The changing complexion of e-commerce in Africa

The nascent African e-commerce market continues to grow on the back of increased connectivity, smartphone and computer adoption, a more discerning consumer market (that looks for convenience, choice, quality and bargains), the availability of easy-to-use mobile apps and an enabling regulatory environment.

During 2020, the COVID-19 pandemic gave a major boost to e-commerce and resulted in the entry of new market players and the acceleration of existing enterprise digital transformation strategies, especially in the retail and banking sectors.

These have helped the sector mature and have led to various ecosystem changes.

On the supply side, e-commerce has expanded the reach of large enterprises which are constantly looking for new channels to reach their target markets while also capitalizing on the positive effects of social media platforms. 

For the enterprise business-to-consumer (B2C) players, growth is becoming possible because of ongoing digital transformation strategies which are evolving business processes including supply chain management (SCM), enterprise resource planning (ERP) and customer relationship management (CRM).  

Major enterprise B2C players – including those in retail (supermarkets, apparel, food, luxury goods) – have invested in their own applications and platforms, as well as integrating third-party payment systems so that they can address customers directly and outside existing platforms, which do not always offer good visibility. 

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E-commerce has also helped many small and medium-sized enterprises (SMEs) not just to increase their geographic reach without incurring undue overheads but allowed many new entrants to set up businesses that are entirely digital and without the cost and other encumbrances associated with brick-and-mortar models.

As the sector continues to evolve and mature, it also owes a good part of its existence to payment systems like mobile money, mobile banking, gateway payment providers, cross border providers and credit card providers, among others. 

Across the board, technologies such as cloud computing, mobile, artificial intelligence (AI) and the Internet of Things (IoT) are being leveraged by local players to enhance their participation, ranging from logistics, to application and website development, and hosting and payment systems.

In the regulatory space, various legislations and sector guidelines have served to increase both supply- and demand-side participation including laws that relate to data protection, privacy and intellectual property. 

Related:SA online retail topped $3.8B in 2023, growing 29%

Aside from such laws, the existence of financial and ICT sector regulatory bodies are integral to enabling the growth of e-commerce and ensuring trust among consumers which is vital to their continued safe participation.

Market outlook

Looking ahead, and going by the current evolution, there are some significant shifts that can be expected.

Some shifts are borne of natural technological evolution, while others ride on the changing regulatory landscape or ongoing payment system evolutions.

Technology

AI can be expected to play an even greater role in market segmentation, increasing efficiencies in procurement and logistics, vetting payments, reducing fraud and generally enhancing the overall customer experience.

IoT is another area that will grow in usage in supply chains, from tracking of inventory upstream all the way to delivery.  It will also play a big role in fleet management and freight tracking.

By the very nature of e-commerce, a lot of personal information, including that of payment systems, is shared on e-commerce platforms. Just as with other sectors, cybersecurity will remain a fixture in the e-commerce landscape.

Regulation

Given concerns around trust and fraud, it can be expected there will be more rigid compliance with regulations relating to data protection and privacy laws – focused on the collection, storage and use of personal information. 

E-commerce transactions generally tend to "overreach" when it comes to data minimization principles by virtue of collecting information on payment modalities and geographic locations. 

In some instances, the concerns extend to the use of this information by supply chain partners that utilize tracking systems.

Online fraud remains a problem especially where payment systems are linked to transactions or as a requirement before completing a transaction. Thus, payment and platform providers constantly need to ensure strict security measures and can expect to be under even more regulatory scrutiny regarding their compliance.

Given the competitive nature in this space, there are many instances of counterfeiting which not only result in losses but also erode trust in online platforms. Thus, compliance with intellectual property laws is receiving a lot of attention and platform providers are faced with the task of verifying the origins of goods or facing penalties and incurring reputation loss. 

More rigid compliance with data protection and privacy laws can be expected in the e-commerce sector to counter concerns over fraud and the use of personal information. (Source: Image by prostooleh on Freepik)

Harmonizing tax regimes for international and cross border movement of goods and payments is another area expected to receive a lot of attention, especially where currency differences are a factor in the value of both goods and transactions.

Alongside this would be the definition and classification of different types of goods.

Many countries have already started levying digital taxes on businesses with revenue authorities looking to plug any gaps through greater surveillance of online trade.

There are still issues concerning visibility and reporting for which it can be expected new measures will evolve.  This is more where individuals and small businesses do not use common platforms but elect to ply their trade via social media platforms.

Payment systems

One key challenge faced by e-commerce players in most markets is the fragmentation of payment options (mobile money, credit and debit cards, bank accounts, etc) and the need to consolidate this by working with numerous payment gateway providers. 

At the heart of this integration lie issues around trust and security alongside the need to comply with different financial sector regulations that touch on the collection, storage and exchange of information.

It can also be expected that, as part of the payment evolution, there will be more and more agreements between mobile payment providers and card issuers, especially to allow unbanked consumers to complete international payments via virtual debit cards.

Changing platforms

As the market evolves, there is a notable trend in which some businesses opt not to use existing platforms and instead set up their own businesses on social media platforms such as Instagram and Facebook, where they retain a good amount of visibility and control the perception of their products.

This has been helped mostly by easy-to-set-up mobile payment options in which traders are not required to use several payment gateways (and the resultant delays in receiving payments). 

Sustainability

The packaging and logistics aspects of e-commerce are also receiving a lot of attention especially in countries that have strong regulations on e-waste and other waste. 

By its nature, e-commerce results in the accrual of a lot of waste and companies in this space can expect to be called upon by authorities to implement frameworks that address waste.

Consumers too are becoming more conscious about the environmental impact and are invariably gravitating towards platforms and providers that address environmental concerns.

Another thing that the COVID-19 pandemic brought into sharp focus – when global supply chains ground to a halt – was the need to source locally. 

With this in mind, and alongside wishes to reduce costs and emissions from logistics, many players are seeking to work with local suppliers of goods.  This can also help to bolster local investment and innovation to fulfil market requirements and promote local competition.