The Future of e-Commerce in Africa

What will e-commerce in Africa look like by 2040?

Will Amazon have established itself as a dominant player on the continent, possibly after acquiring Jumia? Or will Alibaba do the same? Will we be shopping in the metaverse? What will happen to Instagram and Twitter vendors? Will there still be tales of “what I ordered versus what I got”?

This article presents insights from my analysis, along with other African market experts, of what is driving the growth of e-commerce on the continent and how it will evolve over the coming years. It highlights the challenges and opportunities for organisations building solutions in the rapidly evolving and increasingly competitive African e-commerce landscape. On that front, we’ll cover:

1. Historical perspective on the different waves of e-commerce in Africa
2. What the future of e-commerce in Africa will look like
3. Different infrastructure pillars required to build e-commerce in Africa
4. Opportunities in the e-commerce space

Let’s dive in!

Historical Perspective

To understand what the future of e-commerce may look like, let’s take a historical journey through the years.

The evolution of commerce in Africa has come a long way from the era of trade by barter, which was simple but had numerous shortcomings, such as the indivisibility of goods and double coincidence of wants. The introduction of money (cash) took care of these shortcomings but also came with its own restrictions as transactions still happened in the physical world with the added risks of loss and theft.

Globally, the proliferation of consumer internet and electronic payments in the 1990s ushered in electronic commerce, or e-commerce as it has become popularly known. It involved the buying and selling of goods or services using the internet, and this meant that communication and transactions could happen easily and seamlessly across borders.

Two behemoths in this category, eBay and Amazon, launched in 1995, while Alibaba entered the scene from Asia in 1999.

In Africa, the e-commerce boom didn’t happen until a decade later. In the early 2010s, many African e-commerce start-ups emerged, emulating western businesses like Amazon, leading to the rise of companies like Jumia, Konga, and Takealot.com. The e-commerce sector, fueled by an early venture capital boom, was the most funded sector back then. Between 2012 and 2015 Jumia, Zando, Takealot, and Konga raised over $855 million. In 2014, Jumia raised $150 million, more than half of what the entire African tech ecosystem raised the following year.

Running a business is difficult, and doing business in Africa is even more difficult, so the era also saw a plethora of failed e-commerce attempts.

In 2018, OLX, a popular classifieds platform, scaled back its operations from Nigeria, Kenya, and Ghana, remaining only in South Africa. In 2017, Efritin, an e-commerce platform for used goods, left Nigeria. Two years later, after facing financial challenges, and laying off hundreds of its employees, DealDey, an online discounts platform that was an imitation of the Groupon model, closed down in Nigeria. The writing on the wall was clear: It wasn’t financially viable for these start-ups to operate in many African markets. These players didn’t have adequate knowledge of the African market, and they underestimated the impact the lack of supporting infrastructure and sufficient customers would have on their business.

They didn’t become the African Amazon everyone was expecting because of a number of reasons. Amazon was built on top of the existing logistics infrastructure of UPS and FedEx, the payment rails of Visa and Mastercard, and the ZIP postal code addressing system built by the U.S. Postal Service. Amazon could leverage these infrastructures and use its scale advantage to offer low-cost products to customers

In terms of purchasing power of the consumers, the GDP per capita in the U.S. at Amazon’s IPO was about $31,000 in 1997, fifteen times more than Nigeria’s GDP per capita ($2100) in 2022. Being a global company at its IPO also meant that Amazon had figured out a few things early on regarding expanding to other markets.

The optimism about e-commerce in Africa clouded some obvious challenges operators on the continent faced. They had to deal with the reality of a small addressable middle-class market, a lack of functional addressing systems, poor road networks, a general preference for cash payments, the lack of payment rails and logistics networks, worries about fake products, and escalating security concerns, an uphill battle African e-commerce companies are still fighting to this day.

This first phase of e-commerce start-ups in Africa caused many to question the viability of e-commerce in Africa, but improving market conditions, the necessity for e-commerce, and the huge potential market size made up of a large population of people under forty years of age, led many to keep trying with hopes of attaining some level of success

By the late 2010s, the return of investors’ interest in e-commerce took a different direction as they focused on companies that are digitizing retail distribution like Wasoko (formerly Sokowatch), Marketforce, Trade Depot, Alerzo, and Omnibiz. Informal retailers are responsible for 90% of retail transactions in Africa and 80% of fast-moving consumer goods (FMCGs) to African households; these startups are bringing order to the uncoordinated, fragmented, and unstructured informal retail sector.

