E-commerce is now well established in developed markets, where the majority of adults make at least occasional purchases online. However, levels of activity on the whole remain relatively low in emerging countries, as these markets are restrained by a wide range of challenges, among them less-developed financial and logistical infrastructure. Nevertheless, online sales are growing in many developing economies, with local governments deploying different measures aimed at boosting activity. Several notable regional players are emerging in these largely untapped markets, in some cases backed by partnerships with major international e-commerce firms, which are constantly on the lookout for new opportunities in growth markets.
Widening Gap
E-commerce is most developed in advanced economies. For instance, annual sales revenues at leading international online retailer Amazon have grown from $34.2bn at the start of the decade to $177.9bn in 2017. Over the same period, online sales in the US have grown from 6.4% of all retail sales to 13%, or a total of $453.5bn, according to Department of Commerce data. In addition, online sales growth in the US stood at 16% in 2017, compared to 3.6% for overall retail sales growth. Figures from the World Global Findex show that 61.2% of adults living in OECD states made an online purchase in 2017, including 70.4% of residents in the US and 74.7% of residents in the UK.
By contrast, online commerce remains a more marginal sector in many developing countries. Data from Kantar Worldpanel and the Credit Suisse Research Institute shows that, while the percentage of fast-moving consumer goods bought online stands at 19.7% in South Korea, 7.5% each in the UK and Japan, and 6.2% in China, it is just 0.1% for Indonesia and Mexico.
Africa
Sub-Saharan Africa has the lowest levels of e-commerce penetration of any region. As noted above, only 3.6% of adults made online purchases in 2017. However, the figure is higher in some major continental markets, at 4.1% in Nigeria, 7.9% in South Africa and 9.3% in Kenya, for example. Furthermore, industry players anticipate rapid e-commerce growth on the continent. “Africa is a very large untapped e-commerce opportunity,” said Rodolphe Mollet, co-head of corporate development and strategy at Jumia, which is one of the major regional online retailers with activities in 14 African countries. “At 453m, the number of internet users is enormous, the cost of data is falling rapidly and internet infrastructure is developing quickly. E-commerce penetration is still fairly low at 0.6% of all retail sales, compared to 4.9% for India and 20.4% for China, but its growth is following the same trajectory it did in those countries, and we can expect Africa to reach similar levels within five to 10 years,” he told OBG. Levels of urbanisation also appear to play a major role in the number of consumers that make purchases online, and African cities are expanding rapidly – by mid-century, the urban population of Africa is likely to have tripled, according to the African Development Bank.
Challenges to the development of e-commerce in many emerging markets include infrastructural problems, such as a lack of formal postal address systems, which make deliveries hard to carry out, and issues with payment systems, such as that arising from low 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 constitutes something of a barrier to development,” Mollet told OBG. Trust in payment systems is also a factor. “There is still a lot of apprehension regarding electronic payments,” said Etop Ikpe, CEO of Cars45, a Nigeria-based online car trading platform that connects buyers and sellers. “Trust is growing, but there needs to be a conscious effort to improve the situation,” Ikpe told OBG.
Some countries are taking steps to address such challenges. For example, in October 2017 Ghana launched GhanaPostGPS, a national digital address system which is set to help drive e-commerce not only directly, by enabling deliveries, but also indirectly by making it easier for people to provide addresses when they come to open bank accounts, thereby facilitating financial inclusion. Limited financing for e-commerce projects can also hinder development. “There is some funding available, but there need to be more exits to give confidence to investors,” said Ikpe. “At the moment there is a lot more focus on funding ventures that work on issues such as payments, logistics and supply chains than on actual e-commerce sites, though improving relevant infrastructure for those kinds of projects will also help with the development of the market more broadly,” he told OBG.
Unlike in other emerging regions, major global firms have on the whole not yet entered Africa, although they are likely to do so in the coming years. “Africa does not constitute 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. However, its potential will inevitably attract other players, and Amazon for example has already developed a presence in Egypt via its brand Souq,” Mollet told OBG.
MENA
According to Global Findex data, 10.1% of the population of MENA made an online purchase in 2017. The figures vary widely by country, standing at 1.6% in Morocco, for example, but 49.6% in the UAE. As in other regions, activity is expected to ramp up quickly. A report by Google and Bain & Company released in October 2018 predicted that the value of online sales in the region would grow by 28% every year to 2022, tripling revenues from $8.3bn in 2017 to $28.5bn.
Trust regarding online payment remains a significant barrier to development. Despite relatively high card penetration in parts of the region, 62% of online buyers prefer to pay cash on delivery, while this figure is in the low single digits in most developed economies. Other cultural preferences also pose obstacles. “E-commerce is the future, but people in Oman still prefer to walk into stores and physically hold the item rather than buying online,” said Ajay Ganti, CEO of Oman’s Al Seeb Technical Establishment.
East Asia
Some 35.7% of people in low- and middle-income East Asian and Pacific countries made online purchases in 2017. However, the figure is lower for the economies in the region covered by OBG, at 9.9% in Indonesia and 16.8% in Thailand, for example.
Nonetheless, the sector is expected to expand significantly here as well. A 2016 report by Google and Singaporean investment company Temasek predicted a compound annual growth rate in South-east Asian e-commerce sales of 32% in the years to 2025, driven by factors such as the region’s youthful population and growing middle class. This would bring the size of the market to $88bn, which is not far behind the projected offline retail sales total of $120bn.
Major players in the region include Lazada – with operations in six South-east Asian countries – which was founded in Singapore by Germany-based venture capital firm Rocket Internet in 2012. In 2016 Chinese e-commerce giant Alibaba acquired a controlling 51% stake in Lazada, raising this to 83% the following year. Alibaba also led a $1.1bn joint investment by a consortium of backers in Indonesian e-commerce firm Tokopedia in August 2017, which overtook Lazada as Indonesia’s leading e-commerce company that year.
As in other regions, limited access to payment methods is one of the major challenges to market development. “Mobile payment channels exist but are not yet widely accepted, and the market is very fragmented,” Izak Jenie, CEO of JAS Kapital, told OBG.
Latin America
E-commerce penetration rates in Latin America and the Caribbean are overall broadly similar to those found in other non-African emerging market regions, with 10.2% of adults having made online purchases in 2017. Figures are slightly lower in some of the Latin American countries covered by OBG, at 8.4% in Colombia and 7% in Mexico, but higher in Trinidad and Tobago, at 16.5%. In terms of total sales, Mexico is the largest e-commerce market in the region with a figure of $21bn.
The largest regional player is MercadoLibre. Established in Argentina in 1999 and active in 18 countries, the firm operates its own online payment network that allows customers to buy credit, giving it a substantial competitive advantage in a region in which cash often remains the preferred form of payment. However, important international actors are moving into the region, among them Amazon, which ramped up its operations in Brazil in 2017, after entering Mexico two years earlier and quickly emerging as a major player.
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