The African ecommerce opportunity [NetProphet]

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Ecommerce is on the rise around the globe at a rapid pace, driven by the huge successes of online retailers in the US and Europe, such as Amazon.com which has scaled up exponentially in recent years.

It may come as a surprise, but the most successful ecommerce market place is actually in the Far East, South Korea to be precise, where the government and private sector are pushing for affordable broadband access, stimulating trust, upscaling, and using cutting edge technology. But where does Africa fit in?

Africa’s consumer market is riddled with challenges unique to the continent. Not only is technology infrastructure often rudimentary and unreliable, but the population inherently mistrusts brands and people with whom they don’t feel they have a personal relationship with of some kind — the ‘I watch your back, you watch mine’ mentality. This creates challenges for ecommerce platforms users don’t necessarily have personal relationships with the online shops or the people online that they buy from.

Africa’s ecommerce stats are “not pretty” in comparison to figures from the US, Europe and the Far East. This was presented by the CEO of ecommerce at MIH Internet Oliver Rippel at the Net Prophet conference in Cape Town on Thursday.

MIH Internet is part of the Naspers group which has stakes in online properties such as TenCent in China and Mail.ru in Russia. The group also obliquely owns a chunk of Facebook via its Russian internet investments (via DST that owns Mail.ru). Rippel’s subsidiary deals mainly with Africa, India, the Middle East and Southeast Asia.

It was no surprise then that Rippel’s research into ecommerce in Africa revealed that the continent is behind the developed world. He highlighted three example countries: South Africa, Nigeria and Egypt — where ecommerce marketplace penetration is around 1%, or lower, with South Africa leading the continent with the most successful ecommerce platforms, but ironically with lowest internet penetration and smaller audiences than the other African countries. Egypt has around 17.1-million users with 17% penetration, Nigeria has an online market of 44-million users with 29% penetration, but South Africa has only 6-million users, with a measly 12% penetration.

The poor state of ecommerce in Africa is attributed by Rippel to some of these familiar issues:

1. Poor internet penetration
Particularly with regard to high-speed broadband which is needed to support sophisticated retail website functionality e.g. payment processes

2. Trust issues
Users that have access to the internet in Africa and can afford it are predominantly new to the medium, and research shows that users can take several years to master the basic use of email, social media etc, before they start to trust and venture into using sophisticated ecommerce sites.

3. Poor bank account and credit card penetration:
Cash is king in Africa — 95% of transactions on the continent are made in cash, and only between people who trust and have a relationship with each other. The rise of Mpesa, essentially “mobile money” paid via mobile phones is a successful response to this.

“An open marketplace model is inadequate in a low-trust, early-stage environment,” said Rippel.

Trust in strangers is not high — an African mentality — “so you need to create a more controlled trusted environment with strong brand,” said Rippel.

He highlighted the MIH-owned Kalahari.net as a good example of how this has been achieved in South Africa. The company as built trust in its brand through offline marketing that appeals to “grassroots sensibilities”.

There is however light at the end of the tunnel, which means that with a bit of patience and nurturing over the next few years, ecommerce could take off massively, especially if mobile technology is properly understood and used.

There are technological developments happening on the continent which offer huge future opportunities for online retailers. Rippel found that, through his experience working with ecommerce in Africa, there are some basic quirks that must understood and embraced:

  • Grassroots mobile use must be researched, understood and used effectively — mobile penetration is much higher than home broadband etc
  • Cash is king
  • The open marketplace is inadequate – personal relationships must be built
  • You’ll be in it for the long haul – “everything in Africa takes time”
  • Online brands must also be leveraged offline
  • GDP growth, particularly in South Africa, is very encouraging
  • There is a growing African middle class with more purchasing power
  • There is high mobile phone penetration, which means more internet access (although currently mobile payment systems are not well used or trusted)
  • More undersea cables are being installed to bolster bandwidth (guzzled by ecommerce sites and social networks) and broadband capacity, which will make it easier for entrepreneurs to develop their ideas and communicate.
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