of new companies will come online.”
Internet companies and those providing e-commerce integrations should do well as the number of African start-ups and existing companies getting involved in e-commerce increases.