When Amazon came in 2017, it seemed like a validation of sorts. The e-commerce giant expanded into the Middle East and North Africa (MENA) region by acquiring Souq, a leading MENA e-commerce company, for $580 million.

Ever since this happened, Amazon has increased its presence in Africa with the commencement of its sub-Saharan Africa fulfillment center being built in Cape Town, South Africa, and a possibility of more acquisitions into black Africa with a likely expansion into Nigeria by 2023, being the largest market in Africa in the immediate future.

The next noteworthy activity came two years later, in 2019 when Jumia was listed on the New York Stock Exchange. This move was seen as validation for African companies and the e-commerce sector. This validation is also evident in the growth of e-commerce users on the continent.

More recently, we’ve seen a third wave of e-commerce startups that are digitizing offline commerce for restaurants and mom-and-pop shops by providing them with tools to enable them to come online and do more. Startups such as Orda, Kippa, and Sabi are providing e-commerce enablement tools.

Signalling Growth

When Amazon expanded to Africa, e-commerce penetration in Africa was 13%, according to the Statista Digital Market Outlook. It has increased steadily over the years by about 3–4% each year, reaching 28% or a total e-commerce user number of 334 million in 2021.

The growth of e-commerce users in Africa over the years is due to a number of factors. The top three factors were the increase in payment services, penetration of the internet in the continent, and the proliferation of cheap smartphones.

There are now more than 400 million internet users in Africa, compared to over 100 million users at the end of 2010. This makes Africa the second largest internet user population on the planet, just after China.

The increase in internet users, which has largely been driven by a rise in smartphone penetration and a reduction in data plans by telcos and internet service providers, implies that more members of Africa’s middle class can access e-commerce platforms.

Over the years, there has been a surge in customer confidence in e-commerce due to an increasingly successful online purchasing experience, despite a few cases of fraud. The availability of more online payment options with fewer failed transactions has also contributed to the increase in consumer trust.

Logistics players such as Gokada, with more than 2,000 bikes being used as of 2020; Safeboda, with over 10,000 riders in Ibadan; as well as the ride-hailing giants Uber and Bolt, with a network of hundreds of thousands of drivers in Africa, are making it easier for business-to-consumer (B2C) e-commerce players to conduct last-mile deliveries. It’s worth noting the contributions of other logistics players such as Tibikes Express, Tollgate Logistics, GiG, ACE (Perseus Limited), Skye net, Speedaf, and Fez.

Business-to-business (B2B) players such as Trade Depot, which serve 100,000 merchants across Africa, and Wasoko, which has delivered 2.5 million orders to more than 50,000 active retail customers (mostly informal retailers) in its network since 2016, are attacking the logistics challenge head-on.

Interestingly, diseases have also been pivotal to e-commerce’s uptake in the continent.

Over the past decade, outbreaks have necessitated an improvement in hygiene, as well as how important online shopping is. Jumia saw its orders triple as a result of the Ebola outbreak in 2014; the same happened in 2020 due to the coronavirus pandemic. This was primarily due to the demand for hygiene products and groceries, as well as a need to avoid physical clusters.

In April 2020, during the global lockdowns, Flutterwave launched the Flutterwave store, its own e-commerce solution for African businesses. Six months later, Interswitch’s Quickteller was next with a Quickteller Storefront digital shop and payment solution for merchants. By December of that year, Paystack finally joined with Paystack Storefront, its own e-commerce solution that also allowed merchants to own digital stores and accept payments.

Granted, sudden spikes cannot be interpreted as a recipe for long-term sustainability, but they’re a pointer to what’s possible, and a resurgence of e-commerce in Africa is imminent.

Africa’s growing middle-class population — 313 million people (approximately 34% of the continent’s population) — and the steady growth of private consumption (3.7% per year) are making e-commerce appealing.

It’s also noteworthy that the advancement of technology, with huge access to funding by startups on the continent, and economies of scale enjoyed by manufacturers which have led to the reduction in the price of items such as smartphones, will continue to make access to e-commerce a game changer.

As of the end of 2022, the e-commerce share of global retail sales is expected to be 21%, growing to 25% by 2025. For Africa, the e-commerce industry is estimated to grow at a compound annual growth rate of 24.7% between 2017 and 2024 according to Statista. The e-commerce users in Africa are expected to grow to 338 million users in 2022 and 519 million users by 2025.

This rise in e-commerce sales and users will only continue as e-commerce is the key growth engine for retail.

As this growth happens, what will the future of e-commerce in Africa look like?

Decentralized: Different Options in Different Markets

Will one or two players dominate the African e-commerce space?

