E-commerce has become a way of life for billions of individuals in both developed and emerging economies. In the United States, the rise of online shopping has resulted in the retrenchment of many physical retail locations. In many Asian countries like China, online shopping has leapfrogged over an underbuilt physical retail presence to become a principal way that many shop.
May the next wave of growth in e-commerce come from Africa? There are reasons to believe so. We’ve highlighted these in previous notes. However, a recent article in PYMNTS highlights some of the same key reasons for optimism in Africa’s potential.
Investors looking for access to the potential growth in e-commerce on the African continent can invest in companies such as Naspers (OTCPK:NPSNY), which is a large internet and media company based in South Africa and which also holds major stakes in some of Africa’s leading online retail platforms. They can also invest in Rocket Internet (OTC:RCKZF) which holds a stake in leading online platform Jumia Group.
Potentially Favorable Demographics
The African continent is home to over 1.3 billion people, according to the article, which went onto note that 725 million of Africa’s population own mobile devices. The article went onto note that population growth in Africa tops 2% and around 50% of the population is under 20 years old. While not at the same levels as in Western countries, people are earning money and have disposable income. A young, tech-savvy population with spending power is potentially favorable for e-commerce.
The Leapfrog Effect
In more developed economies, individuals are transitioning from laptops to mobile devices. At the same time, the retail environment is transitioning from a brick-and-mortar structure to one that is deriving more of its sales online.
Economies in Africa are not making such a transition. Most, never having owned a laptop, are moving straight to mobile devices such as smartphones. With an under-built retail infrastructure, individuals may begin directly shopping online.
After growing at 2.6% in 2016 and an estimated 2.7% in 2017, GDP in Africa is forecast to grow at an average rate of 3.7% through 2021, according to the World Bank. The report also noted that almost 90% of the working population is employed through the informal economy. PYMNTS noted that it should not be assumed that those employed informally are poor. Many are self-employed in professional fields.
What the article in PYMNTS noted is that the large, informal economy in Africa has produced a population that employs mobile money accounts in higher percentages than traditional bank accounts.
While cash will continue to comprise a large portion of the African economy, many likely will favor mobile cash accounts that provide less formality as a traditional bank branch and more flexibility. And where there are security concerns, cashless transactions provide more safety than carrying around cash.
Challenges, But Also Opportunities
To be sure, there are challenges in creating a mobile payments and e-commerce infrastructure in Africa. First and foremost, Africa is a continent. It is made up of 54 different countries with different languages, governments, central banks, laws, and foreign exchanges. There is a lack of essential infrastructure in many places such as roads, power sources, and even telecom networks. But there are potential benefits to companies that can overcome these challenges.
Who’s Who in Africa
How can investors gain access to the potential growth of e-commerce in Africa?
One of the largest, public e-commerce companies in Africa is South Africa-based Naspers, which is a broad-based internet and media company. Jumia is aiming to be the Amazon of Africa. It has one of the largest online retailing platforms on the continent. While not a public company, Jumia is partially backed by Rocket Internet.
Naspers has provided funds for or is a holder of several other African e-commerce companies. Naspers holds a 53.5 stack in online retailer Takealot and has a stake in online retailer and payments company Konga.
Conditions may be favorable for the growth of e-commerce in Africa. The continent is home to a young, tech-savvy population with disposable income. The economic conditions are forecasted to improve which may favor future consumerism. A population gaining its first access to the internet via smartphones may be conducive for continued growth in e-commerce.