by Kevin Muvunyi and Esther Kunda*
World-renowned theoretical physicist Albert Einstein once said that in the midst of every crisis lies great opportunity. Amid the ongoing Covid-19 pandemic, this statement becomes all the more relevant. The current pandemic has disrupted economies around the globe, with most countries expected to witness low percentage GDP growth. Africa in particular is likely to be hit the hardest. A report by the World Bank, suggests that economic growth in sub-Saharan Africa will decline from 2.4 percent in 2019 to between -2.1 percent and -5.1 percent in 2020 as a result of the prevalent health crisis causing shutdown measures. Despite this pessimistic outlook, Africa stands to make a quick economic recovery if the right policies are implemented in regards to the digital economy. The prevailing economic crisis brought forth by covid-19, presents Africa with the unique opportunity to transition into the digital economy primarily through the development of the e-commerce sector.
Overview of the African e-commerce landscape
African countries shut down very swiftly with the first infections of COVID-19 instituting full lockdowns in a number of African countries. These lockdowns have restricted the movement of people and goods. With informal markets, shops, and other non-essential businesses closed, individuals have found themselves forced to shift to online commerce out of necessity. Statistics demonstrate that the closure of brick and mortar businesses on the continent has led to a spike in B2C and B2B in terms of value and volume. For instance, Jumia, the continent’s largest e-commerce company has reported a spike in both customer and seller interest as demand for groceries and essentials grew four-fold in the first quarter compared to 2019. In terms of B2B enterprises, Sokowatch, a leader in the industry, which operates in countries like Kenya, Rwanda, and Tanzania, and supplies informal shops have reported an increase in the number of new shop partners.
As well, businesses with minimal presence in the e-commerce sector prior to the pandemic are slowly converging towards an online business model. This is the case of hotels and supermarkets, which have moved some of their services online. Fintech companies have also demonstrated interest in the e-commerce business, with the San Francisco and Lagos-based fintech startup Flutterwave, launching Flutterwave Store, a portal for African merchants to create digital shops to sell online.
Even with these positive developments, a number of obstacles remain on the continent, which if not removed will continue to undermine the emergence of a robust e-commerce sector in Africa. To ensure a permanent shift in consumer behavior in Africa, various stakeholders on the continent need to formulate an e-commerce framework with several viable models that align with consumer behavior on the continent.
A thriving e-commerce sector primarily requires adequate basic and digital infrastructure, as well as a dynamic, enabling environment. Yet, that’s exactly where the barriers exist. For instance, in 2015 it was estimated that it cost up to five times more to transport goods in Sub-Saharan African compared to the United States. A fact that can be linked to poor road networks and informal home addressing among other things on the continent. This is a major handicap to a thriving e-commerce ecosystem since it is a sector that relies heavily on a solid logistics network.
Similarly, poor digital infrastructure characterized by unreliable data repositories, poor internet coverage (in sub-Saharan African about 40% of the population has access to the internet), and minimal cybersecurity capabilities and implemented data protection have contributed to the slow growth of a robust online marketplace.
Fortunately, we believe there is hope. As a consequence of covid-19, few key sectors have experienced the beginnings of a digital transformation and could be utilized as a springboard for the development of a robust e-commerce sector on the continent. For example, digital financial services have experienced a boost in consumer adoption in Rwanda. The country saw rapid growth in person-to-person (P2P) transfers between individuals using mobile money services. In the first week of January alone, the total value of funds sent via mobile money was RWF 7.2 billion (the US $7.6 million) in comparison to RWF 40 billion (over US $42 million) in the last week of April.
Today, 264 e-commerce start-ups are operational across the continent and are active in at least 23 countries. This presents an avenue for young African innovators to tap into the “Home” economy and test new concepts to better meet African consumer needs for convenience, health, and well-being. Ultimately, this would lead to job creation and achievement of the UN’s Sustainable Development Goals (SDGs).
Thinking like consumers
Like most places in the world, the African consumer is primarily seeking good quality products at a good price. Yet due to the various challenges mentioned above, they have had to resort to an informal market place. When we understand how Africans buy and sell products, only then can we begin to put in place incentives that would lead to growth in e-commerce.
According to Rebecca Enochong, a tech entrepreneur and founder of Apps Tech, the shopping cart model is not adapted to the African market place, because even though we have huge markets, they are not the kind with aisles and cash registers. She argues that this is why Jumia has faced troubles on the continent because Africans are social by nature and when they go shopping at the market they want to bargain.
She argues that this is the reason why Whatsapp is the number one e-commerce platform on the continent because it provides just that, a space to examine the merchandise bargain and eventually buy. In other words, the point she makes is that perhaps the future of African e-commerce will be one of social e-commerce platforms built by Africans, for Africans. With Whatsapp having recently launched a payment service starting with Brazil and with plans to expand to other countries, African countries and entrepreneurs should already be preparing to take advantage of this opportunity as well as protect consumers.
The NEF Innovation Framework proposes a framework to build a robust, consumer-driven, job-creating e-commerce sector. There is an urgent need to review and adopt financial instruments that would be needed to remove barriers and accelerate the scale of viable innovations and startups in e-commerce. If we don’t sit in the driver’s seat, we will be left behind, and very quickly.
An E-commerce model that works for Africa
In the short term, countries should design policies that ease online payments by reducing transaction fees. In addition, governments should incentivize the move to online platforms by businesses, for example through tax reductions or exemptions. Simultaneously, countries should improve internet access and coverage should be prioritized by governments and development partners. It is also essential to expedite the process of formulating laws that favor and protect both consumers.
Although the Implementation of the AFCTFA has been delayed by covid-19, it is urgent that we focus on market integration, allowing companies to have access to bigger markets, as well as faceless red tape when crossing borders.
In the long term, countries should allocate more funds to construct an agile local manufacturing base to mitigate challenges brought forth by the disruption of global supply chains (land, sea, and air cargo transportation).
This entails the channeling of sufficient funds in the construction of basic infrastructure such as roads, and power plants to name a few. As mentioned previously, instruments such as consortiums, PPPs, along with regional financing schemes would assure that even the poorest nations have the required funds. Furthermore, African countries should opt for a science-led innovation framework in order to build Africa driven startup ecosystems. Finally, the use of key enabling technologies like artificial intelligence, IoT, and cloud computing, must be emphasized to add value to the continent’s e-commerce product offerings.
COVID-19 is not the last pandemic the continent will face. In fact, the climate crisis may well be much worse if we do not prepare, actively conserving our environment while improving employment outcomes for young people.
For now, CARPE DIEM.