According to a recent study by the GSMA Mobile for Development (M4D) team and the UK Department of Commerce, micro-enterprises account for the majority of businesses in Africa.
The study found that as of 2018, there were more than 44 million formal micro, small and medium enterprises (MSMEs) in Africa, of which 90% identified as micro-enterprises. The figure is estimated to be even higher when informal businesses are included, with the sector currently accounting for 80 percent of employment in the region.
This also means that MSMEs play an important role in Africa's economic standing. In Ghana, this sector generates 70% of GDP and it is believed that the increased adoption of online platforms has contributed to the growth of this ecosystem.
The M4D study, which surveyed more than 1,500 MSMEs in Egypt, Ethiopia, Kenya, Ghana, Nigeria and South Africa, found that online channels help small businesses expand at lower costs and foster informal enterprise integration. This sheds light on how barriers to entry have been lowered. broader economy.
The impact of digital platforms on MSMEs in the region has been most visible through the coronavirus pandemic, which has disproportionately hit a minority of women-owned businesses. During this period, M4D recorded online shopping growth in six major markets, led by Nigeria, Kenya and Ghana.
While the pandemic has increased interest in online shopping globally, African MSMEs are “not moving to e-commerce as quickly as MSMEs in other regions,” and the study found that many of the e-commerce opportunities in Africa claims that it remains “undeveloped”.
Challenges range from poor internet connectivity, unaffordable mobile phones, and power shortages, but online marketplaces are even more isolated due to the unregulated territory of online retail and underfunded entrepreneurs. Masu. A desirable option for business owners.
However, given recent advances in internet penetration and mobile penetration, M4D believes there is a “remarkable opportunity” for African businesses to leverage sales and contribute to job creation through e-commerce. It points out that there is a gap in the use of social media and online marketplaces. .
Why is e-commerce a less desirable option?
Although online marketplaces were not the first choice for MSMEs in Africa, the concept has been adopted in the region for more than a decade, with two e-commerce projects in Nigeria launched in 2010 and backed by foreign investment. It was made popular by the platforms Jumia and Konga. .
Today, M4D revealed that the majority of MSMEs surveyed still rely on social platforms, particularly WhatsApp, Instagram and Facebook, to sell their products. However, South Africa stands out, with the study revealing that local MSMEs are deploying a successful mix of social media, e-commerce and official websites.
This preference for social media ultimately leads to a greater sense of trust and confidence on the part of business owners.
Social platforms also allow you to interact directly with your customers to negotiate prices, arrange logistics, and operate your business more flexibly.
The analysis also points to the reluctance of micro and small-scale entrepreneurs to promote their products through the media platforms they are already a part of, with Facebook and WhatsApp groups becoming popular information sharing platforms. He added that it is functioning as a
Despite the increased freedom to do business through social media, Africa saw significant investment in the e-commerce industry in 2022, with 330 online retail companies securing funding throughout the year.
However, Africa “receives only 1% of total global venture capital funding” in e-commerce, and investments are concentrated in only a handful of startups as the online market ecosystem is premature. are doing.
Barrier description
The study finds that the slow adoption of e-commerce is due to low levels of enterprise readiness to take advantage of B2C retail channels, including digital literacy and lack of funding for MSMEs to justify their operations. Other bottleneck-related factors were highlighted.
However, this low penetration rate is also due to a lack of preparation within the e-commerce industry itself. As a latecomer to Africa's online retail ecosystem, M4D noted that the marketplace has introduced “unfamiliar digital retail models”.
While digital marketplaces are supposed to make life easier for MSMEs, such as streamlining payment processes and delivery arrangements in one app, the industry is still struggling to efficiently ship products ordered online. suffers from “inadequate delivery solutions” and poor transport infrastructure.
According to M4D, while B2B companies are better at overcoming this problem by being able to make bulk payments and deliveries, many B2C retailers still have to pay, especially when using e-commerce sites. Considering the fees, we believe this is an expensive solution.
The study also found that although peer-to-peer mobile money transfers are a common transaction system, cash on delivery remains the preferred method for online shopping, resulting in an underdeveloped digital payment infrastructure for e-commerce. was also shown.
Furthermore, 48% of participating MSMEs expressed that their customers do not trust transactions through online marketplaces or branded websites, and 43% prefer that their customers “deal with sellers directly.” said.
M4D points out that entrepreneurs are still subject to relevant constraints. Connectivity, skills gaps and access to capital will be issues, limiting “the ability to adopt and effectively leverage e-commerce.”
More than a quarter of businesses surveyed cited slow internet speeds and expensive devices as key challenges when implementing e-commerce. Lack of reliable power supply further worsens the situation.
Advance
The study found that up to 97 per cent of participating MSMEs reported increased sales after using e-commerce, particularly in Egypt, Ghana and Kenya. It highlighted that government officials and the private sector still have a lot of work to do in the development and development of e-commerce. Diversify Africa's e-commerce ecosystem, especially at a time when cross-border e-commerce is increasingly seen as fundamental to the region's economic growth.
Confidence in online transactions and e-commerce needs to be driven by specific regulations, and outdated or Fragmented policies need to be updated.
Additionally, to address what the study identifies as a significant gap in digital enterprise skills, the private and public sectors will be training local executives to adapt to an increasingly digital business environment. A concerted effort needs to be established to invest in programs aimed at We make mobile phones and data plans more accessible to everyone.
