The future of trade in Africa: Leapfrogging towards Africonomics
By Clemens Weitz, CEO of ROAM
We predict Africa’s digital-enabled commerce landscape will change drastically over the next decade – as a fragmented sphere with wanting customer experience meets the opportunities of a new, mobile and connected world. The result for the continent will be leapfrogging developed world structures and entrenching its own unique economic systems and forms of trade.
Informal market influence
First, it is crucial to recognise the importance of the consumer context. To give perspective, we should look at the history of e-commerce in China. The rapid and unexpected rise of e-commerce has been largely due to its market structures. These left a highly unsatisfying shopping experience for Chinese consumers, leading Jack Ma to describe e-commerce in China as a “main course” vs. a “dessert” in the more formal US.
Similarly, Africa has its own context. In most African countries, the informal economy accounts for as much as 65% of all national commercial activity. Players interested in courting African consumers through digital trade should bear in mind that locals have had extensive exposure to real-world informal marketplaces. These result in an admittedly wanting user experience, but their face-to-face dynamic gives an element of trust through the tangibility of handshakes.
Digital transactional environments will never fully replace this real-world experience in Africa. The value of digital transactions in a local exchange context lies in their ability to facilitate and streamline “human” interactions, at scale. The true power of the internet lies in connecting both people and knowledge.
And the scale of these facilitated interactions is on the rise: According to a 2017 KPMG Report, Africans perform a per-person average of 11 online transactions per year. This may sound surprising to anyone who has not yet experienced mobile behaviour first hand on the streets of Africa, but it places the region on par with similarly developing Eastern European economies, and ahead of Latin America.
Until now, though, one of the major barriers facing digital-enabled commercial connections has been the low transparency inherent to the process. Sadly, it is often a seller’s market, with the power skewed in their favour because buyers are left largely in the dark about who they are dealing with, and susceptible to potential fraud.
The situation has already started changing with the arrival of new online opportunities that prioritise consumer protection and reassurance. For example, digital horizontal classifieds, like Pigiame.co.ke, most resemble the functionality of a real-life informal marketplace, and are useful time-savers for busy African professionals. Meanwhile, “Askaris” or guardians powered by machine-learning algorithms, prevent fraud on the platform.
The result is a huge uptake of ecommerce. At ROAM (Ringier One Africa Media), we see this trend gaining real momentum. For example, our online seller-to-buyer marketplaces found that listings in Kenya are up an unprecedented 121% in the first half of 2018.
Barriers to opportunity
As for the broader future of digital transactions in Africa, for its immense economic potential to be fully realised, there are challenges that must be repurposed as opportunities.
Logistics, for one. While digital-enabled commercial interactions have given consumers greater choice, and local suppliers greater market reach, there is still the issue of getting the physical item to the recipient. With popular goods, like mobile phones, this is less problematic, but until cheaper and more reliable infrastructure exists for delivery, difficulty in accessing niche products will hinder the further uptake of online trade.
What we would really like to see is a repeat of the situation in Tonglu, China, where the surge in e-commerce has brought entrepreneurs into the courier company space and caused online shopping platforms to invest heavily in their own express delivery teams. Fierce competition and demand have not only turned smaller logistics businesses into success stories and resulted in over 1.5-million, highly-sought-after delivery men, but it has also invigorated and elevated the entire ecosystem
Connectivity is the second challenge to digital transaction uptake. It’s barely necessary to restate that mobile is how the majority of Africans connect. Mobile connection is already great locally, literally allowing you to make and receive video calls in the (digital) savannah. And healthy competition ensures data cost is decreasing almost monthly. According to a 2017 Jumia Mobile Trends Paper, out of a total continental population of 1.2 billion, there are 960-million mobile subscriptions in Africa – a massive 80% penetration rate. By contrast, fixed-line internet is at only 18%.
Finance is the third consideration. With fraud and trust persistent concerns, we predict a move to a cashless continent, with secure, convenient and user-orientated mobile payments replacing the physical exchange of money. So far, M-Pesa in Kenya, and EcoCash in Zimbabwe, are steps in that direction. Whatever happens, though, a simple imposition of Western online banking solutions is not the answer.
Another key element is that Africa has an immense willingness to innovate and disrupt – further accelerating this positive trend.
Unearthing Africa’s digital potential through collaboration
African economies today are already a large ecosystem of SMMEs. We at ROAM believe that the future of commerce on the continent will manifest itself in a large but differently connected ecosystem of SMMEs. The power of connectivity brings efficiency and scale, as well as new consumer interfaces such as delivery. This will lead to a huge transformation and improvement of local economies.
In a fiercely competitive environment, loaded with long-identified, and mostly untapped, revenue potential, people will gravitate to providers that offer certainty. Organisations and individuals that prioritise African users will come out on top, and secure themselves a strong position for the future.