The growing sector has the promise to help transform economies in Africa.
With the rise of internet access in Africa, the e-commerce industry has followed close behind. In 2017, the African e-commerce sector generated US$16.5 billion in revenue, a number that is expected to increase to US$29 billion by 2022, according to research firm Statista. Disrupt Africa recently reported that there were more than 260 e-commerce start-ups across the continent.
Kenya, with 79 percent internet penetration and common usage of mobile money platforms such as M-Pesa, is seen as an ideal market for e-commerce retailers. “Kenya has a big enough population to sustain market size,” Nikki Germany, Chief Growth Officer of Copia Global, a Nairobi-based e-commerce start-up, told Kenyans Come Home. “It has enough population density to ensure that our logistics are economical.”
But even as e-commerce grows exponentially in other parts of the world, the industry continues to face significant challenges in Africa. For starters, its heavy reliance on infrastructure and other industries means growth can only happen as the continent develops overall. As an article in Business Daily explains, “success of e-commerce is not only built on fast rising internet coverage but equally due to skilled entrepreneurship aided by a very good logistics network.”
E-commerce businesses also need the right profile of talent in this dynamic, unpredictable industry. Germany believes that, in order to succeed in e-commerce, managers have to have an entrepreneurial mindset. “There’s a lot to be done,” she explained. “You need to think, ‘Let’s make it happen’ versus being very structured.” Leaders also have to be willing to roll up their sleeves and dive deep into the many layers of the business. “The devil is in the details in any kind of service business,” Germany told KCH. “You need to really care about that level of detail to provide service that’s required.”
Existing e-commerce sites in Kenya sell everything from goats and fertilizer to apparel, electronics, cars, and even property. Most African e-commerce companies, such as Nigeria-based Jumia, have focused on urban areas, which have denser populations and more developed infrastructure.
But that leaves out a large segment of consumers. “E-commerce currently serves a relatively urban and affluent group of customers,” Germany explained to KCH. “Across Kenya and Africa, there are only a certain number of people that fall into that demographic.” Unlike many of its competitors, Copia Global caters specifically to underserved rural customers. They can either order products directly from Copia agents, or family members in urban areas can shop online and request delivery to villages.
In rural areas, limited access to smartphones and the lack of paved roads and postal addresses are major barriers to the expansion of e-commerce. Last-mile distribution costs, which are three times more than in highly developed countries, can be prohibitive for businesses and customers alike.
A recent Shell Foundation report found that companies wanting to scale distribution with such rural customers “need to solve three supply chain challenges simultaneously: build (or find if possible) cost-effective logistics and distribution channels; provide financing options for low-income consumers; and build trust with consumers who cannot afford to make poor choices with their limited income.” Addressing each of these challenges requires significant funding.
Copia Global has chosen to partner with local agents to sell and deliver products. “We actually go into villages and recruit agents,” Nikki Germany explained. “Those agents are where customers can go and view our catalog and place an order. As soon as the order arrives, the customer can pick it up.”
Copia’s customers benefit from access to a wider range of quality products, and save time and money because they no longer have to travel far distances to shop. And their agents benefit from the commissions they earn. “They use that to pay school fees and rent, and to expand their businesses,” Germany said.
A similar approach has been used to great success in India, where Walmart-owned FlipKart and Amazon each have 30 percent market share in the fast-growing industry, currently valued at US$39 billion. More than 215 million rural Indian customers can access e-commerce good through 40,000 local retail outlets. The number of rural customers could increase to 600 million in the next two years.
Reaching both urban and rural customers matters because of the transformative potential of e-commerce. Business Daily reported that e-commerce sites have stimulated significant growth in rural areas in China, encouraging local entrepreneurs to launch businesses and villages to reorganize their entire economies. And Africa could very well be next.
The landscape is, in fact, changing quickly for potential customers in rural and urban areas. Kenyan authorities are currently developing a national addressing system that is supposed to reach every home in the country. The cost of smartphones in Kenya dropped by more than half between 2013 to 2016, according to a report by Jumia, and will likely continue falling. Both mobile payment and mobile banking options continue to expand. Taken together, the future of e-commerce in Kenya looks very promising.
“In five years it will look very different from now,” Germany predicts. And, as the tide of e-commerce rises, it will likely lift the boats of many other industries and communities throughout Africa.