E-Commerce Surges In Africa But Trust Remains a Big Challenge

study of e-commerce in African markets

Over the past few years, Africa has witnessed the growth in e-commerce. Businesses both large and small have adapted e-commerce either wholesomely or in a hybrid setup. That means some traditional brick-and-mortar stores have set up e-commerce platforms to serve their clientele.

A study on micro-, small- and medium-sized enterprises (MSMEs) in 6 African markets revealed most businesses have adopted e-commerce. The e-commerce transition has been found to have brought many benefits but is facing challenges.

1500 MSMEs located in Egypt, Ethiopia, Ghana, Kenya, Nigeria and South Africa, concur that ecommerce has increased sales volumes. Further, for some, the lack of brick-and-mortar stores has significantly reduced operational costs.

For instance, in Kenya, 80% of the MSMEs stated that e-commerce had helped reduce costs. This was the highest among the countries surveyed. 78% of MSMEs in Ethiopia also agreed that e-commerce had led to reduced operational costs. Nigeria registered the lowest metric as 62% of the businesses surveyed agreed on the same.

Credit: GSMA

In terms of sales volume, 99% of MSMEs in Egypt reported that e-commerce had a positive effect on their numbers. On this criterion, 92% of South Africa’s MSMEs surveyed agreed that e-commerce had increased their sales numbers.

E-commerce enables businesses to adapt to changing market environments. Crucially, it presented a new avenue for business growth and market expansion.

This is particularly important because MSMEs are major employers and contribute significantly to the countries’ GDP. In Sub-Saharan Africa, MSMEs employ close to 80% of the total employed workforce.

Factors Contributing to E-Commerce Growth

Improved internet connectivity is one of the factors that has driven the growth of e-commerce. In fact, last year, more than half of global 4G network expansion was in Sub-Saharan Africa.

Looking at smart devices, from 2017 to 2021, there had been a significant improvement in the affordability of entry-level internet-enabled handsets. For instance, Kenya’s leading telco Safaricom registered a 10% growth in the number of smartphone devices on its network during the last financial year ending March 2023.

The telco now has 20.3 million smartphones on its network. Overall, the country has 30,793,395 active smartphone users. In the last financial quarter alone, a 4.4%. increase in the number of smartphone users was recorded by the Communications Authority of Kenya (CA).

Another factor that has enhanced the growth of e-commerce is payment interoperability and instant settlement. This has been improving in all the markets across Africa. In recent years we have seen banks and mobile money platforms embrace peer-to-peer interoperable ecosystems.

In fact, only last month the Central Bank of Kenya signed up to a pan-African payment network that will further boost real-time financial transactions on the continent.

Lack of national addressing systems has been circumvented with unique delivery solutions. Jumia and Copia have been good examples in this regard. They have led the way by using physical shops as agents. Jumia has even gone further by partnering with third-party logistics companies and establishing a network of rural agents to further enhance delivery.

Trust Remains a Big Barrier

However, trust has remained the biggest hurdle in the growth of MSMEs’ online platforms. Trust challenges are many. One key challenge is the presence of online scammers who fleece buyers. Second, is the lack of quality assurance when it comes to products procured online.

According to the survey by GSMA, 48% of MSMEs identified customers’ lack of trust in online marketplaces as a challenge to growing their digital business.

In Kenya, one of the solutions around trust is a pay-on-delivery scheme. A good example is an arrangement where money is deposited into a logistics platform mostly via a Mobile app. Once both vendor and client are satisfied, the vendor can withdraw the cash from the platform

Pick Up Mtaani, a digital logistics platform recently claimed that just 20 days after launching the option, they have collected over KES.1M for Pay On Delivery Orders.

On its part, South Africa has introduced a trust mark. The initiative verifies e-commerce companies using lawyers and a set code of conduct. Only companies found to be reliable are given the trust mark.

Kenya’s cabinet secretary of ICT Eliud Owalo, has hinted that the government is working on giving verified ecommerce platforms digital certificates. This is meant to enhance trust, but the CS did not give a timeline for when this will happen.