Africa is unique in the way e-commerce has leapfrogged traditional retail, offering major opportunities to companies operating in the space.
That is according to Jumia co-CEO Jeremy Hodara, who says Africa suffers from a lack of modern retail, and is therefore unable to satisfy the demands of the growing population.
“If the United States has one mall for 389 inhabitants, the African continent only has one mall for 60,000 inhabitants. As such, this lack of modern retail infrastructures has left a gigantic void for e-commerce to fill,” he told Disrupt Africa.
“The online offering has much more opportunity and leverage in Africa where the offline demand is so scattered and low.”
Frost Sullivan predicts the African e-commerce market – worth US$8 billion in 2013 – will grow to the value of US$50 billion by 2018, with Hodara saying there are a number of reasons for this aside from the leapfrogging. The demographic context is also more than favourable to the explosion of e-commerce, with Africa’s population expected to reach 2.5 billion by 2050.
“E-commerce will undoubtedly surf on this wave, backed by a young population that is technology-savvy and will master and prefer this way of shopping. Finally, e-commerce in Africa can count on its growing middle class to expand its business,” he said.
The technological evolution of Africa, fuelled by this young middle-class, is also an indicator of the potential and promise of e-commerce for investors. Internet penetration is closing in on 30 per cent, and is as high as 51 per cent in Nigeria. Smartphone adoption is also on the rise.
Hodara admits there are a number of challenges, however, including logistics and how to access those that remain offline. Payment, in particular, is a major issue in many African countries, where populations are either unbanked, underbanked or wary of paying online.
There is also the need to adapt to the challenges of mobile-first countries and the fast adoption of smartphones and internet services.
Paul Cook, managing partner at Silvertree Internet Holdings, says there are other challenges, such as the expenses involved with running Amazon-style stores, and the fall in consumer spending across the board. Yet e-commerce companies remain highly valued.
Silvertree, however, typically invests in more niche offerings. Cook feels the industry is gradually changing, with the key to the potential of the sector lying in getting cost structures to make sense.
“In the early days, everyone raved about Jumia and Konga’s fleets of delivery drivers taking cash on delivery. This year, everyone is shifting away from that towards marketplace models,” he said.
“Partially this is because this is now operationally possible, but partially it reflects a new focus on the bottom – rather than top – line.”
Though there are a number of challenges, many of them, such as delivery and payment, are much improved compared to a few years ago.
“It starts to be possible to run a “Western-style” e-commerce company in much of Africa, such as by outsourcing logistics and payments. This is a huge step on the road to viability as an industry, but markets are still small,” Cook said.