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Friday, May 23, 2003

eCommerce in Africa - Making it Happen

By Cordelia Salter, Founder of eShopAfrica.com

This talk was given as part of the AITEC West Africa Conference at the Accra International Conference Centre, Ghana, May 2003.


Since the days of the Internet boom we've been hearing that ecommerce is going to change the way Africa does business. The details of this transformation always remained somewhat fuzzy so it's time to take a look at the nuts and bolts of ecommerce in Africa and to evaluate how its doing so far. As it stands the ecommerce in Africa is worth about $31 million – with $30 million of this coming from South Africa.

Apart from my own experiences running an African ecommerce website eShopAfrica.com and covering ecommerce issues for Balancing Act News Update a newsletter covering technology issues in Africa, I will also be referring to a recent report called “The Reality of Ecommerce in Developing Countries” by The London School of Economics and the Institute of Development Studies at Sussex. This report studied the impact of emarketplaces in the horticultural and garments sectors in Kenya, South Africa and Bangladesh but I believe their findings are applicable across the ecommerce in Africa field.

The ecommerce components

Ecommerce is not a single commodity. It is made up of various unconnected components and, in theory, if you can juggle all these components you can make your business happen on the Internet. But each of the components has its own peculiarities and idiosyncrasies especially when interfacing with Africa.


Two years ago I was also speaking on ecommerce issues here at AITEC but then the burning issue was software and connectivity. In fact my talk was based on a software suitable for use under the connectivity conditions at the time. We've come long way since then.... The capitals of Africa all now have more than adequate connectivity and there is no shortage of capable IT companies able to provide the software and hosting required. So you can say that the 'e' in ecommerce is in good shape. The entry level costs do remain high for African businesses both in terms of computer equipment and, even harder, in trained and capable staff. There's no point spending your time and resources on an expensive web presence if there aren't the real people behind it able to follow through and make it happen.

Taking payments:

If you're entering the ecommerce arena some kind of payment has to take place. If you're merely migrating existing business to the internet then you will most likely continue on with your old payment mechanisms that you have been using offline. If however your business is going to rely on taking payments over the internet then you have some thinking to do.

For the ecommerce amateur there are a variety of solutions such as PayPal or NoChex who allow for 'members' of the service to take and receive payments between each other. They work globally and are popular for small payment between individuals. PayPal is particularly popular because of its association with eBay.

For serious ecommerce these payment solutions are not quite up to it. Both parties must be 'members' and your customer may not be willing to go to the trouble of opening a PayPal account just to make a payment to you. It's more likely they'd look for another site that takes credit cards.

Taking credit cards... becoming a 'merchant' - the holy grail of all ecommerce sites. Without the ability to accept major credit cards such as Visa or Mastercard you are unable to use the most popular method of payment over the internet. If your business operates in Europe or America and has places of business and bank accounts there, then getting merchant status is not difficult – there is no shortage of payment service providers – such as WorldPay, Nexus, Datacash - the people who interface between you and the major credit card companies.

However if your business and bank accounts are based in sub-Saharan Africa then you face a virtually closed door. Prior to 9/11 there were loopholes. When eShopAfrica started trading on the Internet in 2000 we took advantage of one of these loopholes – the payment service provider didn't really mind where the business was as long as it was 'on the Internet' and had a trading address somewhere – in our case in Accra. However new post 9/11 legislation means that the payment service providers must implement a scheme called 'Know your Customer'. Under this scheme they must be able to visit the trading address of the company – which must be in the UK.

There is a South African route which requires a business presence and bank account there – it's circuitous but an option but the bottom line is that taking credit cards is a big barrier to trade. If you can't take credit cards you have to rely on old world payment mechanisms such as bank transfers and cheques by mail or courier.


The Internet is a crowded place and is getting more and more crowded by the minute. Before you start your ecommerce business you must put a lot of time and thought into how you're going to market it. Mailing lists have less and less value as people get more and more flooded with spam. You may be lucky and get responses to emails but don't be surprised if no-one answers. Everyone's just too busy. Emailing people that you already know or already have some connection with may be more successful. You can also check out the news groups and user communities for your subject area - you're much more likely to get an answer from someone already in your field than from complete strangers.

You can register your site with search engines and make sure your keywords are meaningful. If you want a higher listing you can pay for a sponsored link which makes your website come up before the search results. These services cost – on Google the more popular a keyword is the more you pay. You have to think hard whether your target market is on the Internet – not somewhere else – and that this will be effective for you. Check to see where your rival sites list.

