With its fast-growing youth population, expanding middle class and entrepreneurial culture, Africa’s consumer spending is forecast to reach more than $1 trillion by 2020. African and international e-commerce players are betting on a large portion of that spend shifting to online platforms.
Some reports have boldly stated that e-commerce spending in Nigeria, Africa’s second largest economy, will reach an impressive $8 billion by 2025. Yet many analysts remain sceptical, and argue that although there is massive potential, African e-commerce is still in its infancy.
“There are many numbers which have been published by consulting companies and research institutions [around African e-commerce], and most of the numbers are overly optimistic,” says Dr Ndubuisi Ekekwe, founder of the African Institution of Technology, and a regular contributor to the Harvard Business Review. “The most reliable adoption numbers are the ones coming from the e-commerce companies … and unfortunately, they rarely share with the public.”
He does, however, point to a revelation by Konga’s leading investor, which published its numbers in Sweden. This report unveiled that Konga has 184 000 active users in Nigeria (the company was founded in 2012 and delivers to all 36 states in Nigeria). Konga has stated that its mission is “to become the engine of trade and commerce in Africa”.
“Before this revelation, the world was estimating millions of users,” notes Ekekwe. “If you assume that Jumia [Konga’s main competitor] is following the same trajectory – and with pockets of many smaller players – one can extrapolate that Nigeria has less than 0.5% e-commerce adoption.”
He argues that Africa-wide, active e-commerce customers may be less than 0.3% (of a population of 1.2 billion).
“This is a market that remains open for anyone to win,” he adds, noting that while large incumbents have invested money into educating consumers, they have failed to translate the awareness into profitable ventures.
“A new entrant can take advantage and out-compete them,” says Ekekwe. “However, that new entrant will not do so because it has a better e-commerce strategy. Rather, that business has a better logistical strategy. Today, e-commerce as a business model is defective in Africa. It is only when we have the logistics and core infrastructure fixed that you can experience the ‘el-dorado’ moment when people can build profitable ventures.”
Innovation and payment technology
In his view, the innovations that will “unlock opportunities” in the sector will come from non e-commerce sectors, such as payments, logistics and other core infrastructure areas. With regards to payment, Ekekwe is positive and says it is one of the “bright areas” on the continent.
“It is far better to send money via the web than going to a bank to do so with the dreaded traffic in most African cities,” he explains. “African banks like United Bank for Africa, with its 19-country presence will be huge. If it integrates those countries into one mammoth network, you can see for the first time a true pan-African payment ecosystem.”
According to Ekekwe, Nigerians spent $610 million to shop offshore last year via PayPal.
“I have been stunned by the speed of PayPal adoption in Africa,” he adds. “As those foreign players like Stripe and PayPal loom, investors will remain wary of putting capital in local paytech start-ups because competition is just a “country addition” click away. The foreign players are not better by design, but they have an advantage because their business environments are more supportive and they make better products…when you start in Africa, service quality usually struggles and that hurts customers’ perceptions.”
This article was sponsored by PayPal.