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African retail finds growing outlet online

By Elias Biryabarema and Matthew Mpoke Bigg

 

KAMPALA/ACCRA, Feb 12 (Reuters) – Young Ghanaian
entrepreneur Nana Tamakloe could hardly have a simpler business
plan. When people order clothes from his website, he buys the
items from stalls and shops in Accra, ships them with DHL and
gets paid online.

 

His suppliers love him as a regular customer and don’t care
that he doubles their prices to cover his costs.

 

“Most of the clothes sellers and tailors don’t have a way to
reach clients abroad, so I was like: ‘Let’s create an e-commerce
platform,’” said Tamakloe, whose www.fashionghana.com website
serves customers in the West and some in Africa.

 

Tamakloe’s business is small but he is tapping into a market
manufacturers and internet companies say will be big: online
retail in Africa.

 

The backdrop is simple. The growth of Africa’s middle class
has created demand for products that conventional retail
struggles to satisfy due to a shortage of malls and grinding
traffic in many cities that deters shoppers.

 

At the same time, giants such as Amazon and Chinese
e-commerce firm Alibaba are out of reach for most
consumers. Step forward companies who tailor their service to
African markets.

 

The sector is still in its infancy. The internet’s
contribution to Africa’s gross domestic product stood at 1.1
percent in 2013, much lower than other emerging markets. But
this could rise to 10 percent, or $300 billion, by 2025,
according to a report by consultants McKinsey’s & Company.

 

Even in South Africa, the market leader, online retail sales
are less than 1 percent of total sales, said Arthur Goldstuck of
market research firm World Wide Worx.

 

Last year, hedge fund Tiger Global invested $100 million in
South African online shopping company Takealot. The German firm
Rocket Internet also ploughed 120 million euro in
Nigeria-based online retailer Jumia in November.

 

Rocket, emerging markets telecoms group Millicom and MTN
own Africa Internet Group (AIG), an e-commerce company
that operates in 27 countries and has firms that include Jumia
and Lamudi, a site to trade real estate.

 

The newness of the sector creates a scramble for dominance
and consumer choice. If a customer wants to trade second hand
goods then OLX, owned by South African media and technology
giant Naspers, provides an service online.

 

If it is Western goods, then Mall of Africa facilitates that
online in Nigeria as does e-commerce store Konga.

 

FEAR OF FRAUD

 

Inevitably, the sector is growing quickest in sub-Saharan
Africa’s sturdier economies and fastest of all in South Africa,
where retail resembles that of South East Asian countries with
its more developed e-commerce sector, experts said.

 

But the potential in countries such as Kenya, Uganda,
Nigeria, Ghana, Ivory Coast and Senegal is such that online
retailers say their main aim is not to beat their competitors so
much as to grab a bigger slice of the overall retail market.

 

“Becoming number one is not difficult. The real objective is
to be the leader across online and offline,” said Jeremy Hodara,
co-chief executive of AIG.

 

Expansion requires attracting new customers, allaying fears
of fraud, building trading platforms and mastering delivery
networks, all on a continent where few use credit cards. African
e-commerce firms take cash payments on receipt of goods to
overcome this hurdle.

 

It also means persuading vendors that online sales can boost
trade.

 

That’s why Justin Christianson’s job as Uganda manager for
online retailer Kaymu involves wading through the dusty maze of
downtown Kampala to convince wary shopkeepers that selling their
wares online can give them an edge.

 

Kaymu got off to a slow start in Uganda but, by June, it was
processing transactions worth 43,000 euros ($48,857) a month and
that figure quadrupled by December, Christianson said. Even so,
many Ugandans remain cautious.

 

“I am reluctant to do any major online purchases for fear
that someone will just take my money and disappear,” said Ronald
Matsiko, a banker in Kampala. Despite his scepticism, money is
pouring into the sector.

 

CHINESE MODEL

 

The example of China points the way for Africa because of
its use of mobile phones as a platform and its growth in rural
areas as well as cities, said Charmaine Oak, author of The
Digital Money Game.

 

But it is hard for African firms to replicate the success of
the global giants in mastering every aspect of e-commerce, said
Maurizio Caio, founder of Tlcom venture capital firm.

 

The African firms trying to do that require heavy investment
and there is an opportunity for firms to serve a niche, such as
managing deliveries and even erecting street signs in African
cities to facilitate deliveries, he said.

 

African firms are also hampered by the continent’s national
boundaries, currencies and regulatory systems and this could
make them vulnerable to acquisition by Amazon and Alibaba once
they turn their attention to Africa’s market, experts said.

 

“It’s completely appropriate for (African) companies to
design and grow with the perspective that they will be bought by
a global player with an Africa strategy,” Caio said. Alibaba
declined to comment.

 

($1 = 0.8801 euros)

(Additional reporting by Paul Carsten in Beijing and Jeremy
Wagstaff in Singapore; Editing by David Clarke and Vincent Baby)

 

  • Interesting post.

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