27 April 2016
E-commerce Soars Across Africa with Cross-border Orders Set to Lead
South Africa saw 27% growth in its e-commerce activities in 2015, with a number of other countries across the continent not far behind. This saw many delegates at the eCommerce Africa Confex convinced of the sector's future prospects.
"Adapt and sell online or fall behind" was the message from Shannon Mackrill, joint Managing Director of Kinetic, the organisers behind the recent eCommerce Africa Conference and Exhibition (Confex).
Now in its second year, the eCommerce Africa Confex played host to a mix of logistics companies, payment facility providers, web developers and technology investors. Commenting on the growth of the event, Mackrill said: "The expo size has increased by nearly 50% since the launch event in 2015, while the delegate numbers have doubled."
In truth, this expansion is a reflection on the way that South Africa is leading the continent's online shopping market. Singling the country out, Efi Dahan, PayPal's Regional Director for Africa and Israel, said: "I'm very optimistic about the South African e-commerce market. Its growth could be much faster than that of any other country in the world."
Citing figures from research commissioned by PayPal, Dahan said that South Africa is now achieving 27% year-on-year growth, with online shoppers' spending rate growing at more than double that of the global average. In 2015, the total spend of South Africa's internet users was R28 billion (about US$2 billion).
Compared with China, the world's largest e-commerce market – worth some $562 billion in 2015 – South Africa's market is undoubtedly small. By the end of 2016, though, South Africa's e-commerce market value is predicted to rise to R37 billion, again showing growth of more than double the global average. Given that a large proportion (57%) of all South African internet users shopped online over the last 12 months, it is clear that the market is only gaining momentum.
According to Dahan, two particular consumer preferences are driving this online growth. He said: "The trend is very clear – the most important driving force in the South African e-commerce sector is the growing spend through mobile devices. The groundswell of mobile adoption has translated into staggering online consumer activity. In 2015, 25% of all online purchases in South Africa were made using mobile technology. In 2016, this will rise to 32%."
The second major factor is the rising level of cross-border purchasing. In South Africa, 42% of online purchases involved products bought from overseas. By contrast, in China, the US and Japan, the e-commerce market is largely sustained by domestically sourced products.
The largest proportion of South Africa's online spend is on goods bought from the US, Europe and China, respectively. In 2015, the estimated value of the online imports from China to South Africa was R720 million (about $50 million). Summarising this, Dahan said: "We are going to see a growing trend here. More and more people will buy more and more overseas products online."
At present, the cross-border online purchases made by South Africans tend to focus on entertainment, fashion and consumer electronics. In the future, however, African e-commerce is expected to shift more towards the services sector – taxis, travel and food delivery. An early indicator of this has been the wide uptake of Uber, the taxi-hailing app, across the continent.
E-commerce Growth: Led by Technology
The way people buy and the way companies sell are now very different to the ways that were common just five years ago. This has largely been driven by fast-changing technology, as well as a number of shifts in consumer buying patterns. While these trends clearly apply in southern Africa, many of them are also a broadly global phenomena.
Most obviously, mobile and, in particular, smart phone penetration has transformed the e-commerce market, revolutionising the way people buy products and services. Acknowledging this, Dirk Henke, Managing Director (Middle East and Africa) of Criteo, the Paris-headquartered digital advertising/marketing specialists, said: "In e-commerce, over the next year, the phone will become the dominant way for African consumers to buy. The transition from desktop to mobile purchasing is happening faster than any other previous transition in the digital world."
Criteo's research shows that some 61% of adults in Africa now access the internet through a mobile device. Globally, 35% of e-commerce transactions are now made through mobile devices. Unsurprisingly then, Africa has the fastest growth rate in the world for mobile transactions.
According to Henke, South Africans tend to use mobile devices primarily for domestic and impulse purchases, while cross-border purchases are more often made via laptops or PCs. In light of this, he believed, online merchants and retail brands should adapt their strategies to meet consumers' mobile buying patterns or risk becoming irrelevant in this rapidly changing industry.
