Nigeria leads African e-commerce market as technology drives retail

Nigeria is the focal point for a significant amount of e-commerce growth in Africa. The country’s three main online retailers— Jumia, Jiji and Konga—serve a mass-market clientele across the region. And the country is in pole position to take advantage of e-commerce potential, on the basis of its high business environment opportunity potential.

This was based on the white paper report titled How technology is driving retail in Africa by The Economist Intelligence Unit, the research and analysis division of The Economist Group, the sister company to The Economist newspaper.

In this white paper, find out how technology is shaping retail markets in Africa, through rising smartphone penetration, the use of mobile broadband and network coverage on the continent. What does the future look like for these fast-growing retail markets, and which obstacles remain?

African e-commerce sector is growing strongly, largely on the back of increased smartphone take-up among African consumers, who are using mobiles to access a variety of e-commerce shopping platforms. Enthusiasm towards e-commerce among Africans is growing, for a variety of reasons.

This increasing access to technology, via avenues such as smartphones, is helping consumers in previously hard to reach areas to access all manner of e-commerce opportunities, including emerging African fashion.

Smartphones are a gateway tool to the internet for Africans, especially in Nigeria, where the mobile penetration rate is forecast to rise from 103 per 100 in 2016 to 122 per 100 by 2021.

Jumia and Konga are two of the biggest e-commerce companies in the continent, and in Nigeria, nearly three-quarters of users access the Jumia platform via their mobile phones.

Jumia, Konga, Kara, Dealdey, YudalaPayporte, and Vconnect. Those seven are the major jacks-of-all-trade. They sell and deal in almost everything. Jumia Nigeria and Konga are the two main players on this field. It was their ‘war’ that opened the door for many of players we see today.  Jumia umbrella covers all the sub-entities under it. So it has swallowed up Jovago (Jumia Travel), Lamudi (Jumia House), Hellofood (Jumia Food) and the rest of the fold.

Jumia umbrella covers all the sub-entities under it. So it has swallowed up Jovago (Jumia Travel), Lamudi (Jumia House), Hellofood (Jumia Food) and the rest of the fold.

It will be recalled that Jumia celebrated its fifth anniversary in June, having become the first company to surpass US$1bn in market value on the continent in February 2016. Dubbed the “Amazon of Africa”, the Jumia.com shopping site operates in 11 African countries, and the parent company manages African equivalents of various Western consumer-goods sites, including Hotels.com and Uber.

Supported by an operator focus on expanding network coverage and delivering more advanced connection speeds via LTE services, Africans are turning towards e-commerce in ever-increasing numbers. This is owing to a variety of factors. An expanding middle-class population is one reason, while

This is owing to a variety of factors. An expanding middle-class population is one reason, while a large number of Africans moving from rural to urban areas in search of employment, resulting in rising levels of disposable income, is another. However, e-commerce is equally successful in increasing access to shopping services in rural areas.

In Nigeria, for example, e-commerce is serving rural areas effectively, as companies such as Jumia are able to deliver to less accessible places, where sourcing goods from shops or stalls are not as straightforward.

This newfound access to technology is one of the primary drivers of e-commerce growth in Africa and will sustain growth throughout the forecast period, straddling different socioeconomic segments of the population.

E-commerce has given a significant proportion of Africans access to brand names not always readily available via informal avenues of retail. Although it remains underdeveloped, the e-commerce sector in Nigeria is worth around US$13bn, according to This Day, a Nigerian-based business news website.

And across Africa, the continent is primed to generate yearly e-commerce sales totalling around US$75bn by 2025, according to a consultancy company, McKinsey. Other, more bullish forecasts put sales at around US$50bn by 2018. By comparison, e-commerce sales in Europe stood at an estimated €530bn in  2016, accounting for 30% of the global total, suggesting that the African market is still in its nascent stages of development.

Jumia and Konga are some of the biggest e-commerce companies on the continent, delivering online shopping via their marketplace platforms. Both of these companies sell a wide range of goods but have found particular success in the fashion and mobile-phone sectors. In the case of Jumia, a significant part of its success is down to the way smartphone use is driving e-commerce activity.

