Ecommerce boom in Africa offers huge opportunities for logistics sector

Ecommerce boom in Africa offers huge opportunities for logistics sector

Ecommerce is at the epicentre of Africa’s thriving economy. With internet penetration rapidly spreading across the region, increasing number of people go online to purchase and to consume brands from around the world. This represents huge potential for sectors like retail, logistics, warehousing and supply chain, but very little tapped. Reji John reports.

When Chris Folayan arrived in San Jose in the US as an undergrad in 1994, after completing his schooling at Kwara, Nigeria, he had never been on the internet. But quickly he was being drawn into the technology start-up culture of the Silicon Valley and was moved by the exuberance of the .com boom.

More than two decades later, 40-year-old Folayan is the founder and CEO of MallforAfrica, an online platform that allows consumers in Nigeria — and soon Ghana, Kenya and Tanzania — to buy goods from US and UK retailers that don’t do business with the continent.

For Folayan, the inspiration to start MallForAfrica was his regular trips to his hometown during his studies in the US. Each time he visited his family, his family members and friends sent him a long list of things to be brought from the US. It was difficult for him to turn down their requests. Often he ended up at airports with more than allowed number of baggage and weight. Sometimes he paid for extra luggage and occasionally he was told he wouldn’t be allowed to board the plane even if he was willing to pay.

“Bottom line is that the list had become so long that I knew there was a strong demand, and when such demands are not met you have an amazing opportunity to do business,” said Folayan, who graduated from San Jose State University. He ended up building an app and tested it with his family members and friends. It worked, an according to Folayan, those who tried it loved it.

Along with his brother Tope Folayan, who also attended college in the US and earned an MBA from the Kellogg School of Management at Northwestern, founded MallforAfrica in 2013.

MallForAfrica makes it easier for Nigerians – soon many other Africans – to place online orders for American and British products that are difficult to find in Nigerian stores and that online retailers don’t offer directly to most African consumers because of troublesome customs duties and paperwork, shipping costs and the fear of fraud.

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MallforAfrica optimises the shopping experience for every customer. Customers select whatever items they want and buy it instantly online through it secure payment system. The items are then shipped to MallforAfrica warehouses located in the US and UK and then shipped directly through courier partners like DHL & RedStar to customers’ homes in Africa or the items bought can be picked up at any of MallforAfrica local pickup stations within days. Today on MallforAfrica, shoppers in Africa can gain access to over 100 premium US and UK websites, with 8.5 billion items to choose from.

Despite its well-known challenges, Nigeria has become a test bed for e-commerce startups attracted to its dual distinctions as Africa’s most populous country and largest economy. Even recent tough economic times like the drop in oil price and China’s business slump have not significantly impacted MallforAfrica’s sales.

Today if you are in Lagos and stuck in traffic, you can’t miss the delivery motorbikes of online e-retail brands like Jumia and Konga. In fact Jumia.com brands itself as the ‘largest e-commerce platform in Africa’. Its parent company Jumia Group is often referred to as the ‘Amazon.com of Africa’. It runs eleven digital ventures spread out across twenty-three countries. The largest and most important of Jumia Group’s ventures is the shopping site Jumia.com.

Jumia Group hopes that Nigeria will serve as a base for the expansion of African e-commerce. In 2015, the last full year for which figures are available, Jumia brought in $149 million in revenue. This is relatively small compared with the $400 billion that McKinsey’s Global Institute estimates that Nigeria’s consumers spent the previous year. McKinsey predicts that by 2025 Africans could be buying $75 billion worth of goods and services online annually, which suggests promise for Jumia’s other markets in Algeria, Cameroon, Egypt, Ghana, Ivory Coast, Kenya, Morocco, Senegal, Tanzania, and Uganda.

Most Jumia customers pay cash on delivery for goods purchased online. This means delivery persons are responsible for handling and keeping safe much of the company’s cash. This is a unique challenge for any online retailer operating in any of the African countries.

However, such a risk is not stopping online players to stay away from such markets. For instance, Jumia accommodates orders from unstable areas, including Boko Haram-controlled parts of Nigeria’s northeast, building a premium into the prices and requiring payment in advance, then striking deals with outside delivery services. Despite the challenges, the company managed, last year, to ship ten thousand packages a day throughout Nigeria.