Part of the expectations of ecommerce was that producers were going to be able to trade directly with customers cutting out all the middle men and liberating huge amounts of money. So far things haven't quite turned out like that. One of the first things we have to do is to define what we mean by 'middle men'. Although they are often touted as exploiters, in fact 'middle-men' also offer valuable services such as ensuring quality or expediting sales in other locations. They are 'middle men' but they are also valuable links in the chain. We also have to face the fact that there are 'middle men' who do exploit – and who block business happening until they get their share. They're not going to give up just because of new technology so, ecommerce or not, they have to be factored into the supply chains.

There are many trade portals and emarketplaces that act as listing services for businesses. Some are global, some are by region, some are by theme. Most only require online registration but offer no guarantee or verification between members. In other words, they want no responsibility for the people who list with them. In the recent report 'The Reality of Ecommerce in Developing Countries' it was found that the number of orders that come through emarketplaces is relatively small – certainly not the ecommerce revolution we were expecting. There are closed or private market places. Some require payment, some require real world back up such as a visit to business premises. EshopAfrica is listed in many of these free emarketplaces – we get the odd query but nothing that has led to a sale yet. Most of all we get emails from Asian suppliers of fake African products trying to sell to us!

At this point you start asking yourself that, apart from Amazon, where is there an ecommerce success story? There aren't really any for Africa yet but one particular development in the western markets is a bit alarming – particularly for supplier countries. Big companies who are normally rivals – such as the US car companies – are collaborating on their procurement by joining together and creating closed market place to which they invite suppliers. This is driving supplier prices even further down and because of the competitive nature of the bidding process many suppliers find themselves agreeing to unprofitable contracts – they are so desperate to get the sale. This is sobering... we all know the days of internet philanthropy are over – there just isn't the money around anymore. But we should all be watching to make sure that the Internet doesn't also become a tool of exploitation.

Shipping and trade barriers:

If you're lucky enough to be selling an electronic product then you can just click and your delivery is done. If not... you have a whole new ball game to contend with. For small products there are a choice of couriers – unfortunately they're expensive, especially in relationship to African economies. It is not uncommon for the shipping for an eShopAfrica order to cost more than the products and we lose orders because of it. There are also the options of air freight and sea freight but all of us who have had experience with these sectors know that they are not exactly 'click and go'. They are labour intensive and very costly timewise – and there are a lot of 'middle men'! All these things have to be factored into the price of your product.

One of the boom time dreams was that a farmer in a rural areas would be able to log on and sell their produce at the best global price they could find, leapfrogging all the mean middle men who had been repressing them for years. If an enlightened cocoa farmer in northern Ghana logged on today and sold his crop of cocoa beans on eBay to a fair trade store in the US, he'd be in for a big surprise. For starters cocoa is – still - protected by all kinds of trade agreements and soon the farmer would find his way blocked by bureaucracy. Even if he managed to start the export process he'd have to take care of quality inspection issues and export and shipping which would, undoubtedly wipe out any possible profit he could have made on his direct sale. Even if the beans made it to the US the purchaser would be in for a few surprises from the US agriculture department... but that's their problem!

This is the essence of another finding in the London School of Economics report. It was visualised that the tidal wave of technology would be so strong that it would sweep away all evil old world mechanisms. We have all now come to realise that the power of technology is nowhere near strong enough to tackle such dinosaurs as the current world trade agreements and the African banking system.

Summary and forecast

So to summarise I would say that the 'e' in ecommerce is doing very well indeed. Technology has proved itself up to the job and is waiting in the wings for a role. The 'commerce' part of ecommerce is not in such good shape. As we have seen there are many disincentives to ecommerce if you are an African business – the entry level costs are high both in terms of computer equipment and staff. Added to that the global world trade playing field is not level.

The Internet does offer huge opportunities for new contacts and new opportunities. Because the bright lights of the Internet boom came from the West, everyone looks in that direction. In doing this I think they're missing an opportunity. For the first time ever Africans in every capital of the continent can get in touch with each other quickly, easily, affordably. This is unprecedented and offers huge new opportunities. They say nature abhors a vacuum but at the moment there is a huge vacuum where their could be inter-African trade.

This is historic – until the Internet communication in Africa was a roundabout affair with telephone calls between Ghana and Togo going via Paris and air travelers having to fly via Europe to get to their African destination. Now with easy communication new links can be forged between Africans all over the continent who can explore the new opportunities that this contact will bring.

There are also other players coming on to the field. The Asian tigers of China and India are gradually creeping in and I think it's safe to say that the west won't always be the dominant culture on the Internet – so look around for new opportunities.

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