E-commerce in Africa: The way Forward

The landscape of trade is constantly evolving. And the way that goods and services cross borders is transforming. Businesses today can use the Internet to manage almost every business process, from product sourcing and purchase to financial management, sales, marketing and distribution, cutting down on costs and reaching new markets. The growth of e-commerce is a unique opportunity to open access to international markets for small and medium-sized enterprises (SMEs) in developing and least developed countries (LDCs).

However, this is not the case in many developing countries where use of e-commerce remains low. The current share of consumer e-commerce by African enterprises, for example, is below 2%, and has enormous potential. By 2018, the African e-commerce market was projected to soar to US$ 50 billion, from just US$ 8 billion in 2013. Field experience in developing countries and LDCs confirms that to realize this potential, additional support is required to help SMEs overcome the barriers to trading through online channels and marketplaces. These barriers are not new, but take on greater importance when transactions become digital.

Online marketplaces could drive inclusive growth across Africa, with e-commerce likely to create as many as 3 million jobs by 2025. Benefits will include opening markets to otherwise isolated rural communities, servicing Africa’s fast-growing consumer class, and offering women access to new business opportunities. Realizing this potential presents a major opportunity, but will require significant annual growth, and must first overcome a number of challenges. Africa’s E-commerce Agenda is a call to action from e-commerce stakeholders within and beyond the continent.

E-commerce in Africa is well underway, involving business-to-business, business-to-consumer, goods and services. Already, estimates suggest as many as 264 e-commerce start-ups are operational across the continent, active in at least 23 countries. It brings significant employment potential, with online market places set to generate 3 million jobs by 2025.

These will be direct, as well as in supporting services, such as logistics and payment service providers; customer relations management, marketing, analytics and website services and technology vendors. In turn, delivery services will need mechanics, job portals require recruiters, while any business relies on legal, accounting and office space.

With action, e-commerce can become a force for sustainable development. One example is gender. Women entrepreneurs increasingly use digital tools to drive businesses, where previously social norms or family duties may have kept them out of the workforce.

Just 37% of women in Sub-Saharan Africa have a bank account, compared to 48% of men. In some cases, fintech can help bring financial services directly to women that may otherwise have faced legal or cultural barriers through more traditional routes.

Receiving international payments is a key part of trade, whether online or offline. Without an international bank account or credit card enterprises may not be able to list products on well-known online marketplaces. Some (in particular those for digital goods) may allow enterprises to list products, but exclude them from having an account to receive payments. These restrictions are not the result of government policy or company weakness but are decided by private owners of e-marketplaces and payment platforms, who determine transaction risks. Work is also needed to better position Africa as a new source of opportunities and growth for their platforms.

Selling online requires enterprises to master information and communications technologies, and develop suitable packaging, attractive product descriptions and well-managed inventory of stock, production and orders. For small enterprises, especially from LDCs, the learning curve is very steep. Getting it wrong can have serious consequences.

In a virtual marketplace, meeting consumer needs and expectations becomes even more important. Word of mouth, electronic messaging and buying on the basis of personal recommendation can make or break commercial reputations. These reputations are quickly built and destroyed on the Internet. But using the platforms offers a great opportunity for African businesses, given that many African countries have been quick to adopt mobile technologies, with a young and innovative population of enthusiastic social media users. There is great potential here.

Challenges Experienced

Yet there are challenges to Africa’s e-commerce growth. Too many start-ups are unprofitable. Entrepreneurs battle exceptionally low consumer trust and e-skills, low internet penetration and affordability, uncompetitive delivery infrastructure, fragmented markets and rising barriers to cross-border e-payments.

According to some estimates, emerging economies stand to gain US$3.7 trillion in GDP by greater use of digital finance, yet only 34% of African adults made or received a digital payment in 2017. Despite increased digital visibility in neighbouring markets, intra-regional and global e-commerce trade remains small.

