Last Frontier To Unlock Africa’s E-Commerce Potential

Last month was six years since the grand dream to create a single African market for 1.2 billion people plus took a concrete step and therefore now is a good time to reflect on how far we have come and what we need to do to achieve this goal.

March 21 was the sixth anniversary since the establishment of the African Continental Free Trade Area (AfCFTA) and there have been many gains made that are catalyzing efforts to achieve the goal of a seamless continental market.

One area that has the potential to create a borderless and efficient market as envisioned by AfCFTA is Africa’s e-commerce space which Statista estimated hit the $40 billion-mark last year, this is still small in comparison to other markets but is still commendable considering that the market was worth an estimated $29 billion in 2022. Translated this is a 38 per cent increase.

So how do we grow this further?

For successful e-commerce to happen there must be massive investments in three critical areas. First, a good, affordable, and reliable internet network must be available. Consumers, in turn, need to access these services by possessing internet devices and affording internet plans.

Second, there must be a reliable and efficient payment system. Buyers and sellers must be able to freely and efficiently trade, including having internet-enabled devices that can allow for reversal of transactions.

Third, physical infrastructure must be in place i.e. good roads and of course, a physical address system or distribution points must be in place to ensure goods delivered can easily be accessed.

So, where are we?

Looking at where we are Africa is experiencing significant advancements in the three above areas. Although gathering comprehensive statistics is difficult due to the continent’s vastness and uneven development, a World Bank report presents a promising picture including important developments in infrastructure.

Between 2002 and 2018, in the areas of mobile networks and broadband internet, the penetration rate increased significantly as a result of these critical investments which resulted in it increasing from 2.1 per cent in 2005 to an astounding 24.4 per cent by 2018.

Penetration numbers are higher today due to the continuous fall in the cost of data and smartphones.

Moving on

If we look at payment systems, Africa, led by the mobile money transfer services evolution is scoring high. Kenya for instance has the M-Pesa mobile money transfer service that has evolved to enable users in East Africa to freely exchange money.

This is important because e-commerce platforms and individuals can sell goods and services because there is an instant payment platform, giving them confidence.

Today Kenyans are ordering for agricultural products from Kampala through WhatsApp, paying via M-Pesa.

Companies have joined the bandwagon. Data from Disrupt Africa shows that there are 400 fintech on the continent that are now offering services beyond payments to include finance and insurance.

But if we move to the third key ingredient that can catalyze Africa’s e-commerce place, the physical infrastructure such as road and rail, we find that this is where we will need more investment.

Outside of large cities, a significant portion of Africans live in locations without specific addresses, especially in isolated rural areas far from the distribution centers which technically locks them out of e-commerce benefits for obvious reasons. Companies must be able to efficiently pick or drop off goods at an affordable price.

In several African nations, inadequate infrastructure development—particularly in the area of logistics and transportation—has had a major impact. More specifically, the lack of investment in these vital sectors directly accounts for up to 75 percent of the cost of items supplied.

The above example effectively demonstrates how an effective transportation network serves as the crucial component lacking in smooth e-commerce transactions throughout Africa, especially in the context of the AfCFTA.

The continent’s capacity to realize the full benefits of digital trade will only be successful if we invest in vital infrastructure including roads, internet connectivity, and storage.

The timing for such investment that can fully harness e-commerce is ideal since there is a strong argument for African nations to keep trading with one another.

Contracting markets in the West and Asia presents a case for more intra-Africa trade.

Kevin Ng’ang’a is the Country Director, Verto Kenya