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The new e-commerce frontier

By Kariuki Maina | China Daily Africa | Updated: 2015-03-08 16:18

Africa has undergone a transformation to become an attractive venue for Internet investors

To some, Africa is still the "Dark Continent", characterized by an abundance of gold, diamonds, silver, coal and oil but plagued by illiteracy, poverty and primitivity. To the enlightened, it is a brilliantly shining star, albeit smaller than the rest of the galaxy but growing much faster than the bigger stars.

Touted as one of the fastest-growing regions in the world, Africa has undergone massive transformation over the last century to become a key player in the world's social, political and economic dynamics.

From the laying of the first tarmac roads and railway lines in the 18th century, the current picture is in stark contrast to its former self. Cities are burgeoning everywhere you look - a culmination of local resources, both human and financial, and a rapidly increasing level of foreign direct investment. In particular, the fastest emerging domains are information and communications technology and e-commerce.

Internet business has been around for around two decades, transforming cities, countries and continents, most notably North America and Europe. More recently, it has taken the Chinese Internet sector by storm. But for Africa, it has been around for more than five years, and the rate of growth and prospects are overwhelming.

Africa is actively carving her niche in e-commerce, with both local startups and foreign-based players scrambling for a piece of the Internet pie. Jumia, Kilimall, Groupon, Souq, among others, are just some of the companies positioning themselves to gain from the overflow of e-revenue - and these companies are selling big, although not yet to the level of Amazon and eBay.

In some countries, e-commerce is already contributing as much as 3 percent to overall GDP. A visit by Alibaba's Jack Ma to Nigeria in late 2014 is the strongest signal yet of how attractive Africa looks to Internet investors.

Projections indicate consumer-driven industries are bound to grow by over $400 million in 2020. E-commerce alone is expected to rake in $75 billion by 2025. Aiding this growth are enormous infrastructure-focused development agendas for most African countries, with South Africa, Nigeria and Egypt leading the pack.

Kenya is embarking on an ambitious Silicon Valley-type city named Konza. Referred to as the "Silicon Savanna", the development is aimed at serving as a hub that nurtures and develops companies, especially those with a foundation in information and communications technology. Companies such as Google, IBM and HP have expressed interest in joining the venture.

South Africa has Stellenbosch and an array of IT hubs all over the Western Cape province. Morocco has Technopark, a development near Casablanca with close to 100 companies. Ghana's president has promised to invest $75 billion in a high-tech city near Accra, the country's capital. With world-changing innovations like M-Pesa, the pioneer of mobile money transfers that budded from Kenya, there is good reason to see why everyone is interested in the African fray.

Other than these projects, the large swathes of Africa connected to the Internet and mobile networks make e-commerce penetration easy and fast. In the last decade alone, mobile phone use in Kenya has risen from 4 percent to 61 percent. Out of a population of 40 million, 17.1 million have access to the Internet. The laying of fiber optic cables is advancing in earnest and the linking to the rest of the world through submarine cables - which serve the eastern and western coasts of Africa - makes communication easy and fast.

This growth is, however, not without its challenges. Take for instance online money transactions. Sophisticated mechanisms that allow for such payments have a very low adoption rate, with a significant number of transactions relying on either mobile money transactions or cash-on-delivery. Two reasons given for the low adoption of card-based payment systems are African cultures and the newness of e-commerce. There is also a lack of sufficient support structures. Alternatives like M-Pesa, however, serve to alleviate some of these challenges. Delivery logistics also present a headache, and in comparison to the United States, China and Europe, a lot remains to be done.

The costs remain high mainly due to the few options available in terms of providers of logistics. The state of Africa's roads does not help matters either. To foreign investors, the challenge of having to change their business systems to suit the local frameworks can present an uphill task. What's more, some African countries like Ethiopia are not as enthusiastic about direct foreign investment while in some other countries, the cost of starting business is significantly high.

Although Internet-related businesses still account for less than 3 percent in the GDP of African countries, Africa, backed by a rapidly growing population of tech-savvy and highly educated people between the ages of 17 and 40 and a rapidly expanding middle-class consumer base, is the new frontier of e-commerce and information and communications technology. It is the new playground that will see established Internet commerce companies having to square up to homegrown players.

The author is director of marketing and communications at Kilimall International Ltd.

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