Regulations have not kept pace with digital developments. According to the United Nations, 32 of Africa’s 54 nations have laws in place to govern “e-transactions” (online exchange); 23 have laws on data protection and privacy; and only 20 address online consumer protection. The region also lags behind others in the UNCTAD B2C E-commerce Index, which is calculated on a set of four composite indicators highly relevant to online shopping.

Global e-commerce is set to expand rapidly, including in developing countries. However, there are major barriers to be overcome especially high for micro- and small businesses before their growth rates can rival those of developed countries. Africa in particular is lagging behind other regions in primarily due to a range of domestic barriers.

UNCTAD’s analysis shows that Africa lags in a number of domains that are contributory to the development of a vibrant e-commerce sector, including private usage of email and the Internet, ownership of credits cards and the availability of secure servers on the continent.

B2B e-commerce on the continent remains largely underdeveloped. A study by the London School of Economics and Political Science and the Institute of Development Studies found that the Internet was being used primarily to exchange information, and hardly at all to sell goods and services for local firms. More than a decade on, this situation has barely changed.

While global B2C sales had double by 2018, the share of this trade going to Africa and the Middle East had barely risen, from 2.2% to 2.5% by 2018. Small businesses, which make up the majority of businesses in Africa, are insufficiently supported in developing e-commerce, and that too little attention is being given to bringing down some of the barriers that can in fact be addressed immediately. While it is relatively easy to create a website to showcase goods and services, it is a very different and more challenging proposition to enable sales transactions or deals to be completed online.

Developing an Action Agenda

Generating those 3 million new jobs assumes a 25-50% annual revenue growth from Africa’s current online market places, according to some researchers, but realizing these figures requires action.

An ecosystem approach: Each area identifies current hurdles, sets goals and offers references to help reach them. The agenda recognizes that for any individual e-commerce business to prosper, a wide ecosystem of digital technology and supporting companies must also flourish, with a mix of local and global action needed if growing cross-border activity is the goal. Many of the actions listed would have benefits for both online market places and a wider cohort of digital trade businesses.

Leveraging existing negotiations: Critically, this action agenda encourages Africa’s policy-makers to pursue e-commerce priorities at multiple levels, given its inherently border less potential. It calls for firmly anchoring e-commerce within the negotiations on the African Continental Free Trade Area (AfCFTA) and encourages more African governments to join the plurilateral negotiations on e-commerce at the World Trade Organization (WTO).

By engaging in international trade talks Africa can champion the interests of small- and medium-sized enterprises (SMEs) with less resources to tackle regulatory friction and market barriers. The donor community must also lean in. Still far too little overseas development assistance is dedicated to new trade drivers; just 1% of all funding under “Aid for Trade” programmes is allocated to “ICT solutions”, let alone e-commerce.

Wider digital economy infrastructure: We recognize that e-commerce and new trade opportunities sit within a broader digital economy context, including infrastructure-related, and technology questions such as 5G. Policy cooperation on related digital issues taxation, competition, labour and consumer protection, intellectual property is critical too, as noted by the United Nations Secretary General′s High-Level Panel On Digital Cooperation. These areas will be the guard rails of e-commerce and the digital economy. It is important to take a bottom-up approach when defining policy interventions, to ensure buy in from local stakeholders, who need to be satisfied that the overall digital ecosystem is beneficial to them.

Refresh Policies

Support the creation of national or regional e-commerce multistakeholder associations to champion policies; develop the African Digital Trade and Digital Economy Strategy as mandated for the African Union Assembly in February 2020; agree an approach for incorporating e-commerce into the AfCFTA whether as a stand-alone chapter, protocol or building on existing African Union instruments; intra-regional regulatory interoperability; and represent these interests globally. African governments lead multi-stakeholder policy debates nationally, explore co-regulation options, take forward e-commerce in operationalising the AfCFTA and engage in negotiations at the WTO. International donors provide legal and technical capacity building as needed.

Policies shape the business environment, affecting everything from payment options to internet prices and IP protection. Trade cooperation, integration instruments and rules based on common standards can boost exports by reducing business uncertainty and compliance costs.

