The $7trn promise of e-commerce for Africa’s small businesses

Tarebi Alebiosu
By Tarebi Alebiosu

Tarebi is the founder of QShop

Posted on Monday, 6 June 2022 11:35

A woman shows a screen of her smartphone, where Access bank mobile app is seen among others, in Abuja
A woman shows a screen of her smartphone in Abuja, Nigeria September 21, 2020. REUTERS/Afolabi Sotunde/File Photo

As mobile internet penetration grows, so has the desire for convenience. Global e-commerce sales are expected to reach $5.5trn this year. How does Africa turn this trend to its advantage?

Growth is uncomfortable. Even the most progressive of us can display a reticence to change, particularly when it is rapid; a reluctance to accept new ways of doing things, of living and working, and even purchasing. But one thing that is certain, is change is inevitable and embracing it is the only option.

Where only 17% of sales were from online purchases two years ago, e-commerce will account for 23% of global retail sales by 2024 and sales will hit $7.3trn by 2025. The benefits of this growth cannot be understated either. Research suggests that by 2025, as many as three million new jobs could emerge from digital services and online marketplaces.

The utility of commerce

E-commerce is often viewed as a luxury, offering the advantage of ease and convenience to those customers able to afford it. However, Covid-19 exposed the cracks in that argument. The pandemic demonstrated clearly that e-commerce offers access to better prices, more options, and time savings for shoppers.

In response, entrepreneurs and small businesses are integrating some technology into their business processes, leveraging the internet to access more customers than ever before, scaling at unprecedented rates and reaching new markets. Simply put: technology is transforming the way customers and businesses interact, recasting online commerce from mere convenience into a utility, bolstered by an interconnected world with increasingly interdependent supply chains. And so, the needle is moving.

In  Nigeria, e-commerce companies have supported over 10,000 entrepreneurs with useful technology, resources and community support to reach their customers. Sokowatch has been reinventing informal trade in Kenya, connecting MSMEs to the digital economy.

In that time, delivery drivers have seen their average daily incomes rise 400% and over 10,000 informal merchants can access customers on a larger scale.

Moneyfellows in Egypt has digitised the traditional “money circles” and facilitated access to lending and saving for over 150,000 users.

From Egypt to Senegal, Kenya and Nigeria, investments in digital solutions are unlocking the access barriers to economic inclusion.

The trust deficit

Historically, however, lingering doubts about the reliability of payments systems, transaction security and the quality of goods offered, particularly by small businesses, have hindered the adoption of online marketplaces, reinforcing a trust deficient culture. At the root of this challenge is trust: trust in secure digital platforms, in a robust payment mechanism, or that goods purchased will be handed over.

Before 2018, consumer protection in Nigeria was hardly a priority and previous legislative efforts did not go far enough to protect e-commerce adopters. When customers do not believe they have any recourse, they are less likely to make purchases sight unseen — if they purchase at all.

The trope that African consumers do not spend as often as their western counterparts is just that — a tired trope. Pre-Covid-19, consumer appetite for luxury and basic goods delivered at convenience had been taking shape. Since the pandemic, over 30% of customers in Nigeria and Kenya said they have been shopping online more frequently, indicating an evolving appetite for online purchases.

This pace of growth is also being driven by the considerable innovation that is solving some of the greatest challenges facing the continent: in terms of logistics, payments, trust and quality assurance. All of this, even as some central banks across the continent move to cut transaction costs for digital payments and digital platform users.

What will it take to strengthen e-commerce penetration?

Access to capital is a challenge for businesses on the continent, particularly small businesses whose needs are often microcredit needs. The strength of any economy turns on its ability to effectively deploy human, physical but also capital infrastructure in a way that spurs economic activity and enables wealth creators.

Financial institutions prefer extending resources to more established, larger businesses that are better able to meet collateral requirements. Mamamoni, LAPO Microfinance Bank, and others are doing fantastic work to plug the gaps. These interventions need to become more mainstream, however. The same is also true for consumers and this argument isn’t simply altruistic. Stimulating economic activity has net positive benefits for all of us. The explosion of buy-now-pay-later services globally and even in Africa, particularly East Africa, is a testament to this. Investors are already taking note of the potential.

Much of Africa still lacks a proper address system, compounded by relatively slow progress on the unique identification of citizens. This is where countries like Ghana, Nigeria and Kenya have taken admirable action, by mandating the registration of their residents.

Despite teething problems with registering large numbers of people, there is a significant benefit to this approach — beyond the obvious for security and social welfare. For instance, credit to expand inventory or purchase goods on layaway becomes easier to access once creditors know exactly who they are extending credit to and where to reach them in the event of default. In the absence of this, it becomes much too expensive and too risky to bother.

Finally…

With the operationalisation of the AfCFTA, the addressable market for small businesses has expanded beyond borders. Covid-19 reinforced the utility of e-commerce, and it has made the imperative for business owners to adapt and integrate technology into their operations, even more urgent. The promise of e-commerce for Africa’s small businesses is that it might improve economic efficiency and contribute to poverty reduction for a continent so sorely in need of both.

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