E-commerce to expand in the world's emerging markets


While e-commerce has become well established in more developed markets, the segment has been slower to take off in emerging economies. Online purchasing has been held down in these markets by financing, purchasing and logistics challenges. Nevertheless, online sales are growing rapidly in many developing countries in spite of these obstacles. Some governments are changing frameworks to boost segment activity and several notable regional players are emerging, in some cases backed by large international e-commerce firms that recognise the potential of growth markets.

Rising Popularity

In advanced economies e-commerce has quickly become popular in recent years. For instance, the annual net revenue of leading international online retailer Amazon grew from $34.2bn in 2010 to $232.9bn in 2018 – a nearly seven-fold increase. In the US, online sales increased from 6.4% of retail sales to 14.3% over the same period, according to the US Department of Commerce. Growth in the segment is far outpacing that of traditional retail: in 2018 online sales expanded by 15% to $517.4bn, compared to an increase of 3% for overall retail. This expansion is not only limited to the US. According to the World Bank’s Global Findex database, in 2017 some 67.2% of adults living in OECD countries had made an online purchase within the past year. Out of all the countries surveyed in the database, the rate was highest in Denmark, where 78% of residents made such a purchase, while the rate was 75% in the UK and 70% in the US.

The expansion of online commerce has generally been slower in developing countries. For example, while the percentage of fast-moving consumer goods bought online stood at 19.7% in South Korea, 7.5% in the UK and Japan, 6.2% in China, and 5.6% in France, that figure stood at just 0.1% in Indonesia, Brazil and Mexico, according to a Kantar World Panel and Credit Suisse Research report published in 2018. Looking ahead, however, the firms expect continued urbanisation will gradually lower some of the logistical issues related to online shopping, which would likely lead to a rise in these rates among developing nations.


Sub-Saharan Africa has an e-commerce penetration rate of 3.6%, which is the lowest of any region, though the figure is higher in some of the continent’s major markets, such as Kenya (9.3%), South Africa (7.9%) and Nigeria (4.1%). Industry players expect rapid e-commerce growth in the region to mirror the expansion seen in other emerging markets. “Africa is a large, untapped e-commerce opportunity,” Rodolphe Mollet, co-head of corporate development and strategy at Jumia, told OBG. Jumia is one of the major pan-African online retailers, with a presence in 14 countries. “The number of internet users, at 453m, is enormous, and the cost of data is falling while internet infrastructure is developing quickly.” E-commerce penetration may be low compared to 4.9% for India and 20.4% for China, Mollet said, but the continent is following the same trajectory. “We can expect Africa to reach similar levels within five to 10 years,” he continued.

Urbanisation also appears to play a significant role in the extent to which consumers make purchases online, which is a benefit to many of the continent’s markets as African cities are expanding rapidly. Indeed, cities around the continent are expected be home to 760m people by 2030 and 1.2bn by 2050, according to the African Development Bank. This is a significant portion of the total population, which the UN estimates will reach 1.7bn in 2030 and 2.5bn in 2050.

Challenges to the development of e-commerce in many emerging markets, and to those in Africa in particular, include infrastructural issues – such as a lack of formal address systems, which makes deliveries difficult – and problems with payment systems, such as low credit and debit card penetration. “The payment network landscape is highly fragmented between services such as mobile money, bank transfers and cash deposit agencies that offer debit cards, which is a bit of a barrier to development,” Mollet told OBG. Trust in payment systems is also a factor. “There is still a lot of apprehension towards electronic payments,” Etop Ikpe, CEO of Nigeria-based online car trading platform Cars45, told OBG. “Trust is growing, but there needs to be a concerted effort to improve the situation.”

Some countries are implementing reforms to overcome these issues. In October 2017 Ghana launched a nation-wide digital address system, GhanaPostGPS, which is expected to facilitate e-commerce deliveries. Additionally, the platform will indirectly give the segment a boost as it enhances financial inclusion by making it easier for people to open bank accounts, as they will be able to provide an official address.

Financing for e-commerce can also be a challenge. “There is funding available but there need to be more exits to give confidence to investors,” Ikpe told OBG. “At the moment there is more of a focus on funding ventures for payments, logistics and supply chains than there is on the actual e-commerce sites, even though improving this infrastructure and making these kinds of investments would help to develop the market.”