Africa will not have one or two big players like Amazon dominate the e-commerce space. Rather, the industry will be largely fragmented with different players. These players will be a mix of social platforms, marketplaces, and pure e-commerce companies.

This is primarily because of the continent’s diversity; Africa is made up of countries with different cultures, economies, and currencies.

For instance, taking internet penetration into consideration, countries like Libya (94.8%), Kenya (85%), and Algeria (83.8%) have high internet penetration rates while Liberia (14.90%), Malawi (13.8%), and Togo (11.9%) are on the low end of the spectrum. Hence, while some of these markets might be attractive to large players like Amazon and Alibaba, most will only have local players due to their sizes and local regulatory factors.

Over 2,000 languages are spoken on the continent, with the top three being Arabic, English, and French. Out of fifty-four countries, twenty-four are English-speaking, twenty-one are French-speaking, another six are Portuguese-speaking, and the rest are Arabic-speaking.

Amazon is often seen as the de facto example of e-commerce success, but this comparison happens without the consideration that its starting base — America — a country with supporting infrastructure, is different from Africa, a continent.

In terms of economy size and purchasing power, Nigeria, South Africa, and Egypt are leading on the continent, while Seychelles, Cape Verde, and Lesotho trail behind. These differences often mean that some markets are less desirable than others or have given enough room for other players to exist and thrive.

After Jumia went public in 2019, it exited a few markets, such as Cameroon and Tanzania, in a bid to consolidate its efforts and resources in more profitable markets.

Because nature abhors a vacuum, the departure of Jumia from Cameroon led to the rise of local e-commerce platforms such as Glotelho, SparkAfric, and Iziway Cameroun. These e-commerce companies still operate profitably at a small scale serving only their local audiences.

In Kenya, the presence of Jumia hasn’t stopped the likes of Kimali, which claims ten million users and 10,000 sellers, from thriving. This fact further buttresses the assertion that e-commerce players cannot just copy and paste solutions across different countries. They must treat each country differently, scaling more slowly and more thoughtfully.

Local players will continue to matter because sourcing and curation is still an issue, but it doesn’t stop e-commerce behemoths from coming to play.

Regarding decentralized and customized solutions, marketplaces will keep unbundling by direct-to-consumer (DTC) brands.

Niche brands in the fashion, electronics, and groceries spaces, often led by influencers or content creators, are another sign that the market will be decentralized.

In the B2B e-commerce space, more players like Trade Depot and Wasoko will keep cutting off middlemen to benefit small retailers. These e-commerce platforms and marketplaces will leverage their access to the flow of information to connect retailers with manufacturers or key distributors.

On the seller’s side, the uncertain and harsh economic conditions in many African countries will mean that many Africans will sell products and services to augment their primary sources of income. Whereas American counterparts on eBay or Amazon are doing this as a business with the presence of a safety net, most African sellers are in business solely to support their livelihoods. This implies that African sellers are left with little or no choice but to persist in facing difficulties, leading to higher retention of these sellers on e-commerce platforms.

The theory of comparative advantage, which advocates for countries or regions focusing on goods and services they’re better at producing, further supports the postulation that e-commerce in Africa will be decentralized. Merchants in different countries will play to their strengths and create products with localized raw materials along with verticalized commerce to sell them, such as in the cases of northern Nigeria’s booming leather industry or Ghana’s Cocoa industry.

Cross-Border Trade Will Increase

Trade between African countries is low, so will e-commerce help it increase?

In May 2019, the African Continental Free Trade Area (AfCFTA) was ratified with forty-four countries agreeing to create favorable terms of trade between African countries. The AfCFTA is estimated to have the potential to increase intra-African trade from 18% of total trade to 50% by 2030, as well as to lift 30 million people out of extreme poverty.

Despite the difficulties surrounding the take-off of the AfCFTA, it’s an indicator of the immense value that can be created when trade occurs across African countries. The decentralization of e-commerce also means that cross-border transactions will happen more often, but there’ll need to be supporting infrastructure to make it happen.

Fortunately, the presence of logistics providers such as Aramex, which is in 23 African countries, and larger providers like DHL and FedEx, alongside identity and addressing tools by players like Smile ID and OkHi, is a positive sign that cross-border trade will increase. This increase will also be enabled by the existence of payment services such as the newly formed Pan-Africa Payment and Settlement System (PAPSS), francophone Africa-based CinetPay, and Flutterwave which has an infrastructure reach in over thirty-four African countries, including Nigeria, Uganda, Kenya, and South Africa.

