Geographies in Depth

8 ways to help African e-commerce fulfil its potential

A man prepares to make an M-Pesa payment at an open-air market in Kibera, Nairobi.

A man prepares to make an M-Pesa payment at an open-air market in Kibera, Nairobi. Image: REUTERS/Noor Khamis

Kimberley Botwright
Head, Sustainable Trade, World Economic Forum
Matthew Wilson
Permanent Representative and Ambassador, Permanent Mission of Barbados
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This article is part of: World Economic Forum on Africa

E-commerce in Africa is well under way. Estimates suggest about 264 e-commerce start-ups are operational across the continent, active in at least 23 countries. There’s significant potential to create new jobs – as many as 3 million by 2025. These jobs will be directly in online marketplaces, supporting services and spin-off economic activity.

Benefits will include opening markets to otherwise isolated rural communities and servicing Africa’s fast-growing consumer class. Through digital tools, women entrepreneurs are tapping into e-business opportunities, where previously social norms or family duties may have kept them out of the traditional workforce. African e-commerce can be a force for sustainable development.

Image: BCG

But this potential faces headwinds. Today, Africa’s e-commerce start-ups and the broader digital ecosystem must navigate significant hurdles, from exceptionally low consumer digital trust, poor infrastructure and weak delivery logistics. Many challenges mean that, despite increased digital visibility in neighbouring markets, intra-regional and global e-commerce remain limited.

Here are eight ways Africa’s leaders and the international community could help:

1. Refresh policies

Policies shape the business environment, affecting everything from payment options to internet prices and IP protection. Yet Africa’s policies lag behind the world in some areas – for example, only 20 of its 54 nations have rules for online consumer protection.

The African Union has mandated a Digital Trade and Digital Economy Strategy to be developed by February 2020 to guide governments on multi-faceted e-commerce policy questions. Participating in regional and global talks can help ease regulatory friction for Africa’s e-commerce exporters.

2. Expand connectivity

Only a quarter of Africa’s population regularly use the internet, and costs are high. Governments, business and international organisations should pour energy into the “missed” Sustainable Development Goal 9c – to provide universal and affordable internet access to least developed countries by 2020. Committing to inclusive access across Africa by 2030 would boost domestic e-commerce growth and support entrepreneurship.

3. Upgrade logistics

African governments and donors can advance implementation of the World Trade Organization (WTO) Trade Facilitation Agreement (TFA) to reduce customs costs that eat into cross-border exchange, while public-private partnerships can deliver solutions for small business needs.

For example, the International Trade Centre, through its Digital Transformation for Good approach, is working with the government of Rwanda and partners such as DHL to support SMEs to successfully develop their presence in local and international e-commerce channels and have access to improved logistics services.

4. Enable e-payments

Cash on delivery remains popular in Africa, making cross-border e-commerce difficult. Also, policies are often not adapted to complex payment supply chains, meaning Africa’s merchants have fewer options to connect their local e-payments systems with services used by global customers.

Policy-makers need to work to improve local and global payment system interoperability. In so doing, bolstering Africa’s position as a global leader in mobile payments to act as a first point of contact for universal financial services access.

Just 37% of women in sub-Saharan Africa have a bank account, compared with 48% of men. In some cases, fintech can help bring financial services directly to women who may otherwise have faced difficulties in getting paid for an e-commerce sale. So too, a partnership between Safaricom and Paypal has enabled qualifying Kenyan customers to transfer money between the online payments system and the telecommunication operator’s M-Pesa mobile wallet.

5. Manage data

Business models relying on data are a hot topic worldwide due to debate on new growth benefits versus competition and taxation concerns. Some policies may restrict data flow even as it is needed for service delivery and trade, sometimes for clear reasons, such as privacy standards. Elsewhere, these policies can be less clear or designed to capture digital value.

Africa can engage in dialogue on data governance best practice for the region. A first step would be more economies ratifying the African Union Convention on Cyber Security and Personal Data Protection (Malabo Convention).

6. Grow tech

Equity funding in African tech start-ups has increased rapidly – reaching $1.16 billion in 2018. Yet, overall foreign direct investment (FDI) flows into Africa are limited, just 3.5% of the global total. Efforts in this area should aim to double FDI flows into Africa’s tech sector by 2030

For example, 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.

7. Coach small business

Small businesses are the majority of African enterprises, and digitalization is key for the future. Tech services and platforms are helping digitize many of Africa’s small enterprises and can offer pathways to formalization. Work is needed though to coach entrepreneurs, though, getting them ready to attract global private investment. Incubators can be better used to prepare businesses to attract investment, while stakeholders can work with networks such as The African Civil Society for the Information Society (ACSIS) on ICT skills training and encouraging youth innovation.

8. Join forces

Capacity-building will be critical to ensuring that technology advances – which will carry on globally regardless – are put to use for Africa’s jobs and growth. To do so, increased donor support and public-private partnerships are needed to help with challenges unique to the region.

Successful initiatives, such as the UNCTAD-led eTrade for all, bringing together over 30 institution partners can be used as a one-stop information shop for assistance to developing countries. Likewise, actions for cooperation between public and private initiatives have been prioritized – including on e-commerce – in a European Union-African Union Digital Economy Task Force under the umbrella of the New Africa-Europe Digital Economy Partnership.

Business and experts from within and beyond the continent led by the World Economic Forum and the International Trade Centre have outlined these eight areas in a new document released today – Africa’s E-commerce Agenda. Each area comes with a goal and recommended steps that participants will debate at the World Economic Forum on Africa ongoing from 4-6 September in Cape Town, South Africa.

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