Although some e-commerce strategies and policies are at play, Africa falls behind on adopting key regulations, and legal uncertainty exists on multi-jurisdictional issues (e-transactions, privacy, consumer protection, digital identity). There is a need to support an inclusive pan-African perspective for e-commerce and the digital economy.

Perspective: The “Rapid eTrade Readiness Assessment” programme, championed by the United Nations Conference on Trade and Development (UNCTAD), analyses the e-commerce situation in a number of countries. The assessments offer a fast-track mapping of challenges and opportunities and identifies policy recommendations.

Expand Connectivity

Achieve the “missed” Sustainable Development Goal 9 provide universal and affordable internet access to least developed countries by 2020 in Africa by 2030. Take steps to encourage competitive markets aimed at the unconnected, including through clear spectrum management, transparency on licensing, and investment into new business models.

Users are key for kick-starting domestic e-commerce growth and entrepreneurs need connectivity. Affordable internet access is the backbone of an inclusive digital economy. Only a quarter of Africa’s population regularly uses the internet. Costs are high. On average, 1GB of data is 9% of monthly income. A broader infrastructure deficit particularly on energy exacerbates the situation for service providers and users. Digital literacy is also low.

Perspective: The World Bank Digital Moonshot for Africa initiative will invest $25 billion in Africa’s digital transformation through to 2030 and mobilize $25 billion in partnership with the private sector.

Upgrade Logistics

Upgrade customs clearance technology and processes for the majority of African countries. Adapt competitive logistics service offerings to e-commerce and make them more widely available. Increase awareness of e-commerce postal services. Advance implementation of the WTO Trade Facilitation Agreement (TFA) including elements on import/export transparency, expedited release and single window entry points for document clearing that could be particularly helpful for e-commerce. Establish public-private partnerships to target small business logistics needs and explore new technologies.

E-commerce requires reliable delivery and return options, including a choice between postal and express. Small package trade needs efficient infrastructure and services, as well as low-hassle border clearance. Inefficient logistics and high last mile delivery costs compared to other regions eat into thin e-commerce profit margins. Africa is also home to many landlocked developing countries, where logistics costs depend as much on the efficiency of their neighbours’ transport services and border processes as their own.

Perspective: ITC, through its Digital Transformation for Good approach, is working with the Government of Rwanda and partners such as DHL to support SMEs to break into local and international e-commerce channels and to have access to improved logistics services.

Enable e-Payments

Improve interoperability between international payment service providers, local banks and regional payment ecosystems. Leverage Africa’s position as a global leader in mobile payments with digital payment innovation as a first point of contact for universal financial services access. Drive open dialogue among regulators, policy-makers and payment ecosystem participants to identify common challenges to the growth of e-payments. Implement policies that promote competition and a level playing field across the payment ecosystem.

E-payments are fundamental to e-commerce to mitigate the security risks and costs of handling cash. The ability to accept e-payments from consumers abroad also gives SMEs access to more markets. With the majority of Africa’s citizens still unbanked, cash on delivery remains popular, used in just under half of all e-transactions by value. Also, policies are often not adapted to complex payment supply chains and do not account for the role of global networks in increasing security, reducing cyber risk, expanding financial inclusion, and supporting cross-border exports.

Perspective: Safaricom has partnered with Paypal to enable qualifying Kenyan customers to transfer money between the online payments system and the telecommunication operator’s M-Pesa mobile wallet. The move would enable M-Pesa’s Kenyan subscribers to transact online, via mobile or an app with PayPal’s 286 million active users in up to 25 international currencies.

Manage Data

Remain open to data flow by allowing regional integration of African data markets through transparent rules and explore ways to ease business compliance in other regions. Engage in the OECD process on digital tax concerns. Accelerate data legislation dialogue and implementation; including ratifying the Malabo Convention (on Cyber Security and Personal Data Protection). Provide information and support to merchants for compliance with overseas market privacy regulations.