This means that a Tanzanian can confidently shop from an Angolan e-commerce store using a payment card in her local currency, knowing her order will be delivered within three to five days at an affordable price. The ability to do this will open up African buyers to a variety of products unique to different African countries.

It’s noteworthy to point out that while Africa is experiencing a surge in crypto adoption, it is mainly being used to hedge against fiat currency devaluations. Existing regulatory hurdles restrict the chances of crypto being a major payment medium for e-commerce in the near term. Central bank digital currencies, which are an alternative to cryptocurrencies, are still far from mainstream adoption and usage in e-commerce due to a lack of regional systems and cohesion. More African countries are focusing their attention on regional economic zones with single fiat currencies. This will be a more immediate driver for cross-border payments than crypto in the short term.

Driven by the Social Nature of Africans

Africans have always conducted trade in a social manner, using social capital and relationships to drive a good bargain, so will this continue in the e-commerce space?

The African social commerce market is predicted to grow by 70.3% annually to reach $8 billion in 2022 and record a compound annual growth rate of 55.2% between 2022 and 2028, according to the Q1 2022 Social Commerce Survey.

Social commerce is a big deal in Africa, as it accounts for the majority of the e-commerce activity on the continent. Notably, Facebook, Instagram, and WhatsApp are used by Africans for online shopping more than e-commerce marketplaces, according to a 2019 GeoPoll survey.

Africans have always conducted trade in a social manner, with sellers and buyers using social capital and relationships to drive a good bargain. Going to the local open market is more social than transactional. Most buyers end up spending more time catching up with the latest gossip and news of the day than actually completing their transactions. It’s a no-brainer that this behavior will continue in an online space. This is already playing out with buyers first assessing a vendor’s social media posts and then sending direct messages to build rapport before making a purchase, rather than buying directly from their e-commerce sites.

Another underlying reason for the growth in social commerce is that the usage of social platforms doesn’t require much digital expertise, and they are easily accessible to less tech-savvy vendors in Africa. In addition, the buyers and sellers spend time on these social platforms doing other things.

It’s worth noting that e-commerce initially struggled to take off in Africa due to trust deficit; however, the usage of social platforms for trade has helped improve and foster a culture of trust, and with third-party trust-building intermediary players, such as PayOnDelivery, this is bound to improve.

The simple act of conversing with a vendor over WhatsApp or over a phone call like people do in physical markets helps engender a feeling of trust and a bond between the buyer and the seller. This trust is cemented when buyers make repeated purchases.

African e-commerce players could also take a leaf from the pages of Asia. In China, e-commerce companies are heavily integrated into social media and messaging, with social elements introduced to the purchasing experience. Pinduoduo was built as a micro-app almost entirely on Tencent’s WeChat platform.

Different Infrastructure Pillars Required to Build out e-Commerce in Africa

For this future of e-commerce in Africa to come to fruition, these different infrastructure pillars are required:

e-commerce platforms: The e-commerce platforms are front-facing infrastructures required to facilitate the exchange of goods and services between buyers and sellers. There are different types of platforms: social media platforms, marketplaces, and pure e-commerce platforms.

Facebook, Instagram, and WhatsApp are the primary social platforms Africans use. In terms of marketplaces, Jumia, Takealot, and Amazon.eg (formerly known as Souq) are the leading marketplaces based on site visits and volume of transactions. Facebook marketplace, which was rolled out to thirty-seven African countries last year, is worth paying attention to considering Facebook has about 250 million users on the continent.

There are numerous existing pure e-commerce platforms (businesses that only make sales via their online storefronts) like Shopify, Bumpa, WooCommerce, Selar, Anka, Flutterwave store, and Paystack Commerce.

It’s worth noting that irrespective of the state of the economy, people will always want to buy and sell. However, where they buy and sell depends on their economic condition unless e-commerce is brought to their economic space.

For example, the Kenyan e-commerce company Copia focuses on customers in rural areas that struggle to access the same goods and services in terms of choice, price value, and reliability that similar consumers in urban areas or of higher income levels can access.

To achieve this, Copia deploys a model of using small business owners who have already established some level of familiarity and trust with customers to become agents who help individuals in the community buy goods online. These agents also serve as delivery points for the goods ordered.

Africa needs more e-commerce platforms that take a novel approach toward reaching and satisfying users.

Payments: There’s no commerce without payment for goods or services. This is evident in the fact that e-commerce platforms such as Jumia and Konga now have their own proprietary payment solutions. On the continent, there are many payment service providers such as Paystack, Flutterwave, and Stitch, as well as players like Kenyan Wapi Pay which is focused on cross-border trade between Africa and Asia.

