According to a recent study by the GSMA Mobile for Development (M4D) team and the UK Department of Business and Trade, micro enterprises make up the bulk of African businesses.  

The research cited there were more than 44 million formal Micro, Small and Medium Enterprises (MSMEs) in Africa as of 2018, 90 per cent of which were identified as micro and small. The amount is estimated to be much higher if informal businesses are included, and today, the sector accounts for 80 per cent of jobs in the region.  

This also means that MSMEs play a significant role in Africa’s economic position. In Ghana, the sector generates 70 per cent of GDP, and the increasing adoption of online platforms is believed to have been instrumental to the growth of this ecosystem.  

M4D’s research, which surveyed more than 1,500 MSMEs in Egypt, Ethiopia, Kenya, Ghana, Nigeria and South Africa, highlighted how online channels have slashed the barriers to entry by helping small businesses expand operations with little cost, while encouraging informal enterprises to blend into the wider economy.  

The impact of digital platforms to MSMEs in the region was most obvious throughout the Covid-19 (coronavirus) pandemic, which disproportionately hit a minority of women-owned businesses. During this period, M4D recorded a boost in online shopping across the six key markets, with Nigeria, Kenya and Ghana taking the lead.  

While the pandemic had incited a preference for online shopping globally, African MSMEs “have not shifted as rapidly to e-commerce as MSMEs in other regions”, with the study arguing much of the e-commerce opportunity in Africa “remains unexploited”.  

The challenges range from poor internet connectivity, handset affordability to lack of electricity, but the unregulated territory of online retailing and underfinanced entrepreneurs further isolates online marketplaces from being the desirable option for business owners.  

However, given the recent progress in internet penetration and mobile adoption rates, M4D believes African businesses have “a notable opportunity” to leverage sales and contribute to job creations via e-commerce, pointing to a gap in the usage of social media and online marketplaces.  

Why is e-commerce the less desirable choice?  
Though online marketplaces have not been the first choice for African MSMEs, the concept has been adopted for well over a decade in the region and was made popular by two of Nigeria’s e-commerce platforms Jumia and Konga, launched in 2010 and oiled by foreign investments.  

Today, M4D revealed the majority of surveyed MSMEs still turn to social platforms, notably WhatsApp, Instagram and Facebook, to sell their goods. South Africa, however, stands out, with the study revealing a good mix of social media, e-commerce and official websites deployed by local MSMEs.  

This preference towards social media boils down to a higher sense of trust and confidence on the business owners’ side. 

Social platforms also allow them to interact directly with customers to negotiate prices, arrange logistics and run businesses with more flexibility.  

The analysis also points out micro and small entrepreneurs feel more comfortable advertising their products via media platforms of which they are already part, adding Facebook and WhatsApp groups have functioned as an information-sharing platform. 

Despite greater freedom in doing business via social media, Africa saw great investments within its e-commerce industry in 2022, with 330 online retailing companies securing funding throughout the year. 

However, “Africa only received one per cent of total global VC funding” in e-commerce and investments are concentrated in only a handful of start-ups due to the premature ecosystem of online marketplaces. 

Barriers explained 
The study emphasised the lagging adoption of e-commerce was due to a low level of business readiness to tap into B2C retail channels, a factor linked to other bottlenecks like digital literacy or lack of financing for MSMEs to legitimise their operation. 

But this low uptake is also rooted in the unreadiness of the e-commerce industry itself: as a latecomer to Africa’s online retail ecosystem, M4D noted marketplaces come with “an unfamiliar digital retail model”. 

While digital marketplaces are believed to make lives easier for MSMEs, such as streamlining payment processes and delivery arrangement in a single app, the industry is still saddled with “insufficient delivery solutions” and poor transport infrastructure to efficiently send goods ordered online. 

M4D observed B2B enterprises have been better at overcoming this issue as they can undertake bulk payments and deliveries, while a large pool of B2C retailers see this as a costly solution, especially when considering the commission they have to pay when using e-commerce sites. 

The study also showed cash-on-delivery remains the preferred method for online shopping, resulting in the underdeveloped digital payment infrastructure for e-commerce, despite peer-to-peer mobile money transfer being a popular transaction system. 

What’s more, 48 per cent of participating MSMEs expressed that customers do not trust transactions via online marketplaces and brand websites, while 43 per cent noted their customers prefer to “interact with merchants in person”. 

M4D noted entrepreneurs are still affected by constraints related to connectivity, skills gaps, and access to capital, limiting “their ability to adopt e-commerce and leverage it effectively”. 

More than a quarter of businesses surveyed also named slow internet and costly devices as key pain points in adopting e-commerce, compounded by lack of reliable electricity provision. 

Moving forward 
While up to 97 per cent of participating MSMEs reported an increase in sales after tapping into e-commerce — notably those in Egypt, Ghana and Kenya — the study underscores government actors and the private sector still have a pile of homework to do to develop and diversify Africa’s e-commerce ecosystem, particularly at a time when cross-border e-commerce is increasingly seen as fundamental to the region’s economic growth. 

Trust in online trading and e-commerce needs to be driven by specific regulations, which requires updating outdated or fragmented policies around cybersecurity, data privacy and copyright laws to protect “entrepreneurs selling unique products online”. 

Further, to address what the study described as the large gap in digital enterprise skills, the private-public sector needs to establish a coordinated effort to invest in programmes aimed at training local business owners to navigate an increasingly digitalised business environment, while encouraging initiatives to make handsets and data plans more accessible to everyone.