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Dynamo for development

By LEAH LYNCH | China Daily | Updated: 2020-08-04 08:10
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E-commerce offers a new poverty reduction model for Africa

Taobao villages, defined as villages that generate 10 million yuan ($1.4 million) or more in e-commerce sales annually and which have 100 or more active online shops operated by local residents on the Taobao e-commerce platform, are the brainchild of China's technology giant Alibaba and aim to reduce poverty by creating online shops for rural residents.

In 2016, China's State Council Leading Group for Poverty Alleviation and Development and a host of top government bodies jointly released guidelines that called for the construction of 60,000 e-commerce poverty relief stations, as well as a quadrupling of e-commerce sales for villages in impoverished rural counties by 2020.

As part of China's targeted poverty alleviation campaign, local governments sponsored e-commerce and clothing-production training classes, provided low-cost loans, and encouraged successful entrepreneurs to prioritize hiring locals who remained below the poverty threshold. Young entrepreneurs also played a pivotal role in growing e-commerce in rural China. Government-backed policies encouraged over 130,000 new graduates to return to their hometowns or villages and-among other projects-set up online shops and services to help their friends and families.

A joint World Bank and Ali Research report released in 2019 credited "Taobao villages" with helping China's rural residents to lift themselves out of poverty. Women seem to benefit the most too. According to the Alibaba Research Foundation, the ratio of female to male entrepreneurs in e-commerce is almost equal, compared to a ratio of 1:3 in traditional businesses.

E-commerce or digital trade has been a powerful leapfrogging tool to boost trade, create employment, raise incomes and reduce poverty in China. And it could do so in Africa as well. Yet, despite some African countries leading on mobile payments, Africa, with 17 percent of the world's population, still lags behind in terms of e-commerce sales. Unlike in China, where the e-commerce market is dominated by two big tech giants, in Africa the sector has multiple players with many startups (around 264 operational across at least 23 countries).Jumia, Africa's biggest and best-funded e-commerce platform is still yet to turn a profit and sales are still very unevenly distributed with Kenya, South Africa and Nigeria accounting for over half of e-commerce consumers in 2017.

Yet the potential is there.

Africa has the fastest growing youth population in the world, and they need jobs. According to the African Development Bank, of Africa's nearly 420 million young people aged from 15 to 35, one-third are unemployed. There is already familiarity with smartphones-the most popular tool for online shopping. The World Bank report says that there are 650 million mobile users in Africa, surpassing the number in the United States or Europe. In some African countries more people now have access to a smartphone than to clean water, a bank account or electricity. Africa also has a growing middle-class population, 330 million people, concentrated in Egypt, Nigeria, South Africa, Algeria and Morocco who want to spend money. Finally, there is the increasing number of "Made in Africa "brands and goods being produced across the continent, in the larger markets as well as emerging markets such as Rwanda, Senegal and Ethiopia. From fashion to skin care, African products are becoming well respected and desirable.

There is a huge opportunity for e-commerce growth in Africa. However, it is not easy to just replicate China's model across Africa.

First, Africa is made up of more than 50 countries. There are a diverse range of policies, market sizes, consumer profiles, languages, and other contextual differences making economies of scale difficult to achieve in terms of coordination and logistics.

All too often the focus in Africa in terms of e-commerce is on building the technology and platforms. This is the wrong focus-that's the easy part. The key is building the physical infrastructure around it-the roads, railways, airports, internet portals and other things that are needed for e-commerce.

Second, fundamental "ways of working "are holding e-commerce back from flourishing across the continent. For example, in China, 54 percent of the population use mobile payments for e-commerce purchases. Yet, due to lack of trust in products and delivery, 90 percent of customers across African countries pay cash on delivery. In rural locations this is particularly complex and costly for companies if a delivery driver makes the trip only for customers not to pay.

Part of the challenge in Africa is that while customers are familiar with mobile payment systems such as Mpesa, these systems have been developed to support inclusion as opposed to building trust and convenience like in China. Only 10 to 15 percent of the population have access to a bank account. Most African online retail stores and services therefore effectively limit their customer base by requiring that their customers have a bank account or a payment service that is linked to one.

China and other partners can help overcome these two challenges-logistics and ways of working.

First, partners such as Alibaba, Amazon and others should invest in existing African e-commerce platforms and empower them to expand their reach as opposed to capturing the market themselves.

Second, China's success was spurred by investments in e-commerce companies allowing the private sector to grow and expand. In the wake of novel coronavirus outbreak, the growth of e-commerce-digital trade-in Africa offers a unique opportunity for investment, based on a growing middle-class consumer market. And e-commerce can also-as Taobao villages did-create jobs and reduce poverty.

If funding and loans are channeled into training Africa's huge, increasingly educated young population and the vast number of small and medium-sized enterprises in cities and towns to utilize e-commerce and market their "Made In Africa" products, it could achieve similar results to the Taobao villages in China.

The author is deputy director at Development Reimagined. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

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