Sorry Amazon, Chinese Firms Will Kickstart the Next Phase of Ecommerce in Africa

Sorry Amazon, Chinese Firms Will Kickstart the Next Phase of Ecommerce in Africa

The ecommerce sector in Africa is evolving. We are now about to end the second phase of the evolution in the continent. The first phase was led by Kalahari and Mocality which came but could not overcome major challenges in the market: they died.

Most of those challenges which I articulated in a Harvard Business Review piece remain. But in this current second phase, we have experienced well capitalized entities like Jumia which remains the continent’s category-king. At the national level, entities like Konga in Nigeria are recognized. Unfortunately, these companies are not close to breakthrough moments because marginal cost challenges abound due to lack of infrastructure including logistics. That explains why I have noted that no one should start an ecommerce business in sub-Saharan Africa (except South Africa) yet unless you have money to play long.

Unless you have a double play in Africa, think again, as you venture right now in ecommerce. Companies like old Konga, DealDey, OLX, etc never had double play. When that happens, the gestation period to profitability via pure ecommerce operations becomes longer, triggering cashflow challenges which lead to failures. Those challenges emanate because we have severe logistics problems which must be fixed to unlock opportunities in the sector.

The third phase which will be the winning phase will begin in 2022. The alignments are everywhere and Chinese entities, not American or European ones, will power them in Africa. Alibaba has 4.2 million African customers, beating any full-scale ecommerce entity operating in Africa at the moment. Konga had less than 200,000 customers while Jumia, the visibly largest one (excluding the emerging Chinese ones) has reported “millions of customers” but it is nowhere close to 4.2 million customers.

Some of China’s largest tech giants are establishing roots in Africa’s still immature e-commerce market, where a mixture of structural limitations and more exciting markets elsewhere have deterred global players.

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E-commerce is far from Africa’s largest earner, but the market is growing, and fast. According to research site Statista, the industry was worth $16.5 billion in 2017 and is poised to hit $29 billion by 2022 as necessary infrastructure, such as mobile phone ownership, and household incomes continue to rise. By 2025, when half of Africans have internet access, this figure could be over $75 billion, say Mckinsey.

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E-commerce and services appear to be the next stage of China’s strategy into the continent. Beginning with strictly state-mandated infrastructure projects, China’s engagement then expanded to include private investment in the telecoms industry by the likes of Huawei and ZTE. If Africa can sustain its growth and development, we could be on the verge of a retail-centred third wave in Afro-China relations.

So, watch out, Chinese firms will unlock the value in ecommerce, beginning 2022. They have the capital to invest to build parallel logistics necessary for ecommerce growth in Africa. Alibaba founder is offering grants totally $10 million to entrepreneurs, and certainly through the relationships will collect data to understand what is working. Once the patterns develop, more capital will be pushed into Africa for the winner-takes-all category champion to emerge.

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