In search of Net profit

Africa is teeming with young people, and therein lies a huge opportunity for e-commerce

It is 5 o'clock on Friday afternoon, and more than a dozen youths are still waiting for job interviews outside the office of Jumia Kenya in downtown Nairobi. Three receptionists are so busy that a visitor who has just arrived is all but ignored.

If the candidates are successful they will join many other young people who work for the company. In fact so many that as they all work on their laptops you could be forgiven for thinking you were in a classroom of students sitting a test.

Jumia Kenya, an e-commerce company established two years ago, has increased its staff from just two in that time to 200 and it is still recruiting. Jonathan Parisot, the company's purchasing manager, says the number of orders it receives has been increasing by at least 10 percent a month, and sometimes by as much as 40 percent a month.

Jumia now has operations in 10 African countries, he says.

This all testifies to the rapid growth and potential of e-commerce in the continent. The international market research firm Frost & Sullivan forecasts that e-commerce in Africa will be worth $50 billion a year by 2018, compared with $8 billion in 2013.

While Internet penetration in Africa lags far behind that of other continents, Africa has a relatively youthful population, many of whom are avid users of the Internet and more likely to shop online.

Half of Africa's population of more than 1.1 billion is under 25, and each year between 2015 and 2035 there will be half a million more 15-year-olds than the year before, the World Bank says.

E-commerce will not only promote the continent's economic growth and create jobs, but is likely to have a huge impact on the lifestyle of Africans as the nature and price of the goods they buy change.

At the same time it will throw open opportunities to Chinese manufacturers, whose wares are generally affordable to even some of the most impoverished Africans.

However, that does not necessarily mean that for the continent an e-commerce Nirvana lies on the horizon. Infrastructure, including payment systems, is still poorly developed in many countries, which will make it difficult for e-commerce to gain traction in highly scattered markets.

However, Zhou Bin, director of Sino-Africa Future Corp Ltd, says the young population and rapid urbanization give e-commerce in the continent great potential.

While older people in Africa may lag far behind their contemporaries elsewhere in using the Internet, youth, particularly those 25 or older, are the same the world over in at least one respect, Zhou says.

"They all use Facebook, Twitter, YouTube, smartphones, laptops."

That suggests they will be as attracted to shopping online as those elsewhere, he says.

At the same time, retailing in Africa - Kenya, for example - fails to satisfy the needs of youth, which creates huge opportunities, he says. If you go to a shopping mall in Kenya, you will generally find life's necessities, Zhou says, but the choice is limited.

Usually there will be only one shoe shop, one men's clothing store, one women's clothing store, and often no cosmetics store, he says, and even a two-hour trip to a shopping mall will often fail to produce more choice.

"The (retailing) channels in Kenya only satisfy daily needs. As for personalized needs, there are few channels. E-commerce is the best channel for doing that."

As urbanization continues apace in Africa, new cities will spring up, and there will probably be more than five new metropolitan cities in Africa in the coming five years, he says. High populations and divergent consumer demand in such metropolises will mean online shops will be able to attract more orders, and overheads will be low, he says.

The growing use of smartphones and the development of mobile payments are likely to greatly add to the impetus of e-commerce growth.

"We are convinced that the opportunity in Africa is huge," says Parisot of Jumia Kenya. "One of the reasons is that Internet penetration is going to rise significantly in the coming years. One of the main drivers is affordability of smartphones as access to the Internet. Now on Jumia we sell smartphones that are less than KSh 5,000 ($55). And that access is quite affordable. Of course, the Internet penetration rate will increase."

"A Digital Savannah: Africa's E-commerce Promise", a report published by Amadeus, a supplier of IT solutions, says the world's first mobile payment service was set up in Zambia in 2002. The number of active mobile money users in emerging markets will grow from 61 million in 2011 to 381 million by 2017, and the value of transactions will rise from $44 billion in 2011 to $395 billion in 2017, the reports quotes Berg Insight, a market research firm based in Sweden, as saying.

There are more mobile money accounts than bank accounts in Kenya, Madagascar, Tanzania and Uganda, says the Gemalto (a digital security company) Netsize Guide 2013, and at least two mobile payment services are available in 40 markets in Africa.

Fran Peacock, head of international growth at Yuppiechef.com, an e-commerce company in South Africa, says the role of mobile payments is vital to the growth of e-commerce in countries in Africa where fixed-line Internet penetration is low.

"The success of M-Pesa in Kenya is testament to the fact that mobile payments are providing a great solution to the unbanked masses."

The 2014 Mobile Media Consumption report issued by InMobi, an international mobile advertising company, found 83 percent of consumers planned to conduct mobile commerce last year, 15 percent more than in 2013. The study included data from 14,000 users in 14 countries, including Kenya, Nigeria and South Africa.

"The statistics show the importance of optimizing your site to mobile payments and mobile shopping if you are operating in these areas where mobile payment is prominent," Peacock says.

Andy Higgins, managing director of uAfrica.com, a technology company providing cloud-based e-commerce services to small and medium-sized enterprises throughout Africa, says: "There is a clear trend of people using different devices to transact online. Recent statistics show that for the first time more than half the traffic going to e-commerce sites is from mobile devices."

Kilimall International Ltd, an e-commerce company in Kenya, says 60 percent of its customers are mobile users.

However, there are still challenges for the development of mobile payment in the continent, Higgins says.

"The main challenge for the mobile phone remains streamlining the payment process due to the small form factor of the device. Therefore, in my opinion, the more streamlined options available to make payment via mobile devices, the more accessible e-commerce will become."

