Why African cities are tailor made for e-commerce

Bad roads, traffic jams and lack of parking, combined with a paucity of formal retail outlets, make physical shopping a nightmare.

Finally, e-commerce entrepreneurs in Africa can take that walk to the bank. Business is beginning to look up as the number of Africans using the Internet to purchase goods ranging from electronics and kitchen equipment to music, books and movies grows steadily.

In South Africa, a 2011 MasterCard worldwide survey revealed that 51% of those with access to the internet were already shopping online. Currently, in Nigeria, the online shopping site Jumia has 100,000 customer accounts and its sales are increasing by 15% a month.  

Some of the drivers for this boom in e-commerce, apart from the explosion in smartphones, internet access and mobile money, are unusual. 

The very problems that can make urban life in African cities exasperating, such as bad traffic, bad roads, and lack of parking, make going online a convenient way to shop. 

E-commerce in Africa is also being driven by another “good problem” in some African cities — the lack of a well-established, formal retail market. In Lagos, for example, despite the huge market offered by its 20 million residents, finding land to build shopping malls is improbably hard.   

The boss of Shoprite, Africa’s biggest supermarket chain, revealed just how dire the supply problem is when, last August, he said that his firm would like to open 700 stores in Nigeria but could not find places to build them; it has just seven stores in the country. And in Lagos, a city where landlords routinely demand payment of one to two years’ rent in advance even for household tenants, Woolworths, another South African chain, recently announced it would close its three stores because of high rents and gaps in the supply chain.  

Has spiked rents
Research by Knight Frank showed that rent in Lagos and Abuja is $60-$85 per month per square metre, a rate only topped by Luanda, the Angolan capital, where an oil-fuelled boom has spiked rents to an astonishing $150 per month per square metre, higher than in London, Hong Kong or Singapore. In much of the rest of Africa, in cities such as Abidjan, Dakar, Cape Town and Tunis, rent is less than $30 a month per square metre. 

A recent report by Citi indicated that Nigeria’s formal retail penetration is just 5%; the majority of Nigerians do not shop in supermarkets or formal stores, but instead at street stalls and open-air, informal markets. In comparison, Kenya’s retail penetration stands at 30%, the second most formalised market in Africa, with South Africa leading at 60%. 

Security is also a big concern for shoppers. Before September last year, a trip to the shopping mall was a common weekend outing for Kenyan families. But after the Westgate Mall attack in which 67 people were killed by terrorists — many of them children — spending hours wandering around a mall doesn’t seem like such fun anymore. 

But online businesses face many problems in African cities, the biggest being consumers’ lack of trust; many are wary of being defrauded and are reluctant to pay for goods that may not arrive. So Jumia, Nigeria’s largest online retailer, had to offer pay-on-delivery services, something that is rare in online business models in the developed world. In Kenya too, sites like BidorBuy offer similar arrangements, charging a small delivery fee. 

The other big challenge is similar to the one faced by physical retailers noted above: finding warehousing and storage space. Knight Frank research shows that in most rapidly growing African cities, your biggest constraint as a large business doing deliveries to customers may just be finding somewhere to store your goods. 

Demand can only increase
Rents for warehousing and storage space in Lagos can be as high as $12 per square metre per month — nearly as much as it would cost to rent regular office space in Tunis, Addis Ababa or Harare. The highest rents for warehouses are found in the usual suspects, Luanda ($15), Lagos ($12) and Abuja ($9.50), but even in Accra and Kinshasa, storage space is still expensive at $8 per square metres per month. 

And with African economies expected to continue their strong growth trend, the demand for warehousing can only increase. 

The future of e-commerce lies in GPS technology. In most African cities, physical or street addresses are either non-existent or completely unused, and one burden of urban life is the hassle of simply describing exactly where one lives — most directions will refer to a nearby landmark, and then be totally vague (“The house is just there, down from the stadium”). 

But innovators in India have up with a mobile-based GPS software that has allowed precise mapping of each and every house in a slum in Kolkata. Although it was developed for the slums, the technology would be a game changer for many middle-class or even upper-class residential areas in African cities, because for people of all social classes, nothing beats the convenience of having your shopping delivered to your doorstep.

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