(Electronic commerce or “e-commerce” is the buying and selling of information, products and services via the Internet.)

Now, if you have plans to start an e-commerce in Africa, or you have already invested in any e-commerce project in Africa, this article is for you.

A better title for this post would be: “Why you should not invest in eCommerce in Africa before 2020?” or “Africa is not ready for eCommerce … Wait”.

What is the status of e-commerce in Africa?

The oldest and most successful African eCommerce company is eShopAfrica.com, from Ghana, started in 2001, selling arts and crafts from Ghana, Ethiopia, Zimbabwe and Mali to consumers in USA, and UK. Products are made in Africa, and sold to fat-wallet middle class consumers in developed world, who can pay with credit card, Paypal and can access Internet at any time.

The second most successful African eCommerce company is Skinny laMinx, from South Africa, which sells highly designed crafts to consumers abroad. 80% of  “Skinny laMinx” sales comes from USA and Australia. To accelerate their growth, they moved their shop to etsy.com, and recently opened an offline boutique in in central Cape Town, at 201 Bree Street.

The third most successful African eCommerce is again a craft company, Rwanda Partners, which sell hand made baskets and jeweleries from Rwanda in the USA market. I love Rwanda basket, and the quality of their products.

Obviously, the handmade and crafts segment is the most successful eCommerce segment in Africa, and here a list of other popular sites:

- Paper Craft Africa and Banana Boat (Uganda)
- African Craft Market (SouthAfrica)
- African Artists (United Kingdom)
- Zawadi (South Africa)
- Africa Creative (South Africa)
- Botswana Craft (Botswana)

The second most successful eCommerce segment is online entertainment like the Nollywood movies distribution company IrokoTV, or the African shows and music distribution platform TruSpot,  and the myriad of “Pay TV” subscription services like Canal+, DStv, Vodacom, BSKyB, Viasat, etc.

The third most successful eCommerce segment is made of “hustlers”:
- Betageeks using average computer programming skills to make money form platform like guru.com, elance.com, etc.
- copywriters and translators for foreign websites or local agencies
- Forex traders
- and the notorious Nigerian Scammers using dubious schemes to steal money from greedy foreigners.

We can conclude from above that Expect the Entertainment segment (online movie and Pay TV) which have African as customers, the only successful ecommerce in Africa are targeting foreign customers. “Your goal should be to try and sell your tech skills (including your English language skills) to Americans or Europeans who are looking for cheap labor. i.e. outsource your skills to those who already have credit cards and disposable income and try and get their money. Why look for water in the desert (Kenya) when there’s a whole ocean out there? (aka America, Europe, etc, etc)” - Kenyan Entrepreneur

Any other ecommerce company you have heard about is either struggling or is operating at loss. Here are few of the most hyped:

- DealDey (Nigeria Groupon clone)
- Rupu (kenya Groupon clone)
- Kalahari (Kenya Amazon Clone)
- Jumia (Nigeria Amazon clone)
- Ushop (Zambia online grocery)
- Atsoko (Tazania beauty and cosmetics)
- YuppieChef (South Africa Kitchen tools)
- DealFish (Dead pole, ex-Kenya Groupon clone)

There are now hundreds of other online websites claiming to bring African retail online. But how could they? Most of them don’t make any money or are losing money.

Ecommerce became successfully around the world for 3 main reasons :

1. Convenience (You decide when to buy, how to buy, from the convenience of your home or office, at your own pace)

2. Lower Price (Consumers usually get better price than going to a local store)

3. More choice (Online stores usually carry more inventory than their traditional store)

Unfortunately, African ecommerce can’t enjoy those conditions:

Regarding convenience: Most African simply do not see the value of e-commerce. Just think of the typical working class in Nairobi or in Lagos. He has his job in town, how could buying something over the internet (from a Kenyan or Nigerian retailer) benefit him as opposed to his usual methods of solving buying needs?

Also, most folks don’t have access to Internet when they want or have very limited time access.

The biggest medias that reach African people are Radio, TV, and Mobile phones. Access to Internet is expensive, very slow, time limited, and not available when you want. Access to Internet via mobile phones is 2.5m/s to be exact. And, shopping using mobile phones is rather difficult though apps have been created to make it easier.

Simply put, Internet is not a convenience yet in Africa, and additionally it’s not a trusted media. In the current stage, I’d rather invest in a company that will invent a convenient way to sell through SMS, Radio, TV, than Internet.

Regarding lower price: Most Africans don’t shop in supermarket or the new modern shopping centers, but in the informal market, where the prices are 2 to 3 times lower. Why would they go to Internet stores, which are just trying to be an extension of modern supermarket?

Additionally, the African middle class which can afford to shop online don’t buy commodities, daily food and house needs from supermarket but from local informal markets. Also, most of this middle class employ cheap home servant which care about daily food and household needs.

AS described by Kenyan Entrepreneur the “fundamental problem still exists and it is that the middle/upper middle class numbers are still too small to really give your online business a boost.

For instance, I’ve been seeing a lot of Kenyans in Kenya now buying airline tickets from American websites and sidestepping travel agents in Kenya who they say are too expensive.

So, for example: My cousin recently bought an airline ticket for his mum to come and visit him in Washington, DC. and what my cousin did was go online to expedia.com and use his credit card to purchase the ticket for his mum (from his end). Then, when his mum landed in DC, she simply gave him the money for the price of the ticket.

I also know middle class Kenyans who are doing this for clothes. i.e. going online (b/c they have access to the internet) seeing what they want (from American retail stores) then telling a trusted family member in America to buy the clothes for them(online) and then they simply wire what you owe back to them.