Africa is in between a rapid communication infrastructure growth, which is a result of increased usage of mobile phones all over the continent. Increased penetration of smart phones in some of the rapidly emerging economies like Nigeria, Ghana and South Africa, is creating a huge opportunity for the online retailers. This has subsequently boosted the ecommerce industry in Africa. The statistics released earlier this year predicts that online shopping in South Africa alone is expected to reach 37-billion Rand this year and to jump to 46-billion Rand in 2017.

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Recently eBay signed a partnership with MallForAfrica to have a dedicated platform to enable inventory from all eBay US individual and business sellers with a 300+ star rating to be purchased by buyers in Nigeria and Kenya. “We are creating a unique ‘eBay Powered by MallForAfrica’ app to run on all our platforms. When buyers in Africa shop with this app, they’ll be able to shop on eBay, buy what they want, check out, and pay through MallForAfrica,” said Folayan about the partnership.

eBay’s collaboration with MallForAfrica solves a number of challenges global consumer goods companies face when entering many African markets. With a unique payment and delivery system, its proprietary platform serves as a digital broker and logistics manager between US retailers and African consumers. MallForAfrica has backing from UK private equity firm Helios Investment Partners and partnerships with companies such as clothier Hawes and Curtis and department store Macy’s.

Both parties confirmed the partnership will be a financial, marketing, and logistics arrangement only–eBay has not taken any equity stake in MallforAfrica.

The eBay/MallforAfrica partnership marks continued outside confidence in Africa’s retail markets and the value proposition for African e-commerce.

With the growth of e-retail market, the logistics is gearing up to support the deliveries. People are realising how important logistics is to growth of any company and multiple startups have cropped that cater to delivery and courier services all over the continent to meet the growing demand of online shopping.

Some of Africa’s ecommerce startups, particularly those in the online retail space, have been securing good flow of funds. Africa Internet Group (AIG), which owns Jumia and nine other e-ventures, received €75 million ($83 million) from Europe’s AXA Insurance in exchange for an equity stake. It is reported that AIG will use the funds to support all points of its business model aimed at expanding ecommerce services across Africa’s core economies. The investment buys AXA access to AIG’s expanding startup network.

“We have a solid ecommerce vertical across things like retail, travel, real estate and cars. First, we’ll use the investment to strengthen our existing businesses. Longer term we’ll look at launching new African companies and services and entering new countries,” said Sacha Poignonnec, managing director, AIG, in a recent report about the investment.

In May 2015, Jumia along with Kaymu, another leading e-commerce marketplace in Africa, launched a new joint initiative to provide a fulfillment and delivery platform for online sellers in Africa. The partnership intends to create up to 100,000 jobs in logistic services.

This initiative, AIG Express, is Jumia and Kaymu’s response to the rapid growth of African ecommerce. AIG Express plans to integrate existing logistics providers into a single network that will meet the growing needs of online sellers across the continent. In 2015, they were delivering up to 100,000 packages a day for Jumia and Kaymu, and it expects this number to grow exponentially.

The growth of ecommerce in Africa offers unpreced- ented opportunities for logistic companies. At the moment, many companies face limitations in technology investments and skill development. This prevents them from meeting current ecommerce standards, which require the capacity to process ‘cash on delivery’ transactions, track packages electronically, as well as mobile equipment to communicate effectively with sellers and customers. AIG Express intends to work closely with local logistics entrepreneurs to fill these gaps by implementing technology and training to handle ecommerce logistics.

“We have developed an approach which will help logistics companies in Africa become as effective as the companies in more developed markets. We provide a common platform that would link all logistics providers and enable serving the demand of online customers. Through consolidation of volumes from ecommerce platforms such as Jumia and Kaymu, we provide a constant stream of business which can help logistics companies to grow. We already have a number of companies incorporated to our network – from established logistics companies with decades of experience to newly created local ventures – several of which have been created by African entrepreneurs specifically on the backbone of Africa Internet Group’s businesses,” said Indrek Heinloo, global CEO of Jumia Service, who is leading this initiative across Africa.

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