According to Jumia’s CEO, Juliet Anammah, around 71% of the company’s Nigerian users access the marketplace portal via their mobile phones. However, the rest of the continent is still playing catchup, with 53% of Jumia’s customers from other African countries using smartphones to carry out their online orders.

In Kenya, e-commerce growth is also strong. According to the Communications Authority of Kenya, the nation’s consumers spent more than KSh10bn (about US$100m) in 2016, up from KSh2.4bn in 2014. The country’s embrace of technology is exemplified by the 17m users of the M-Pesa mobile money platform, but also by the fact that, as at June 2016, there were 26.8m internet/data subscriptions, the overwhelming majority of which were mobile data connections. Indeed, internet access via means other than mobile constitutes less than 1% of total subscriptions. And much like Nigeria, the Jumia marketplace portal is one of the main e-commerce players. However, as is the case elsewhere in Africa, a lack of trust in online transactions prevails, with most Kenyans preferring to pay for goods in cash.

The country’s embrace of technology is exemplified by the 17m users of the M-Pesa mobile money platform, but also by the fact that, as at June 2016, there were 26.8m internet/data subscriptions, the overwhelming majority of which were mobile data connections. Indeed, internet access via means other than mobile constitutes less than 1% of total subscriptions. And much like Nigeria, the Jumia marketplace portal is one of the main e-commerce players. However, as is the case elsewhere in Africa, a lack of trust in online transactions prevails, with most Kenyans preferring to pay for goods in cash.

And much like Nigeria, the Jumia marketplace portal is one of the main e-commerce players. However, as is the case elsewhere in Africa, a lack of trust in online transactions prevails, with most Kenyans preferring to pay for goods in cash.

And much like Nigeria, the Jumia marketplace portal is one of the main e-commerce players. However, as is the case elsewhere in Africa, a lack of trust in online transactions prevails, with most Kenyans preferring to pay for goods in cash.

As a result, several e-tailers have adjusted their propositions to allow customers to pay in cash on delivery, or via M-Pesa. That said, e-commerce is in its nascent stages in Kenya, largely because of the advanced nature of the formal retail sector, which is second only to South Africa in maturity.

The South African retail sector is somewhat different from the rest of the continent, with improved infrastructure, internet access, mobile penetration and a larger proportion of middle-class consumers all contributing to greater e-commerce growth prospects.

The majority of South Africa’s major retailers have an e-commerce presence, while the country also counts on a variety of online-only retail companies. Although online trade contributes to only a small proportion of overall sales for retailers with a physical store presence, several companies have seen considerable growth in site visits, revenue and turnover growth from their internet offerings. A local retailer, Massmart, claims that it saw a 74%.

How technology is driving retail in Africa year-on-year increase in visitors to its Makro website in 2016, while Pick n Pay, the second-largest supermarket chain in South Africa, saw its e-commerce revenue increased by 38% last year.

Despite this growth and South Africa’s relative online sophistication compared with other countries in Africa, there remain challenges around internet access and low-income levels in the country, potentially holding back e-commerce growth.

Away from marketplace portals, some e-commerce growth comes from increasing interest in the fashion and apparel sector. Again, the continent’s most populous country, Nigeria, takes the lead, with its online apparel market set to grow from US$104m in 2014 to around US$1.1bn in 2019, according to a market research firm, Euromonitor International.

While companies such as Jumia and Konga serve the mass market for e-tailing in the region, well-heeled, brand-conscious Africans are also being catered to. At the beginning of 2017 Africa saw the first launch of a luxury e-commerce network. Polo Avenue, a Nigerian-based luxury retailer that operates across West Africa, launched an e-commerce platform in March, shipping its products across the African continent.

Focusing on high-end brands such as Gucci and Dolce & Gabbana (Italy), Rolex (Switzerland) and Cartier (France), the platform caters to a client base that it claims is willing to spend around US$1,000-2,000 per visit, usually on a monthly basis, together with high-net-worth individuals that are willing to spend tens of thousands of dollars.

But perhaps most interestingly, Polo Avenue is also using its e-commerce capability as a means of showcasing African brands and upcoming regional designers.

Indeed, as much as the e-commerce market in the region caters to African consumers that want to be able to purchase globally recognised brands, as well as home-grown talent, the e-commerce market also serves as a means of making African fashion accessible to a global audience.

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