Yasuhiro Fukushima, a Japanese business executive, was not wrong when he said, “In the future, instead of buying bananas in a grocery store, you could go pick them off a tree in a virtual jungle.” And rightly so, this is what we are doing today. Gone are the times’ kids would slide their trollies full of groceries in a shopping mall, and believe themselves to be in the world of The Fast and The Furious. It’s so easy to shop now that we go on multiple shopping sprees in a day (and probably regret it later).
The kind of trust that e-commerce websites have been able to build with their consumers today is nothing short of commendable. Bumper credits to the easy return policies they offer which are a breather for those afraid of unprecedented flaws in their orders. No wonder that the global e-commerce market is worth USD 2495 billion today. When it comes to a continent like Africa, we observe a not-so-similar pattern in this sector. The economy is evolving, and so is consumer behavior.
All Eyes on Egypt
Africa forms a very small part of the global e-commerce market and is valued at USD 14 billion only. However, within Africa, Egypt is taking up more than one-third of this share, and the market here is worth USD 5 billion. Investors have shown strong confidence in e-commerce here. WeeTracker, in its H1 2018 Startup Funding Report, stated that out of the 9 e-commerce deals signed in the first two quarters of 2018 in Africa, 6 were from Egypt. The reason behind such a disproportional number can be the government’s intention to bring a rapid pace of growth in this sector, by doubling the size of the e-commerce sector. To move in this direction, the government collaborated with the United Nations Conference and Trade Development (UNCTD) in 2017 to formulate a National E-Commerce Strategy. The strategy aims at empowering businesses, formalizing MSEs, and optimizing ICT, digital payments and logistics, all through e-commerce.
According to the Payments and E-Commerce Report by PPRO, the growth in Egyptian e-commerce has been more than the average growth rate across Africa, which in turn shows a higher growth rate than that witnessed around the world. The B2C e-commerce is growing at 14 percent globally, at 18 percent in Africa and, at 22 percent in Egypt. However, the e-commerce trade is only 0.7 percent of the total retail business in Egypt. The government aims to increase it to 1.5-2% by 2020. Part of the reason for the small percentage can be the low smartphone penetration in the country (33.5%), which is far below the global average of 48 percent. Surprisingly, it is also below the African average, which stands at 40 percent. Add to this a low percentage of internet penetration. Of all the internet users in Egypt, only 5 percent use it for online shopping.
However, Tarek Assaad, the Managing Partner at Algebra Ventures, had different thoughts it. As per Tarek, “Smartphone ownership (at 30M+) is not a bottleneck. Internet connectivity and data plan pricing is a bigger issue but not a show stopper. However, Facebook has over 30M users in Egypt, and ride-sharing companies do more than 500K rides per day. Payment, logistics and a more crystallized value proposition are bigger hurdles for e-commerce in Egypt.”
Financial inclusion is pivotal in developing the online retail market. Once people get comfortable with digital banking, they then find it convenient to make online payments, and the sole reliance on cash wears away. This stimulates transactions made for e-shopping and makes buying transactions more friction-less. The payment culture here is primarily dominated by cash, with 72 percent of the payments being made in cash by online shoppers. That is because only 13.7 percent population has bank accounts here. The use of debit and credit cards is far more limited. Egypt did not have a credit bureau until 2008. This became a primary reason for banks for lending credit cards only to the wealthy few to minimize the possibilities of fraud. However, the percentage of Egyptians who own credit cards (13.7%) now surpasses African average, which is merely 4.6%, even though it remains below the world average (17.6%).
The government has been pushing forward digital payments for quite some time now. In 2017, it transferred salaries to 5 million State employees in their bank accounts, instead of paying them in cash, a practice long been adopted by the governments of developing economies. But these are small steps. People are still afraid to put their personal and financial details online. New entrants in the e-commerce market must be adaptive to local payments method, with which people are far more familiar and not just internationally acclaimed brands.
The Supply Side Stagnation
Consumers cannot be solely blamed for not preferring online shopping. The markets have to be developed in a manner which provides people enough incentives not just to be aware of the nuances of going online for shopping but to be able to use it actively. Going by French economist J.B. Say’s theory, supply creates its demand. The fact that cannot be rejected is that there are very few Egyptian enterprises selling online which hinders the e-commerce growth, and with more online options available, consumers will go digital with shopping; no matter if the celebrated John Maynard Keynes rejected Say’s Law. Only 17 percent of the large and 3 percent of the small firms in Egypt sell online. This number is worse for Medium and Small Enterprises (MSEs). 1 in 10 MSEs uses the internet, and fewer sell their products online, precisely why one of the goals in UNCTD’s strategy is to double the number of businesses selling online.
Standing at the crossroads of two emerging economies, the African and the Middle Eastern, Egypt stands to gain from both sides. Souq, one of the oldest and the biggest player in the region, was brought in by a Syrian entrepreneur. It is now owned by Amazon, which acquired it in 2017. Jumia, the only unicorn on the African continent, is looking forward to making Egypt its largest market and is aiming for a 10 fold growth in revenue by 2021 with its investments of USD 20 million. There are more than 450 e-commerce websites in Egypt. In 2015, Souq and Jumia garnered 60-70 percent of the total visits to e-commerce websites. Rest 30-40 percent visits were distributed among the remaining ones, which include traditional retailers who have now established their presence online, and a plethora of ‘long-tail’ players.
What needs to be done is to make the Egyptian population come to terms with digital shopping. Whether the country is able to make e-commerce a significant part of its total retail trade to show that it can really sustain growth in the sector and come at par with the world average of 6 percent (as compared to its own, which stands at 0.7 percent), is still a pertinent question. The growth will depend on how it takes itself forward onto the path of e-commerce development. With policies in place and their timely implementation, Egypt can become a major global e-commerce hub.