Mobile payments have yet to take off across the continent, says Darren Harris, director of Intoweb Business Solutions in South Africa, and this poses a challenge to online businesses.

"The logistics in Africa are incredibly expensive, and the postal service, especially in South Africa, is incredibly unreliable. The post office has been on strike for six months, and many parcels are stolen."

Chinaworldbuz, a Hong Kong registered e-commerce company with branches in Tanzania, has faced such difficulties.

"We have serious problems of goods being stolen in transit," says Wang Fengzhai, director of the company. "For example in a box of 100 electric power adaptors, we would lose five or 10. What we can do is put more in the box, including big items that can hide smaller ones."

However, Higgins believes such logistics problems are "being addressed as this sector is undergoing substantial changes with improvements for deliveries originating from e-commerce stores".

Secure payment is "largely a perception issue but also if retailers use reputable technology providers, security issues can be mitigated", he says.

Though the potential of e-commerce in Africa is huge, many of its 55 countries are smaller than the average size of China's provincial and administrative regions. This means the market is scattered and may hinder the development of e-commerce across the continent.

This is another challenge to e-commerce, Peacocks says, because "the high rates of customs and duties often make cross-border purchases unrealistically expensive".

Kariuki Maina, marketing director of Kilimall International Ltd, does not see customs barriers and duties as a big problem. After all, traditional retailing faces the same problems, he says, and the card that e-commerce companies still have up their sleeve is efficiency.

Maina says he believes the establishment of regional blocs will help solve the problem.

"In East Africa, we have a free market portal, meaning you can easily do trade in Kenya, Tanzania, Uganda as a regional bloc. If you come to southern Africa, they have a regional bloc as well. In the next few years you are going to see more such blocs.

"In five years, Kilimall International plans to spread to West Africa and southern Africa. Our vision is to be the leading company in Africa."

Cultural differences between those markets will not be problems, because "technology knows no culture", he says.

However, his company faces the challenge of finding the human resources to expand its business.

"You want people to manage your system, go marketing and do recruitment. That will be a problem. For that we have to rely heavily on the team from Kenya."

One more factor that needs serious attention for those thinking about engaging in e-commerce in Africa is the disparity between rich and poor. While it is common for the rich - a small fragment of the population - to frequent shopping malls, goods there still tend to be unaffordable for the masses. Many see e-commerce as a more affordable alternative.

"Earnings in Africa are very low, mostly due to poor education," says Harris of Intoweb Business Solutions. "This is not improving much, and African countries are struggling to embrace knowledge en masse. E-commerce is not expected to make a significant impact on the masses, but it does enable people with money to obtain items not normally accessible."

The World Bank estimates that in 2011, 46.8 percent of Africans earned less than $1.25 a day; in 1990 the figure had been 56.6 percent.

Harris says:"While only 1 percent of the people will be embracing e-commerce, that 1 percent is the population that has money, thus accessibility to low-cost commodities will be huge from where we are now."

The growth of e-commerce in Africa will provide great opportunities for Chinese manufacturers, who can offer a huge range of goods at very competitive prices, says Zhou of Sino-Africa Future Corp.

E-commerce is perfect for countries like Kenya before they build up their own manufacturing industry, he says.

China has a complete industry chain for manufacturing, both up and downstream, Zhou says.

"For any electronic products in Shenzhen, you can find almost all of its upstream and downstream industries and the spare parts needed within a five-kilometer radius."

Generally, the top 5 percent of the upper class care a lot about quality and brand value, while 70 percent of the middle class care more about practicability.

Higgins says: "Global sourcing has become easier and more accessible, and with China being the world's biggest producer of goods at various pricing levels, it makes sense that e-commerce will give rise to the opportunity of increasing Chinese imports."

Parisot says: "It's definitely a good opportunity for Chinese products to penetrate into the African market. And of course, online is the easiest way, because all we ask of these brands is to send products to us and we will advertise for them to make sure we sell these goods.

"We work in close partnership with brands that manufacture their products in China. Of course we do quality checks to ensure quality. We definitely work with those brands, build their names into this market and offer them to drive volumes in this kind of market and offer them a new growth opportunity."

One of the best selling smartphones in Jumia Kenya is Infinix, a Hong Kong brand. It is "very, very high-end at a very affordable price", Parisot says.

China's experience of developing e-commerce could be instructive for Africa, as well.

China and the United States are the world's two key e-commerce players, Zhou says.

"China has greatly transformed the e-commerce industry because of its great variety of goods and the convenience and speed of its logistics system.

"China has great advantages in running e-commerce. It has great advantage in buying because those in the industry know where to get the best and cheapest products. Chinese e-commerce businesses have a lot of experience including knowing how to promote their wares and how to satisfy customers."

Zhou says sales in China on Nov 11, so-called Singles Day, have grabbed worldwide attention, and some African e-commerce businesses have been drawing on this Chinese experience.

Last Nov 11, goods worth 57.1 billion yuan ($9.1 billion) were sold on the Internet.

"Chinese e-commerce businesses like Alibaba have been in the market for pretty long," Maina says. "The model can suit Africa e-commerce markets. It's their experience that we Africans like."

houliqiang@chinadaily.com.cn

Fran Peacock, head of international growth at Yuppiechef.com

Zhou Bin, director of Sino-Africa Future Corp Ltd.

( China Daily Africa Weekly 03/06/2015 page1)