Challenges Hindering B2C E-commerce Growth in Africa

The struggle for B2C e-commerce growth in Africa continues, despite significant Venture Capital investments in African payment technology (Paytech) companies to tackle payment infrastructure and distribution issues.

According to a report by the United Nations Conference on Trade and Development (UNCTAD) in 2020, the African e-commerce index was 30%, indicating slow growth from 24% in 2016. The index was measured across four indicators- Internet penetration, Account penetration (15+,) Internet penetration, and postal reliability score (sourced from Postal Reliability Index by Universal Postal Union, (UPU)).

Some have argued that although these indicators are foundational to access to e-commerce, affordability is an issue. If someone does not have a financial account, the chances that the person can afford to purchase stuff online and pay the shipping fee is less. Yet, payment of cash on delivery which is a popular payment channel in Africa disproves this. UBER collects cash in most countries in Africa.

In this article, we explore the reasons behind this and highlight the key obstacles faced by the African e-commerce sector.

Firstly, affordability and financial inclusion are major issues. A lack of financial accounts and limited online payment options make it challenging for individuals to afford purchases and cover shipping fees. This makes it difficult to gauge the affordability of online shopping and limits access to online payment methods.

Secondly, the dominance of the informal retail sector plays a vital role in providing goods and services to the majority of the population, particularly in low-income urban areas. This sector makes it difficult for B2C e-commerce to establish a significant presence.

Thirdly, the purchasing power of the average African consumer is relatively lower compared to other regions. The absence of comprehensive credit card and retail credit systems restricts consumption to monthly income structures for employees, limiting the frequency of online shopping.

Fourthly, group buying and face-to-face transactions are prevalent in Africa. Group buying models, such as the one adopted by the Chinese online retailer Pinduoduo, offer lower prices through bulk buying discounts. Additionally, some consumers prefer face-to-face transactions, enabling them to negotiate prices and ensure a fair deal.

Lastly, inadequate logistics infrastructure presents significant hurdles for online retailers in delivering products to customers in a timely and cost-effective manner. High delivery costs, often passed on to customers, make e-commerce purchases less affordable and less attractive.

To foster the growth of B2C e-commerce in Africa, several crucial areas require attention. Improving digital infrastructure, addressing logistics challenges, and enabling cross-border e-commerce are key steps that can facilitate international transactions and provide African businesses with access to larger markets and international customers. Overcoming these obstacles will contribute to the development of a vibrant and inclusive e-commerce ecosystem in Africa.

To find out the country profiles on the digital economy of countries in Africa, view the report by United Nations Conference on Trade and Development (UNCTAD).

***About: Ifunanya is a Senior Consultant at KoreFusion. Based in Hong Kong, Ifunanya built her career working in Nigeria across retail, commercial, and corporate banking.?More recently, her experience includes being a pioneer employee in Africa's fintech sector and working in Hong Kong’s fintech scene. If you've enjoyed this piece, don't hesitate to like, leave a comment and share the article with others.

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