Data flow across borders supports the delivery of payment processing, software and platform services, customer relations management systems and so on. Global data flow drives business links, while greater regional data flow will be needed to lower connectivity costs. Less than half of African economies have data protection regimes, with patchy enforcement. Those having enacted or considering data protection regimes are doing so at a national level, risking market fragmentation. At the same time, merchants are already adhering to privacy standards in nearby markets such as the European Union. African stakeholder views differ sharply on data localization; whether as a way to capture digital value or as a barrier to services access.

Perspective: Pursue data cooperation and capacity building between Europe and Africa as proposed in a report by the EU-AU Digital Economy Task Force (EU-AU DETF) under the umbrella of the New Africa-Europe Digital Economy Partnership.

Grow the tech Industry

Double investment into Africa’s tech sector and related enabling services including in marginalized economies to be realized by 2030. Identify specific steps to encourage tech FDI and strengthen countries’ capabilities to implement these. Support business to become investor-ready; establish financing vehicles that blend public and private financing to de-risk start-up funding.

Equity funding in African tech start-ups has increased rapidly reaching US$1.16 billion in 2018. Very little can be achieved without sector specific investment to strengthen e-commerce businesses. Foreign Direct Investment (FDI) has a role to play in plugging infrastructure gaps and raising the availability of risk capital. Overall FDI flows into Africa are more limited than in other regions, adding up to just 3.5% of the global total in 2018, while tech funding specifically may be 5-6 times lower. Most investment is concentrated in a handful of economies.

Perspective: Africa50, a pan-African infrastructure investment platform, launched an Innovation Challenge at the 2019 Transform Africa Summit held in Kigali, Rwanda. The challenge calls for solutions to increase high-speed internet access in under-served areas with winning solutions considered for project development funding.

Coach Small Business

Increase the competitiveness of Africa’s start-ups through skills development, coaching and market access opportunities. Better use incubators on a 400% rise across the continent as of the end of 2018 to get small businesses to a point where they can sustainably attract global private investment. Work with networks such as The African Civil Society for the Information Society (ACSIS) on ICT skills training and encouraging youth innovation.

Digitalization brings new opportunities. Tech services and platforms are helping to digitize many of Africa’s small businesses and can offer a pathway towards formalization. Few entrepreneurs really go regional, much less global. Some businesses lack the relevant skills, have not yet seen the benefits of the digital economy or have concerns about more formalized trading. Small businesses also need to IP protection training.

Perspective: The ITC’s Tech Sector Development practice is working with almost 300 tech start-ups in East and West Africa to develop business opportunities and support specific capacity building. ITC also partners with tech hubs as “multipliers” on the ground, in close coordination with relevant government ministries and agencies.

Join Forces

Achieve a 10% allocation of Aid for Trade funding by 2025 to digital trade activities and develop synergies with other digital development assistance. Offer targeted capacity building activities at the regional level to maximize dialogue and best practice sharing between countries. Develop public-private projects.

This agenda notes that negotiators, regulators and entrepreneurs all need support. Capacity building can help address gaps in research, strategy, expertise and other areas. It is critical to ensure that technology advances accelerating globally in any event are put to best use for sustainable development. Many donor institutions have not outlined e-commerce strategies and targeted funds remain limited. Siloes exist between internet, digital economy and trade support funding sources, and between various government services.

Perspective: Since launching in 2014, the UNCTAD led eTrade for all initiative brings together over 30 institutional partners to offer a one-stop shop for information and assistance to developing countries. Likewise, in the by EU-AU DETF report, actions for cooperation have been prioritized including on e-commerce with a delineation of public and private initiatives required for a digital economy that works for all.

Next Steps

Many African governments are debating upgraded e-commerce agendas and conversations are ongoing on navigating wider digital economy issues. This agenda offers a framework for constructive e commerce growth in Africa. It is an invitation to seek and to generate opportunities that are within near reach.

Given that seven of the ten fastest growing internet populations in the world are in continental Africa, mostly due to smartphone use, e-commerce barriers have every chance of being overcome. It is a critical moment. With action, e-commerce can become a driving force for sustainable development.