I recently had a chance to catch up with another global eCommerce enthusiast: Hendrik Laubscher works for PriceCheck, a price comparison site in South Africa owned by MIH Internet Africa. He and I sat down for a coffee to talk all things developing eCommerce markets. A few things that came out of our conversation:

In South Africa, payments and broadband connectivity remain hurdles to eCommerce adoption. South Africa, the continent’s largest eCommerce market, remains at a relatively early stage, with several inhibitors preventing the market from truly flourishing.  Although credit and debit card usage is growing, overall penetration remains low, even in comparison to other large emerging markets. PayPal offerings have been a challenge, as well — currency issues and restrictions that required users to be registered FNB online banking customers prevented many from taking advantage of this payment method.  Additionally, the country’s low overall Internet penetration — in particular, broadband penetration — also presents hurdles. The CEO of Woolworths in South Africa recently said that faster, cheaper broadband was essential for eCommerce to flourish, but estimated that this scenario remained “about four years off.”

Traditional retailers are still hesitant to embrace eCommerce in South Africa. One of the other challenges of driving eCommerce in South Africa is the fact that traditional retailers have been slow to embrace the online channel. In a dynamic similar to Australia a few years back or in Mexico today, not all major retailers in the country have made the online channel a top priority. This dynamic is starting to shift, with traditional retailers such as Mr. Price recently stepping into eCommerce. These retailers can be a key component in educating consumers about the value of the online channel. While some eCommerce markets have thrived with only limited participation by leading offline retailers (think China), other markets have seen eCommerce revenues grow thanks to aggressive online offerings from key traditional retailers (think Brazil). In South Africa, where security concerns remain high, having established retail brands behind eCommerce offerings could help alleviate some of these concerns and help drive awareness of the online channel.

Without traditional retailers driving eCommerce, others are stepping in. As we’ve documented in our Evolution of Global eCommerce Markets research, consumers’ first physical purchases online tend to be consumer electronics, books and media, as well as other readily comparable goods. To reach the later stage of eCommerce — where consumers buy categories with a strong “touch and feel” component — it’s critical to have aggressive players that can convince consumers to shift their shopping online. As in other emerging markets, one of the players that has stepped in to try and drive apparel sales online has been Germany’s Rocket Internet: The company launched online fashion eCommerce website Zando in South Africa earlier this year with a goal of being a “local ASOS.”  With recent funding from J.P. Morgan Asset Management (which also invested in Rocket Internet-founded Dafiti in Brazil), Zando is aiming to establish itself in a country and category where the supply side remains limited today, but the growth potential is substantial.

Africa is one area where mobile “leapfrogging” is taking place — in commerce. Mobile traffic is indeed starting to surpass desktop traffic in emerging markets — a trend Mary Meeker documented for India in her KPCB Internet Trends presentation this year (see slide 18). However, when it comes to actually transacting via the mobile device, relatively low 3G penetration, slow network speeds, security concerns and low smartphone penetration still inhibit the growth of mobile commerce. Indeed, most online retailers — even those in developing markets — still see the majority of their transactions coming from the desktop rather than mobile devices. In Africa, however, there are indications that this shift to mobile over desktop commerce is already happening. Unlike in many parts of the globe, some online retailers operating in Africa are starting to see mobile transactions dominate over desktop sales — a shift that is only likely to continue.

Companies are eyeing a growing number of eCommerce markets in Africa. While many US brands look to South Africa first, an increasing number are looking at other opportunities across the continent.  Nigeria, with a population of over 150 million, is projected to eventually overtake South Africa as the continent’s largest economy. While online penetration in Nigeria still hovers under 25%, the online growth rate is one of the highest in Africa. Additionally, markets such as Egypt are starting to see a growing number of eCommerce plays: A recent study by the Arab Advisors Group found eCommerce initiatives in the Arab World to be heavily concentrated in the UAE and Egypt. The eCommerce markets of South Africa, Nigeria and Egypt remain at an early stage, but hold potential for companies willing to invest for the long term.  

This is the first year we’ve had a number of clients asking about digital opportunities in Africa – we look forward to hearing more from companies launching and operating in the region.