In other words, those who have access to the internet are not waiting for a “kenyan” site. They can already get what they want if they have to.”

Regarding choice: Most of African ecommerce website sell products you can find by yourself on Alibaba, Amazon, ebay or any branded online store and get delivery in Africa for less price. They are not selling African made products. And when it comes to Africa middle class which the current ecommerce website are targeting, those folks travel quite a lot, and will buy computers and smartphone in USA or UK where they are much cheaper and with more choice. Otherwise they ask friends abroad.

In countries where ecommerce is already well developed, the top-performing online product categories were: Digital Content & Subscriptions, Consumer Electronics, Event Tickets, Apparel & Accessories, and Computer Software.

Top Ecommerce website

Top Ecommerce by region

Top payment solutions

Sadly, most discussion about the development of eCommerce in Africa is too much focused on the eCommerce infrastructure (Terminals, Internet access, payment gate, delivery, logistics, Trust, etc.) , but before any discussion relating to eCommerce infrastructure, we need to check, like any sound business plan,  what is the market and who are the customers we want to bring online.

The business model discussion in necessary because “Most are confused about what E-commerce actually means. E-commerce is not about putting up a website.  Anyone can do that with the kind of software that is available today.  E-commerce is like any other kind of commerce.  The only exception being, it is done online as opposed to being done via a brick and mortar store.  Therefore, because E-commerce is like any other kind of commerce, in order for it to succeed, the ingredients of basic economics need to exist wherever you are” - Kenyan Entrepreneur

5 questions needs to be addressed:

1. Where does African buy now?

Most of the retail commerce in African happens inside the huge African informal sector. Bringing the African informal sector online will be THE real innovation, not copying Groupon, Amazon, Craiglist or Alibaba. Stop the Laziness!

2. What are they spending their money on?

- 30% of any African household revenue is spent on health care
- another 20% on housing needs
- 15% on Energy bills
- 15% on Food
- 10% on transportation
- 8% on clothing and fitness
- the remainder on leisure and social obligations

These numbers are from a survey I’ve done in December 2012 among my middle class African friends.

eCommerce should go where the money goes! or perish!

3. Who are the buyers, and what are their habits?

If you target African middle class, the buyer is the cheap-uneducated-servant most of them employ for house works, buying food, paying energy bills, etc.; or their wives who’d prefer social shopping (or shopping in group with friends), not lonely shopping in front of a computer or a mobile phone (Africans are not lonely people forced to live all day long inside their house or apartment by life threatening weather conditions, and fragmented social life conditions, like Americans or Europeans).

4. How do they buy now?

Most folks buy from a central or neighborhood informal market. Modern supermarket are kind of curiosity center or a Disneyland for most.

5. How much money do the buyers spend, monthly or yearly?

The African Development Bank says: 34%, or 313 million Africans are now middle class (living on $2-$20 a day). Most of this so called $2-a-day-middle-class is located in North Africa. Tunisia ranks top with 45.6% of its population falling into the middle class category, followed by Gabon (37.8%), Egypt (31.6%), Botswana (29.3%) and Algeria (27.3%). At the bottom end, Liberia is the country with the smallest middle class – only 1.9% of its total population.

I’d say the real African middle class monthly revenue is about $800 a month, and in any given city, you can count them on the fingers of your hands.

Anyone considering investing in eCommerce in African should check the Forester study on the 4 stages evolution of eCommerce:

“Phase 1: Connecting and Entertaining. In this phase, consumers are starting to go online and connecting with others through the online channel. Some 10-15 years ago, consumers were likely to go online and engage through email or chat; today, social networking has joined the ranks of one of the early activities of online users. Socialbakers’ estimates of Facebook users by country indicate that the network’s top five markets outside the US are Brazil, India, Indonesia, Mexico and Turkey – in such markets, the number of Facebook users today often surpasses the total number of online users just five years ago.

Phase 2: eBusiness Basics. In this phase, consumers are comfortable enough online to start engaging in activities such as online banking, and are starting to purchase early-stage categories online like travel. In places like Southeast Asia, visits to online banks are reported to be increasing steadily. Online travel, too, is booming in areas where online retail is still nascent: A 2011 report by India-based investment bank Avendus, for example, estimated that online travel purchases represented 87% of the eCommerce market in India.

Phase 3: Comparable Goods Purchases. In this phase, consumers start to shop for goods online that can be easily compared across sellers, e.g. consumer technology purchases or books and media. In a report my colleague Sucharita Mulpuru wrote back in 2008, she identified the categories with the most tenured buyers in the US as books, software and music purchases. Today, these categories – alongside others with tenured buyers like consumer electronics and computer hardware – dominate sales in many emerging eCommerce markets.

Phase 4: Subjective Goods Purchases. In the last phase of eCommerce adoption, consumers’ online purchases start to include those where there is traditionally a strong desire to touch, test or try on the items prior to purchase. This phase tends to include categories such as apparel, beauty and grocery. Today, consumers can turn to more sophisticated website tools – as well as extensive customer feedback – to make more informed purchases online. However, issues like inconsistent sizing and a lack of a returns culture have prevented apparel sales from shifting online in certain markets. In the grocery sector, there are many countries in which few online options even exist for those interested in buying.

While there are certainly exceptions to this linear progression, we see this framework applying across a variety of markets.  Clients interested in more details – and in which countries typify each phase – can read our recently published report on The Evolution of Global eCommerce Markets.”

In a next post I’ll address the Infrastructure requirements for a sustainable eCommerce in Africa.