Henke maintained that cross-device purchasing is also becoming a significant element of the e-commerce economy. His company's data suggests that almost 50% of all global digital purchases are made from a different device to the one the customer has previously used to browse and research before making a final purchase decision. He said: "Cross-device purchasing has become the holy grail of digital marketing. This year, it will become one of the most important phenomena for online marketers."
The challenge, then, is just how to capitalise on this buyer pattern. Expanding on this, Henke said: "E-tailers and digital marketers need to understand the crucial importance of this trend and learn how to recognise a single customer using several devices. It is the only way for them to be able to deliver a customised and relevant message to that potential customer. It's all about the marketing potential of recognising your customer and knowing how to interact with them."
For Henke, a third trend shaping Africa's digital future is the growing role of apps when it comes to making online purchases. He said: "Apps are better than browsers in terms of both the user experience and the conversion rate to purchases. Of all online shopping modes, apps have the highest conversion rate of online visits into sales."
Online merchants will have to optimise their digital marketing strategy if they are to compete in these different technology spaces. They will need both a mobile browser strategy and an app strategy if they are to conform with shoppers' needs and preferences.
Henke highlighted omni-channel shopping as the fourth trend now beginning to make an impact in Africa, some time after it has become a significant factor in many of the more developed markets. In essence, this is a hybrid purchasing concept that sees consumers begin the shopping process browsing in-store and conclude it by buying online from home, often enticed by better online prices. Alternatively, shoppers use the internet to gather information, then collect the product from a local store, the so-called 'click and collect' model.
Despite the clear momentum in the growth of online shopping, the main concern for consumers in South Africa remains financial security. The emergence of payment platforms that do not capture buyers' financial details and do not share that information with the seller have gone some way to overcoming these consumer concerns. Some payment systems also offer money-back protection to purchasers should the product not reach them.
Despite the increased availability of safe methods to pay, there is still some way to go when it comes to alleviating buyers' fears. In Africa, many consumers simply don't trust online payments systems. One company with direct experience of this is Hellofood, a Nigerian online food-delivery business. Explaining the problem, Guillaume Leblond, the company's Managing Director, said: "My customers will only pay cash-on-delivery, despite clearly enjoying the opportunity to order food online. In Nigeria, people don't want to pay online – the big thing is the lack of trust."
Addressing how the industry could help overcome the barriers, Dahan suggested that online merchants should not try to change the behaviour of consumers, but rather offer them what they want. He said: "Customers using e-commerce want a safe way to pay, free return shipping and proof of the product's authenticity. Merchants should offer them all of these services."
For many, meeting such concerns is all about investment and about refining Africa's digital infrastructure. Fortunately, it seems a number of global businesses are increasingly eyeing the investment prospects in the continent's emerging e-commerce sector.
Expanding on this, Emilian Popa, Chief Executive (Africa and Middle East) of Digital Growth, a Cape Town-based technology investment firm, said: "Although some investors in African technology companies have been deterred, there is now smart money finding its way from global brands to savvy African e-commerce companies. When it comes to online commerce, Africa is far from a saturated market, making it generally easier to develop partnerships here than in Europe or Asia."
Overall, the remit of the eCommerce Africa Confex is to give technology investors and VCs the chance to explore potential areas of business collaboration. This year, around 5% of the attendees were from outside South Africa, including a number of companies from Asia, Europe and the US.
Looking to the future, Mackrill said: "The African e-commerce industry is largely untapped. If Hong Kong, Chinese or other Asian online businesses are looking for a presence in Africa – as either solution providers or investor – South Africa is the gateway."
The eCommerce Africa Confex 2016 was held at the Cape Town International Convention Centre from 17-18 February. The event attracted 1,523 delegates from 16 countries.
Mark Ronan, Special Correspondent, Cape Town