The African E-commerce Saga: Chapter South Africa

South Africa stands out from all other African countries when it comes to development and growth opportunities. To maintain its position here, and to be at par with the developing and developed economies around the world, it needs to do away with the bottlenecks in its digital economy. The growth of e-commerce will spur up with it. Maintaining the customers will be a huge burden on the companies who wish to retain their users and establish a trust relationship with those still learning the use of and experiencing the ease with e-commerce. The ecosystem will grow with time like all other ecosystems have grown. What is required is to not lose the potential it holds and focus on the pace of growth, and soon become an attractive e-commerce destination, not just for local players, but for those ruling the globe.

Never Been So Digital!

Today more consumers are buying digitally than ever before and worldwide retail e-commerce sales are rising. eMarketer estimates that worldwide retail e-commerce sales will nearly double from USD 2.290 trillion in 2017 to USD 4.479 trillion by the end of 2021, equating to 16.1% of total retail sales.

On a global level, Amazon and Alibaba are the largest players with Amazon’s market cap touching USD 1 trillion in September 2018, and Alibaba nearing half a trillion. They have largely avoided direct competition by dominating different parts of the world, but they are widening their reach by buying up the smaller local platform. Their acquisitions mean that the global e-commerce landscape is consolidating. While Amazon currently dominates North America and Europe, Alibaba controls China and has made a web of strategic partnerships and investments in Southeast Asia.

However, there lies fierce competition in some economies, especially in burgeoning e-commerce markets of India, Australia, and Singapore. In India, the two are already in direct competition, where Alibaba and its affiliate Ant Financial have more than 50% stake in local payments and e-commerce platform Paytm Mall. While homegrown giant Flipkart, the second largest player in the market with 40% market share, has lately closed a deal to sell 77% stake to Walmart. Amazon here leads with 44% share.

Singapore is seeing Amazon struggle against local biggie Lazada which Alibaba had acquired and operates a marketplace in six Southeast Asian countries: Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam. In China, apart from Alibaba’s TMall and Taobao, JD.com, Suning and Vip.com are the major players. While Amazon is a clear leader in Europe, regional players like Zolando, Otto, Casino and plenty of others.

The Southern Tip Flying Up

E-commerce market of South Africa is still at a nascent stage compared to developed countries but has been taking leaps and bounds in recent years. The accelerated rate of internet penetration in the country has contributed significantly to the increase in e-commerce, as has mobile usage, coupled with increased availability of more payment methods.

According to the National Report on E-Commerce Development in South Africa by UNIDO, in 2017, online sales were estimated to be amounting to USD 680 million and this figure is expected to shoot to USD 1.23 billion by 2021. Currently, the numbers correspond to only 1% of total retail sales. To put this in a global context, in the US, e-commerce accounts for 13% of overall retail, in China, the figure sits at 15%, while in the UK it’s an impressive 20%. While this may seem uninspiring, when compared with leaders in the space, this reflects an important turning point and continuous growth, and immense potential for growth and opportunity in the sector in South Africa. In fact, since the turn of the century, e-commerce here has seen a growth of over 20% every year.

Taking a brief look at the revenues, Statista reports that an estimated USD 2.91 billion is expected to be made by the e-commerce retailers in 2018, and will grow at a CAGR of 11.9% over 2018 to 2022, resulting in a market volume of USD 4.57 billion. The average revenue per user is close to USD 90. E-commerce penetration stands at 34.8% today, with 18.43 million people shopping online. This is on the back of a 52% internet penetration, which is slightly above the world average, albeit much higher than the African average, but it trails countries in the developed world by 20% to 30%.

Understanding the Market

Product Category 

Electronics and media (including CD’s, DVD’s, books) is the leading category for online sales in South Africa. Other prominent categories are – furniture & appliances and apparel, footwear and accessories. 

Cross-border e-commerce

Online shoppers from South Africa are making purchases all over the world, with the US being the most popular destination. 34% of online shoppers claim to have made a purchase from websites in America in the past 12 months, followed by China (28%) and the UK (16%).

Foreign E-Commerce platforms such as Amazon.com, Ebay.com, and Alibaba.com are among popular destinations for South Africa’s internet users. It is noteworthy that Amazon is the third most visited e-commerce website here.

Payment Preferences

Credit card and debit cards are the most preferred payment methods (66%). Consumers also use e-wallet services for online payment. Due to the growth of credit card fraud, the Payment Association of South Africa mandated the use of 3D Secure in 2014.

Shopper Demographics

About 25% of online shoppers were of ages 60 and above while 57% of them are between 25-44 years of age. They are educated and are high-income earners.

On the frequency of online shopping, 66% shop online at most once every three months, and 6% shop once every week. Another peculiarity observed leads to the understanding that most users sensitive to price, over 70% of them using price comparison sites.

Mobile Commerce 

Many South Africans have leapfrogged from the desktop stage straight to mobile, where it was seen that around two-thirds of Indonesian and South Africa internet visits will come via mobile. This combined with smartphone functionality, mobile-friendly websites, and integrated payment systems through iPhone and Android platforms is leading to steady increases in online shopping via mobile.

Moving to niche categories

There has been a move away from multi-product stores to portals focused on particular niche product categories.

Here are some of the notable South African e-commerce companies.

 

Regulatory Environment

The Government introduced the Electronic Communications and Transactions (ECT) Act, 2002 which helps to promote E-commerce activities by regulating SMEs to work out their business operations on E-commerce platforms.

The Independent Communications Authority of South Africa (ICASA) is responsible for regulating the E-commerce sector in South Africa under the Electronic Transactions Act.

The purpose of ECT Act is: “To provide for the facilitation and regulation of electronic communications and transactions; to provide for the development of a national e-strategy for the Republic; to promote universal access to electronic communications and transactions and the use of electronic transactions”.

One of the steps from the South African Reserve Bank is to incentivize merchants in order to adopt 3D secure payments for their business transactions (under the Payment Association of South Africa).

The Payments Association of South Africa, a division of the SARB, which oversees all payments and ensures that all payment platforms and gateways are in accordance to the law. The payment gateways also serve as “guardians” ensuring that payments or transactions involving illegal goods like ammunition, cigarettes are not enabled.

Challenges faced

E-commerce has technical and infrastructural issues. South Africa has one of the highest country data costs on the continent when it comes to affordability and accessibility of the broadband services. The delay in completing migration from analog to digital transmission is another stumbling block. Also, the government faces challenges on the regulation and tax treatment of externalized funds due to the inability to track flows.

E-commerce marketers face the challenges of boosting the conversion rates and pay heed to their strategies in order to achieve it. Qwerty Digital reports that there is an estimated 17% drop-off rate between users visiting the site (45%) and purchasing (28%) in 2016-17. The 17 percent gap here needs to be filled with trustable payment options, improved logistics, and a more conducive environment for digital shopping.