African e-commerce goes in overdrive

Jumia – the bellwether of African e-commerce – saw its company revenue surge to an all-time high with revenues growing by 44% year-on-year in the first quarter of 2022. Orders reached 9.3 million, up 40% year-on-year – the fastest growth rate of the past nine quarters. Packages shipped during the first quarter of 2022 reached a new record of 3.5 million.

Facilitating the evident growth of e-commerce in Africa are two main drivers: internet expansion and consumer behaviour. For one, big investments in fibre optic infrastructure have made it easier for Africans to access the internet. Data from the likes of the World Bank and the International Communication Union indicate that internet penetration in Africa has gone from around 2 percent in 2005 to over 30 percent currently. This has created room for African e-commerce sites, which offer their customers wider choice than they would have visiting local stores.

At the same time, coronavirus and the lockdowns governments imposed in response prompted more people to shop online. The biggest e-commerce market in South Africa (which experienced at least two strict lockdowns) is now estimated (by FNB, a local bank) to be worth US$ 12.5bn a year and forecast to be worth US$25bn by 2025. In Egypt, too, the lockdown boosted e-retailers’ business. In the first six months of 2020 the country’s top online platforms – Souq, Jumia and Noon – reported a 940% increase in their sales compared to the same period in 2019. And these habits have persisted: Boost, a market intelligence firm, reckoned in January that e-commerce was set to grow another 30% in Egypt in 2022. Moroccan e-retailers have been experiencing a similar boom. Online payments grew by 28% by value in 2020, and then by a further 45% in 2021, to total US$770m that year.

The confluence of greater internet connectivity and consumer familiarity within online shopping explains the impressive boom reported by African e-commerce firms over the past two years, but behind it is a big Asian influence, especially from China.

Take this as a case in point. As part of the East Asian giant’s Digital Silk Road initiative – the information and communications technology facet of China’s Belt and Road initiative – an ultra-high-capacity submarine fibre optic cable landed in Mombasa, on Kenya’s Indian Ocean coast, on 29 March. Once operational, the cable, will allow data to be transmitted at 16 terabytes per second. China has been a force behind the growth African e-commerce. Most recently, a trade fair in China brought together 300 e-commerce platforms, over 100000 brands, and more than a million traders. Producers and exporters operating in 23 African countries were represented – from South African winemakers to Rwandan manufacturers of chili sauce. The purpose of the fair was to make it easier for African producers and exporters to sell to China, both by showcasing Africa’s goods in order to familiarise Chinese importers with them, as well as by putting African firms in touch with the e-commerce intermediaries that can facilitate the trade.

All told, the growth in African e-commerce could drive development in upstream industries like internet service provision, which will be made easier by big infrastructure investments like the Huawei fibre optic cable to Mombasa. It will prompt governments to improve their postal services (sometimes with the active assistance of companies like Jumia, which prefers to partner with national postal services), or else create incentives for the emergence or entry of private logistics firms.

But the threat of the pandemic has not entirely disappeared, as events in the past few months in China have illustrated so dramatically. In March, authorities there imposed a stringent lockdown that confined most of the 25 million residents of Shanghai to their homes in response to an outbreak of the Omicron variant of the coronavirus. The impact on trade was apparent when current account statistics were published. In April, China’s exports grew by only 3.9% compared to the same month in 2021. While in most countries that number would be respectable, it indicates a slowdown in China (for the full year 2021, for instance, exports grew by almost 30%).

There is also a lesson to be learnt in how to judge consuming behaviour. In the first stages of the pandemic-induced lockdowns, Jumia initially took a hit on revenue. It quickly pivoted away from higher-end less-frequently-purchased items (such as electronics) to groceries, beauty products and other less elastic goods. The message here may be that the growth of e-commerce in Africa lies as much in improving internet penetration as it does in focusing on what online shopping best facilitates: convenience.

 

References

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‘Brining Africa Up To High Speed’, IFC, March 2019

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‘The explosive growth of e-commerce in South Africa’, Businesstech, 21 March 2022

‘Egyptians Increase Their Online Shopping By 940% Amid COVID-19 Pandemic’, Nile FM, 1 June 2020

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‘Jumia Reports First Quarter 2022 Results’, Jumia, 17 May 2022

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