Economic View

On the potential for e-commerce in Egypt and Africa

How are e-commerce platforms adapting to Egypt’s recent economic and regulatory reforms?

JEREMY HODARA: We are still waiting to see how some of the most recent reforms – such as the latest decisions on decreasing government-backed subsidies on fuel and electricity – will impact e-commerce. Egypt’s government has worked on an e-commerce policy centred around a number of different aims: improving the supply of high-speed broadband, especially in rural areas; modernising the postal authority; building trust in online payment systems; strengthening training and apprenticeships in areas like online store management, digital marketing and data analytics; and encouraging employees to use e-procurement for low-value goods such as office supplies. The strategy is very clear and will positively impact the sector in the coming years. 

How does the opportunity for e-commerce growth in Egypt compare with other continental markets? 

HODARA: Some markets such as Ghana and Cameroon, for instance, are experiencing faster e-commerce growth than Egypt. However, e-commerce growth in Egypt is outpacing that of its peers like Nigeria, South Africa and Morocco. Moreover, while the sector is still in its infancy in Egypt, it has significant potential for growth. Once the country fully leverages its e-commerce potential, there is expected to be flow-on benefits for a number of other sectors, which may help Egypt achieve its goal of being among the top-30 knowledge economies by 2030. 

We expect consumer demand for e-commerce to accelerate in the coming years, driven by greater choice, competitive pricing, convenience and the combination of a rapidly growing youth population and improving digital infrastructure.

What potential do you see for e-commerce to disrupt traditional retail in Africa? 

HODARA: E-commerce will disrupt traditional retail in Africa, and this has already begun. There are on average over 60,000 inhabitants per retail outlet in Africa versus approximately 400 in the US, so the gap in supply is huge. Retail is also still very fragmented in most markets, generating inefficiencies both in terms of prices and convenience. It is likely that e-commerce in Africa will follow the path of that in Indian and Chinese markets, with the potential to go even further as the existing offline infrastructure is significantly less developed. Online retail is estimated to represent approximately 0.6% of total retail in Africa, while it is already over 20% in China and close to 5% in India. 

Africa’s Continental Free Trade Area will positively impact the sector, since it creates huge potential for cross-border e-commerce. The quantity and quality of supply is very different from one country to another, presenting a wealth of market opportunities for online entrepreneurs. E-commerce platforms can also play a role in logistics and payment solutions to enable this cross-border trade.

What can e-commerce platforms do to increase accessibility and extend their reach? 

HODARA: To increase accessibility, e-commerce platforms should focus on building a great user experience for both buyers and sellers. Going back to the basics is ultimately the most efficient way of extending the reach of a platform, by offering choice, competitive prices and convenience. Beyond these fundamentals there are multiple initiatives e-commerce platforms could lead that would accelerate the growth of the sector. Platforms could work with public authorities and lay out a favourable tax framework for e-commerce transactions. In addition, e-commerce could be a powerful tool for governments to reduce the weight of the informal economy, as well as the amount of cash being handled in all sectors. 

Moreover, better financial inclusion has a positive impact on e-commerce by generating operational efficiencies, while low levels of financial inclusion present the opportunity to serve customers better. To encourage e-commerce with an unbanked population, you can implement the cash on delivery option, in addition to payment options such as bank transfers or mobile payments. E-commerce platforms are already entering the market in the distribution of digital and financial services. 

Lastly, ICT and transport infrastructure have a real impact on the e-commerce market due to the logistics aspect of the sector. With good infrastructure, goods delivery is much easier, and this is fundamental to the expansion of e-commerce. There is also a high correlation between the success of e-commerce and the increase in internet penetration, as well as the reduction of data costs. With a larger population now heavily reliant on online purchases, there is equally a greater need for high-speed internet in order to ensure connectivity for both the retailers and purchasers. The cheaper the data, the more people can access to the internet, in turn increasing their ability to shop for goods and services online.