eCommerce

Why Africa is the market of tomorrow

February 1, 2021 6 min read

Don't let stereotypes rule your opinion. We are going to share the surprising facts about African eCommerce and explain why this continent is full of business opportunities.

Trevor Goott
Head of Africa

Large innovative cities that have emerged from the semi-rural areas in a matter of decades have today become centers of innovation and foreign investment. New companies are flocking to Lagos, Nairobi, Accra, Addis Ababa, and Kigali, aiming to reach new customers and business opportunities. 

Does this mean that African countries are determined to become leaders, not followers, when it comes to the eCommerce business and fintech? 

Just like Europe, Africa is an extraordinarily diverse continent with 54 countries that present a massive opportunity for companies to develop their business. The eCommerce landscape can be characterized as fast changing in terms of mobile technology, rapid internet penetration, and diverse payment methods. The value of the eCommerce sector in Africa is expected to reach US$24,759m in 2021 making it an attractive destination for foreign investors. 

Mobile phones are central to life

Africa had a history of raising taxes for mobile users and operators, but thanks to forward-thinking countries like Kenya, it’s no longer the case. Realizing that inflated prices have impeded the progress, these countries removed these taxes and encouraged more people to subscribe. 

Now, one of the main drivers of the African eCommerce growth is a variety of mobile-based payment options that have reduced barriers to payment-related issues. 

Launched 13 years ago in 2007, a mobile money transfer service, M-Pesa, was introduced to online shoppers in Kenya, providing millions of Kenyans access to digital finance. But after a while, more solutions arrived to provide access to new opportunities, including energy as a service (for example, companies that promote access to sustainable energy through off-grid products) or ride-sharing services, such as Uber and Bolt. They can additionally bring many shoppers who do not have bank accounts and for whom mobile solutions and payment platforms can open the door to a better quality of life. 

Top African countries that fuel eCommerce growth

Unlike China or the US, the African eCommerce market, in general, is still relatively nascent mainly because of the lower-income consumers and the still-developing infrastructure to provide different payment methods and fast delivery. However, according to the WorldBank report, Africa’s urban population will double over the next 25 years, reaching 1 billion people by 2040. 

Some countries are already experiencing strong growth and are finding ways to adopt new technologies thereby creating a favourable business climate for foreign retailers. 

Sub-Saharan Africa has the six most promising and largest markets that open the biggest opportunities for international merchants: Nigeria, Kenya, Ghana, Uganda, Tanzania, and Ethiopia. These countries are expected to show rapid growth in consumer spending in the next few years. 

But what makes these countries stand out while others still remain in their infancy? 

Huge population growth, a rising urban middle class, and a good banking system have created an appetite for more products, even the expensive ones. Modern consumers know how to buy things with their phones, how to transact, and therefore access goods and services more efficiently. 

Understanding eCommerce in the local context   

With a population of over 1.3 billion people and a decline in overall poverty, Africa is full of energized, young, and highly-educated consumers. Although a large proportion of them have migrated to urban areas, there are still a lot of people living in small villages and cities. 

Megacities vs. rural areas

Indeed, there are a lot of potential consumers that live in the rural areas but they still want to have a choice of products at an affordable price, even if they don’t have the same delivery options as people from bigger cities. It’s profoundly wrong to believe that online shopping is exclusively for people from major cities like Nairobi or Addis Ababa. So, what actually happens once you leave a big city?

Catering to the needs of rural markets 

“Turn left at the red road sign next to the food store, then turn to the right at the yellow fence at the first crossing.” This can be an example of how local shoppers usually give directions to their address in the surrounding cities. 

With no numbered address grids, shoppers still expect their orders to get delivered. For this, both small and large businesses, such as Jumia, have turned to tailored solutions. As soon as an order is placed, company specialists call first-time customers to confirm it and receive payment and delivery details. Once it’s all settled, drivers ask shoppers to direct them to their homes by mobile phone. Thanks to such a personalized approach, more consumers from remote areas can access a better choice of products at competitive prices.  

Cash vs. mobile payments

Every day, streams of shoppers come to kiosks, also known as Mobile Agents, to pay for their purchases, settle their bills, and transfer money using cash instead of mobile apps. This happens mainly in the neighborhoods where the nearest bank or working cash machine is far away.

Even though Nigeria is the biggest market in Africa, most people prefer paying by cash there. Other countries experience a similar situation except for Kenya, where over 80% of consumers pay by mobile money (according to Safaricom’s M-Pesa). The number of people having mobile payment accounts is rising in Nigeria but the payment behavior has yet to be changed. 

One of the reasons for cash transactions dominating is a mistrust of online shopping in general. Most consumers don’t want to risk and pay in advance as they don’t know for sure if products get delivered. That’s why people prefer face-to-face transactions, such as cash on delivery, or using mPOS devices. mPOS payments are not without their own problems, they require a solid Network connection, and even then, the device’s battery often runs out.  

Of course, African eCommerce is still facing changes and challenges related to low income, bad infrastructure, and limited payment options, but one thing is certain. This market can’t be ignored. 

Is fintech a game-changer in Sub-Saharan Africa?

Countries in the Sub-Saharan region have become the leaders in mobile payments, encouraging broad access to financial services. Although the region as a whole may lag behind the rest of the world in access to banking services, countries like Kenya and Ghana can be called new regional leaders showing successful cases regarding the use of mobile money. 

Solving the problem of unbanked

M-Pesa is one of the largest and oldest mobile money services in Africa with over 41.5 billion transactions a year that offers payment services for customers who have no bank accounts. Anyone can access their services—from a small retailer to a taxi driver—even those who don’t have bank accounts.   

Unlimint is setting up direct relations with payment systems and provides local expertise for foreign retailers who want to enter this market. Instead of simply buying gateways, Unlimint provides fully-fledged payment products and services through direct integration with the right local payment providers, and is not dependent on third-party payment aggregators or “middlemen”, thus lowering the fees for merchants and improving conversion rates.

Why enter the African market today: Key takeaways

  • African countries present an opportunity for retailers to enter early, become the first mover, and grow from rapid expansion as they still develop.
  • People still have a lot of stereotypes about Africa, creating a lot of room for new businesses. It’s definitely a time to turn weaknesses into opportunities. 
  • It is relatively easy to start a business. In most countries, foreign retailers can get going with no local entity and can create a business with help of a local partner. However, each country is different, and some of them may require a local entity. 
  • The opportunities to find new niches are enormous. While you can have some trending products or services in mind, you can raise your odds by starting with a new niche product. 

Go Unlimint. Defeating barriers to business

Entering the African market may sound challenging at first but your perception will certainly change once you get more knowledge and visit your business destination in person to evaluate the business climate. People there are enjoying a better standard of living and merchants can benefit from the payoffs of business opportunities. But to find a connection with consumers, companies need to have a local partner who knows what consumers want, how they buy things and pay for them. With Unlimint‘s active help from its own local team of experts on the ground in Africa, merchants can seamlessly open a business and receive full support locally. 

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