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The Case for Ecommerce in Africa | EMQQ

Africa may represent the next exciting growth opportunity for investors in general, and for industries such as ecommerce.  Africa has a large, young population with rising disposable income and is experiencing rapid urbanisation.  It may be in the early stages of adopting new technologies such as smartphones and transitioning from an informal network of roadside markets to a more formal model of traditional retail outlets and ecommerce.

A recent study by Brookings highlights the potential that the African continent may present for ecommerce [1].

A Large, Young Population 

Currently, the African continent has a population of around 1.2 billion.  However, Brookings estimates that by 2030, the population will grow to over 1.7 billion, surpassing China and India.  In addition, while the global population is aging, the report highlights that Africa’s workforce is young, noting that two-thirds of the population is under the age of 25.

Becoming Urbanised 

Brookings highlights that the proportion of the African population living in cities is projected to increase from its current 40% to more than 60% over the next decade with some markets, such as Nigeria, Ghana, and Angola, likely to top 80%.  An additional 187 million may reside in cities over the next decade, and by 2050, over 800 million Africans may live in cities.  The report went on to note that areas that experience high levels of urbanization tend to experience higher levels of consumer spending than area that are not urbanized.

Growth in Consumer Spending 

Household consumption grew at an annual compound growth rate (CAGR) of 3.9% between 2010 and 2015.  However, official levels of consumer spending in Africa may be under-reported since much spending takes place in informal markets, overlooked by traditional methods.

Africa’s formal consumer markets are the least developed in the world, highlighting potential for future growth.  Currently, Africa’s total consumer expenditures account for roughly 8% of all spending in the world’s emerging markets, putting it on par with Russia and Brazil, notes Brookings.  

Brookings also notes that consumer spending is the fastest source of demand in Africa and expects this trend to continue through 2030.  As such, they estimate that consumer spending will surpass $2 trillion in the next few years – a 30% increase from 2015 levels. 

Boosted by Growth in the Middle Class

Brookings noted that one in five world consumers will live in Africa by the end of the next decade, and more of these may fall into the middle or affluent class.  More than half of African households are expected to have discretionary income by 2020.  In 2013, around 34% of the African population could be considered middle or upper class.  That is expected to reach nearly 43% by 2030.

Growth in Technology May Support Future Growth in Ecommerce 

Brookings notes that Africa has experienced rapid growth in information and communication technology.  Africa has experienced a 30% increase in mobile phone connections since 2000, making it the fastest growing mobile telecom market in the world, according to Brookings.  The report also noted it was the second largest mobile market in the world behind Asia.  Nearly two-thirds of the African population have internet access, 75% are online daily, and the internet penetration rate has surpassed 80% in many countries.

The growth in technology may enable a change in consumption patterns in Africa.  It has given some in Africa access to online banking and financial services such as online payment platforms.

It may also serve as a catalyst to further the development of ecommerce on the continent.

Formidable Challenges and Opportunities Still Exist 

However, there are still challenges to the growth of ecommerce in Africa.  The poor quality of infrastructure tends to impede the transportation of good and drive up costs.  Crime and corruption also present challenges.  The African continent is made up of many countries with different languages, culture, and regulations for doing business.  Localization may be necessary for ecommerce companies to succeed.

However, with challenges lie opportunities.  Those who can overcome these challenges may be able to reap rich rewards from a large, increasingly affluent population.

Potential Access to Africa

Direct access to Africa is limited to a few companies. Naspers (NPSNY) is an internet and media company based in South Africa.  Jumia Technologies (JMIA), a leading African ecommerce company, went public during April 2019.  Rocket Internet (RKET) still holds a 17% interest in Jumia.[2]  However, companies such as Tencent (TCEHY) and Baidu (BIDU) have units that operate in Africa.  Buying shares of many of the world’s largest internet and ecommerce companies may provide indirect access to the potential in Africa.

Find out more about the Emerging Markets Internet & Ecommerce UCITS ETF (EMQQ).  

As of 23rd of July 2019, the Emerging Markets Internet & Ecommerce UCITS ETF (EMQQ) held 7.08% in Naspers, 0.55% in Jumia Technologies, 7.78% in Tencent and 5.67% in Baidu. 

Read our EMQQ Whitepaper "The Great Confluence" here

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