Logistics to ride on Africa’s e-commerce boom

Logistics to ride on Africa’s e-commerce boom

Rapid growth is seen in Africa’s communications infrastructure in the recent past. Deployment of broadband fiber optic cables along the coast has fast paced the revolution. The increasing use of smartphones is allowing the population as a whole to use 4G networks. Some of the said key developments across the continent are fuelling the growth of e-commerce sector in particular pockets of Africa. Developments seen in communication will enhance the logistics industry especially air cargo segment at the same time benefit the third party payment processors. But challenges such as infrastructure interlinking and regulations remain. Twinkle Sahita reports

The multi-national consulting firm Mckinsey’s Global Institute estimates that the Africans could be buying $75 billion worth of goods and services online by 2025. If it is proved fruitful, It would be a surprise considering the recent economic slowdown in the region. Interestingly, Nigeria, the continent’s largest consumer market, revenue has doubled each year since 2010.

Five years ago, Internet penetration in Africa was just was about one-third of the world average and in 2016, it improved to 28.6 percent, which is just 61 percent of the global average. This clearly indicates that the retailers no longer have the fear that they have been selling the products to people who aren’t online.

Africa has a rapidly growing communications infrastructure, with broadband fiber optic cables being deployed along the coast. The roll out of 4G networks to the interior parts of the continent definitely has revolutionised the segment. These high-bandwidth undersea conduits hit landing points in almost every country they passed through and acted as corridors to landlocked nations behind them. Improved fixed and wireless connectivity quickly followed, along with the telecommunication service providers in many countries upgrading from 2G to 3G, and now to 4G in many urban centres. The increasing use of smartphones is allowing a major proportion of the population to use 4G networks that have been rolled out. The result of all of this is that there is a spiralling the growth of e-commerce in Africa.

Eyeing potential in Africa’s e-commerce market
Delegates at this year’s trade show Air Cargo Africa painted a bleak picture of the current African market. In the short term, droughts, the weakening oil and gas industry, softened consumer demand, issues with repatriating currencies, exchange rate effects and overcapacity due to expansion on the passenger side will affect the market.

However, in the long term, there remains positivity. Speaking at the opening panel session, IATA global head of cargo Glyn Hughes pointed out that, by 2050, estimates suggest that the continent’s population could reach 2 billion people, representing 20 percent of the world’s population, while it was also the world’s youngest [population median age] continent and would remain so. “This means there is an increased labour force potential and huge potential consumer market,” he said. “If the infrastructure and all the other aspects are in place that needs to be in place.”

He added, “With regards to the internet connection, 28 percent of the continent is actually connected to the avid use of internet versus 54 percent of global average. Leading the ways are Nigeria, Kenya, South Africa in terms of connectivity.”

He also mentioned that 11 of the top 25 fastest growing global economies were from Africa, based on International Monetary Fund (IMF) figures.

However, he pointed out there was a huge disparity in wealth, connectivity and regarding ease of doing business between the various countries on the continent.

One area of potential growth identified by Atlas Air vice president sales and marketing Graham Perkins was e-commerce, an area the aircraft lessor is looking to continue to grow in after it last year announced a deal to operate a fleet of 20 aircraft for Amazon. “Amazon is so far only in the US but it is sure to grow, this will be a bigger and bigger part of our business and other businesses as well. With regards to Africa I would say that the African people are ready to take [e-commerce] on, the question is, is Africa itself willing to take it on?”

Room for improvement
One of the major areas for improvement identified by Perkins was in customs rules and regulations, which he said in some countries “dated back decades”.

He said in some places 100 percent of shipments required inspection by customs, while in others transit cargo could not process through customs, which meant it would be impossible to set up a regional hub in that country.
Wealthy Africans also worry about being scammed, which prevents them from buying high-value items and putting their financial details online. On the other hand, Cash on Delivery (COD) poses to be a problem for sellers: theft, the cost of returns, which wipe out losses from successful sales, couriers returning cash late, etc. One of the emerging solutions is mobile-based e-commerce third party payments.There exists a huge opportunity for startups which can act as a trusted third party between buyer and seller to handle money.

The lack of penetration of banking system and credits is another major challenge. This means the payment process could be a hindrance to the potential growth of e-commerce, although there are certain mobile payment solutions coming through. But poor road infrastructure continues to cause significant challenges.

Those who are in the e-tailer business would look at the fast and on time delivery of the products to the end customer. Since the logistics infrastructure is not adequate in the African countries, e-commerce sector is yet to reach where it should be. The last mile delivery boys on bikes ride on the poor road infrastructure to ensure timely delivery of the product.

There is a rising demand from the business community for changes in the regulations so that Africa offers the benefit of ease of doing business.

It was also suggested that if an African country could create a free trade zone, they could stand to benefit from e-commerce retailers, integrators and air cargo businesses investing in regional hubs.

New wave of technology
Since Africa’s complex logistics requirement encompasses multiple logistics vendors to move goods from one region to another, what happens is that the data get processed in different levels and resulting in transparency issues between service providers and customers. Technology can bring multiple vendors together to a single platform where they can exchange data and work in a synchronised manner. Eg: Shipment is booked from Nairobi by Company A, Moved to Mombasa through a Bus Fleet company B. Delivered locally in Mombasa by bikers associated with Company C, and all of them are hooked to each other so if customers track the package on a website they will be able to get full information.

African e-commerce companies
Jumia, Africa’s leading online shopping destination, has a presence in 11 countries. Since its launch in 2012, the company has transformed the way African consumers shop online. It offered them the opportunity to buy everything from fashion items to consumer electronics to home appliances all online. Jumia is part of a larger ecosystem of companies supported by Africa Internet Group (AIG), the leading internet platform in Africa with a network of companies including Carmudi, Easy Taxi, Everjobs, hellofood, Jovago, Jumia, Kaymu, Lamudi, Vendito and Zando across 23 African countries.

This year, Africa Internet Group (AIG), the parent company to e-commerce brands such as general retailer Jumia and travel site Jovago, became the first venture capital-backed business in Africa to be valued at $1 billion after sizable rounds from the likes of insurance giant AXA and French mobile network operator Orange.

AIG is not the only e-commerce focused business to have received large amounts of funding over the last few years, with Nigerian online retailer Konga and South African e-commerce firm Takealot also taking on a significant investment.

Yet, behind the scenes, all is not as rosy. Within weeks of the AIG funding announcement, Jumia laid off dozens of staff. Konga and DealDey have had to do the same. Takealot was forced to merge with its closest competitor, Kalahari. For all the excitement, Africa’s highly funded e-commerce companies are only fighting to stay afloat right now