There are over 1.2 billion people in Africa, which is about 15% of the world’s population. In 2019, the largest technology firm to list on the New York Stock Exchange was not from Silicon Valley, but from Africa. Jumia, an African e-commerce company with over 4 million customers in 14 African countries was the largest technology listed on the NYSE. Its shares jumped by around 70% on its debut day of April 12th, putting the company’s market capitalisation at close to $2 billion, cementing its status as Africa’s first technology unicorn.
Africa is the 2nd largest continent in terms of landmass. This means that people live in diverse locations, making intercity, interstate, and inter-country transactions difficult. And in instances where it does happen, it comes with huge transactional costs. There is a wide gap in Africa’s regional economy, which in a way is responsible for its large poverty population, intra and inter regional conflicts. However, a digital revolution has been sweeping across Africa, making it one of the most digitally connected populations on earth, with 400 million internet users.
Africa’s communication infrastructure is growing rapidly; its smartphone connections is forecasted to double from 315 million in 2015 to 636 million in 2022. Over this period of time, mobile data traffic is expected to increase sevenfold.
Africa’s increased digital connections has led to an increase in the digitalisation of financial services that are changing its payment landscape. There are 122 million active users of mobile financial service in Africa, more than half the global total. As recently as 2014, 66% of Sub-Saharan Africans did not have bank accounts. However, technological innovations have ensured that mobile money now has a considerable part of the payment ecosystem in this region. Interswitch, an e-payment platform in Nigeria, estimates that there are over 300 million digital transactions a month on all its channels in Nigeria. These are transactions that as early as 2002, people had to carry piles of cash around for.
The increase in the number of smartphones on the continent has seen cross-border payment capabilities expand, which is in turn fuelling the growth of cross-border commerce and e-commerce in particular. Already, some 65 million Africans shop on the internet, and this is expected to rise by another 20 million over the next couple of years.
Africa’s formal retail problem is an open secret. There are sixty thousand people per formal retail outlet in Africa, compared with four hundred people per store in the United States. E-commerce, which basically involves buying or selling over the internet, ensures that buyers and sellers can interact over the internet, without physical interactions, ensuring that commerce can happen without locational restrictions.
E-commerce already makes up one to three percent of GDP in seven Sub-Saharan countries, and is expected to make up 10 percent of total retail sales in key markets by 2025. Also, it is proving to be a viable platform to bridge a massive gap in African economies.
The internet thrives on volume. Because of the limitless nature of the internet, e-commerce has made it possible for different products to be aggregated in one place, and accessible with a swipe of fingers. For instance, dating sites are a huge success because of the ability to swipe left or right on potential dates. This allows individuals the luxury of choice, of picking from a large array of viable individuals which is otherwise impossible if dating were to remain localised. The option of products available on e-commerce sites is impossible to achieve in local stores, and this has allowed for users of the internet in Africa to be able to access goods and services in more efficient ways.
The internet is a space somewhere in the clouds. It is an idea that exists without the need for physical structures, and boxes. Hence, businesses on the internet have fluidity. They have a capacity to scale that traditional businesses can only aspire to. E-commerce has provided a much safer and cheaper option for businesses in Africa, especially small-scale ones, to grow, as the investment required is smaller, and potential consumer base is massive.
The growth businesses have made because of e-commerce and e-payment in Africa is obvious to all, but the journey has only just begun. Jumia estimates that online sales in Africa accounts for less than 1% of total retail sales, which pales in comparison to China’s 24%. Private consumption in Africa rose from $860 billion in 2008 to $1.4 trillion in 2015, and is estimated to reach $2.1 trillion by 2025. As Africa’s digitization drive continues, entrepreneurs and investors would continue to seize the opportunity to innovate and utilise the internet to change the face of commerce on the continent.
This article conveys the views of the author and not necessarily that of Ominira Initiative.