Warehousing and Fulfillment: Behind the scene, e-commerce sellers have to store, pack, and ship orders, as well as handle returns and exchanges. Notably, inventory storage at scale is expensive, and the seasonal nature of retail means there will be underutilized space which compounds operational costs. This has led many African e-commerce companies such as Konga and Payporte to close down their warehousing and outsource this aspect of e-commerce.

While some e-commerce startups have included a version of the fulfillment model in their business setup, there are a few independent fulfillment companies such as Kenya-based Africa Logistics Properties (ALP), South Africa-based ACT Logistics, and Egypt-based Flexstock, as well as a few other small players with potential to grow.

Warehousing and fulfillment are aspects of e-commerce that need more players.

Logistics: After goods are ordered and they’ve been packed, they need to be delivered to the customers. The reliability of logistics partners can make or mar an e-commerce experience. It’s common for customers to complain about the delivery time or the state in which they received their packages.

As earlier highlighted, the presence of local players such as Gokada, Safeboda, Kwik, and ACE, alongside international players like DHL, is making it easier for customers to receive their orders.

For logistics to better support e-commerce, African logistics companies need to go beyond megacities to connect Africa’s rural communities (maybe aggregate rural communities) to regional supply chains. The innovation lies in the development of digital platforms that match supply to demand, whether it be courier apps that deliver groceries or platforms that coordinate freight delivery.

A good example of this is Jumia’s pick-up station model across its African markets. The e-commerce giant’s station uses schools and petrol station chains, making last-mile delivery more efficient.

Order and inventory management: Managing multiple customer orders is a herculean task for any seller, one that has led to the rise of order inventory management systems such as Odoo, Seller Cloud, and Zoho. Merchants need these tools and software to run their businesses; however, the integration between these order management systems and existing e-commerce platforms is still a work in progress, and as such, reconciling purchases and sales details can be a hassle at times. There’s clearly room for African-bred solutions even as startups such as Bumpa and Prospa are working to solve this problem.

The existence of these different pillars will enable robust platforms that’ll help grow e-commerce in Africa.

Opportunities in the e-Commerce Space

Considering that e-commerce spend in Africa is only a small fraction of retail spending, there are still many opportunities to expand e-commerce spend and activities in Africa. Here’s what different players need to do:

Leverage their existing infrastructure and networks to capture offline commerce activity. Even as e-commerce players wait on internet penetration and smartphone adoption to increase further onto the continent, there’s a significant amount of retail activity that’s done offline. The first priority is to bring that online, and there are a good number of new startups with venture capital funding addressing this opportunity today.

Build out multiple competencies and partner with other players. In August, Bumpa, a Lagos-based inventory management, and mobile store builder, announced its integration with Meta’s suite of applications — Facebook, Instagram, and WhatsApp — to enable social merchants on its platform to manage their direct messages (DMs). This move showed the startup’s interest in positioning itself in the $8 billion social commerce market.

Two months earlier, Simpu, a B2B software-as-a-service (B2B SaaS) startup, announced its omnichannel inbox that allows businesses to receive and send messages across different platforms — email, WhatsApp, SMS, iMessage, Facebook, Instagram, and Twitter — from a single dashboard. These e-commerce platforms are also known to partner with logistics and fulfillment companies.

These announcements show that e-commerce players will have to extend their offerings beyond their own native platforms, integrating communication and other products into customer journeys and third-party platforms like logistics companies.

Offer e-commerce-as-a-service. The proliferation of sellers means that African e-commerce players should consider providing merchants with software and services to run their businesses. This model is similar to Heroshe’s approach. This means that instead of interfacing with customers directly, let the vendors do that and support them behind the scenes. This support ranges from connecting retailers with wholesalers or manufacturers, providing cross-border payment integration and logistics, providing inventory storage and delivery services, and providing inventory financing and online store inventory tools.

The African e-commerce sector is an exciting, complex, and evolving market with tremendous growth prospects. It’s expected we’ll continue to see a flux in this space as new generation players continue to emerge and scale as this future unfolds.

Contributors

Eric Osiakwan — Managing Partner(Chanzo Capital)

Bade Aluko — Managing Partner(White Hibiscus Capital)

Keneth Legesi — CEO(Ortus Africa Capital)

Jonathan Ntege Lubwama — Editor-in-Chief(Digest Africa)

Daniel Adeyemi — Senior writer(Techcabal)

Chikamso Nwani — Editor in Chief(Open Africa)

Pardon Makumbe — Managing Partner(CRE.vc)

Toyosi Oni — Associate(CRE.vc)