Unlike in other emerging regions, major international players have not yet to entered Africa. However, Mollet said that it was likely they would do so in the coming years. “Africa is not a single market and companies will have to deal with it one country at a time and adapt their approach to local conditions, rather than try to win the continent in one fell swoop,” he told OBG. “However, it is inevitable that large international players will eventually develop a commanding presence here.”

Middle East

In 2017, 10.1% of people made an online purchase in the Middle East and North Africa, according to the Global Findex. The figure varies widely by country, standing at 2.8% in Morocco compared to 49.6% in the UAE. As in other regions, activity is expected to ramp up quickly. An October 2018 report from Google and Bain predicted that the value of online sales in the region would grow by 28% per year to 2022, tripling revenues from $8.3bn in 2017 to $28.5bn, or around 8% of retail sales. Saudi Arabia is expected to account for $10bn of the total, or 8% of total retail sales, and the UAE for $9bn, or 13% of sales. Online grocery shopping is set to have the highest growth rate of any category, at 89%.

Such anticipated expansion is attracting major players. Amazon moved into the region in mid-2017 when it acquired Dubai-headquartered regional online retailer Souq.com for $580m. Other notable players include noon.com, which was founded in mid-2017 and is backed by a Saudi sovereign wealth fund and Mohammed Alabbar, an Emirati businessman and chair of the property group Emaar. Emaar also bid for ownership of Souq and has been buying up other regional online vendors. In July 2017 Emaar secured a 16.5% share of one of the region’s main logistics providers, Aramex, in a bid to bolster its market presence.

As in other regions, low levels of trust in online payments remains a setback for e-commerce players. Despite relatively high card penetration in parts of the region – notably in GCC countries – 62% of online buyers prefer to pay with cash on delivery. This is a less attractive option for online retailers and well above the single-digit figures seen in Western economies. In addition, many consumers still prefer a brick-and-mortar shopping experience. “E-commerce is the future, but at the moment people in Oman still prefer to walk into a store and physically hold the item, rather than buying online,” Ajay Ganti, CEO of consumer electronics and home appliances distributor SARCO, told OBG, adding that online purchases of products that require aftersales service in particular will take time to take off.


In East Asian and Pacific countries 35.7% of residents made online purchases in 2017. The region itself had a wide disparity: China had a rate of 45.3% and Malaysia had 33.9%, while Thailand had a rate of 16.8% and Indonesia had 9.9%. However, the segment is expected to grow rapidly. A 2016 report by Google and Temasek predicted a compound annual growth rate in South-east Asian e-commerce sales of 32% in the years to 2025, driven by the region’s youthful population and its growing middle class. This would bring the size of the market to $88bn in 2025, edging closer to the expected offline retail sales of $120bn.

Major players in the region include Lazada, which was founded by digital start-up-focused venture capital firm Rocket Internet Group in 2012. In April 2016 Chinese e-commerce giant Alibaba acquired a controlling 51% stake in the company, raising this to 83% the following year. The Chinese company also led a $1.1bn joint investment with a consortium of backers in Indonesian e-commerce firm Tokopaedia in August 2017, which overtook Lazada as the leading e-commerce company by customer numbers in Indonesia that year, followed by Singapore-based online marketplace Shopee.

As in other regions, local markets tend to prefer cash. “Mobile payment channels exist but are not yet widely accepted and the market is very fragmented,” Izak Jenie, president and director of JAS Kapital, an Indonesian financial technology firm, told OBG.

Latin America

E-commerce penetration in Latin America and the Caribbean measured in at 10.7% in 2017. This figure varies country by country, from a respective 18% and 16.5% in Costa Rica and Trinidad and Tobago, to 8.4% in Colombia and 7% in Mexico. According to research firm eMarketer’s “Latin America E-commerce 2019” report, Brazil is the region’s largest retail market, accounting for 34% of retail sales, followed by Mexico (28.9%) and Argentina (6.3%).

The largest regional player is MercadoLibre, which is active in 18 countries. The firm was established in Argentina but is now headquartered in the US and operates its own online payment network that allows customers to buy credit they can use online at neighbourhood shops. This specialised and tailored system gives the platform a substantial competitive advantage in a region in which cash often remains the preferred form of payment. A number of major international actors are looking to compete in the region, including Amazon, which launched operations in Brazil in 2017. This followed its entry two years earlier into Mexico, where it quickly emerged as a major player, with 5.5% of total online sales in 2016, following MercadoLibre with 9.5% and locally headquartered Linio with 5.8%.

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