October 19, 2023

GSMA Report Highlights the Challenges and Opportunities for Scaling E-Commerce Adoption by Small Businesses in Africa

There is significant evidence that e-commerce can help micro, small and medium enterprises (MSMEs) reach wider markets and increase their profitability and resilience, according to the GSMA. However, in Africa, online retail as a proportion of total retail sales remains much lower than in other regions, indicating that the continent's MSMEs are not fully leveraging the e-commerce opportunity for growth. The UK-based organization, which represents the interests of mobile operators worldwide, published a report highlighting the challenges and opportunities for scaling e-commerce adoption by MSMEs in Africa.

The insights presented in this study are primarily based on surveys conducted with 1,500 MSMEs currently using e-commerce in over six African markets, comprising Egypt, Ethiopia, Ghana, Kenya, Nigeria, and South Africa. In addition, the GSMA conducted an extensive literature review and interviews with over 40 experts in these six markets, as well as in three additional markets that form part of this analysis: Rwanda, Senegal, and Tanzania.

The report's key findings include:
  • E-commerce offers micro, small, and medium enterprises (MSMEs) the opportunity to operate more efficiently and increase sales and profitability. "This is critically important in African markets where MSMEs play a central role in generating economic value and creating livelihoods. E-commerce can support MSMEs to scale by facilitating access to wider markets, lowering barriers to entry for micro and small firms, and enabling women to combine economic activity with other responsibilities more flexibly and efficiently."
  • There are three prevalent e-commerce channels: social commerce, the selling of goods via social media services such as Facebook, Instagram, X (previously known as Twitter) and WhatsApp; e-commerce marketplaces, which aggregate large numbers of sellers on a single platform; and own brand websites. "Each channel offers its own unique set of advantages and limitations. While social commerce is most accessible to MSMEs of all sizes due to low barriers to entry for even informal and micro businesses, exclusive use of social commerce, especially informally, limits the professionalization of the business. Much of the sales process in informal social commerce may remain manual, from arranging payments to delivery offline. E-commerce marketplaces digitize the entire sales process for MSMEs, from receiving orders to processing deliveries, but this comes at the cost of commission charges as well as decreased visibility with competing sellers. Meanwhile, company websites create unique brand identities and trust with customers but require more capital and digital know-how."
  • While improving connectivity and the steady uptake of mobile phones is spurring e-commerce adoption by MSMEs, much of the e-commerce opportunity remains unexploited. "E-commerce adoption is growing, and market forecasts suggest that there will be almost 600 million online shoppers in the region by 2027. However, the number of e-commerce users in the region in 2022 was estimated at under 400 million out of a total population of over 1.4 billion people, a relatively small proportion. In addition, only five to seven percent of retail payments were digital in 2020. There is therefore a vast opportunity for MSMEs to reach consumers via the trade of goods online."

The GSMA says there are several barriers to scaling e-commerce for MSMEs in Africa. These include:
  • Limited financial resources and digital skills: "MSMEs lack access to capital and credit, restricting their growth, and do not have sufficient business and digital skills to fully leverage the opportunities e-commerce offers."
  • Regulatory gaps: "Where e-commerce related policies and regulations are absent, dated, or fragmented, they are leading to low business and consumer confidence in online trade. These policies include cybersecurity laws, personal privacy and data protection laws, consumer protection laws, e-transactions laws, and intellectual property laws."
  • Implementation of legislation: "Weak implementation of e-commerce related laws is contributing to low consumer trust and therefore limited consumer uptake of e-commerce."
  • Low uptake of digital payments: "Cash on delivery remains the preferred payment method in many markets, impacting MSMEs' cash flows, making them vulnerable to losses and saddled with high delivery costs for items returned on delivery."
  • Challenging logistics and delivery: Poor road infrastructure, lack of national addressing systems, and fragmented delivery solutions make the delivery of e-commerce goods both expensive and unreliable, reducing the revenue MSMEs can generate from online sales."
  • Low consumer confidence and readiness: There are limitations to consumer readiness for uptake, such as limited penetration of smartphones, low digital literacy and digital skills that deter consumers from online purchases and transactions, and low confidence in the quality of goods that might be received via e-commerce due to lack of consistency in product quality.

The report importantly notes that "According to UNCTAD, digital commerce, if leveraged effectively, could add $180 billion to Africa's GDP by 2025. Improving connectivity and the steady uptake of mobile phones is spurring e-commerce adoption by MSMEs in the region." What is more, "The uptake of digital payments is steadily increasing, supporting the growth of e-commerce, although delivery challenges persist due to poor infrastructure and insufficient delivery providers."

The report also explains that "On the demand side, a growing youth population that is more digitally savvy, and a growing middle class in some markets means Africa’s MSMEs have a ready market for online retail. But e-commerce remains limited in urban areas and is yet to penetrate rural areas except for pockets of innovation in agri e-commerce and better last mile penetration in some markets such as Nigeria."

Moreover, "A significant opportunity for MSMEs to reach consumers via the trade of goods online to improve their profitability, create livelihoods and contribute more effectively to economic development therefore remains largely untapped. With the advancement of AfCFTA (African Continental Free Trade Area), there is an even greater opportunity to leverage e-commerce for regional gains."

I appreciate how GSMA's report highlights "some of the main barriers to scaling e-commerce adoption, including MSMEs' limited access to capital and digital skills, gaps in legislation or implementation of e-commerce related policies and regulations, a persisting preference for cash payments in the region and lower trust in digital payments, and poor logistics and delivery infrastructure for the reliable and affordable delivery of online purchases. These in turn impact consumer trust in e-commerce, suppressing demand for online retail."

Do you agree with the report's findings? What are your recommendations for how African MSMEs reach wider markets and increase their profitability and resilience?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

October 5, 2023

Recommendations for Realigning the Global Financial Architecture to Achieve Financial Stability, Boost Productive Investment and Create Better Jobs

"Today, we see setbacks in indicators on poverty, hunger and gender equality, to mention just a few," Rebeca Grynspan, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD), wrote in the Forward to The Trade and Development Report 2023: Growth, Debt and Climate – Realigning the Global Financial Architecture. Ms. Grynspan adds that "The
financing gap for the Sustainable Development Goals in the global South – which totaled $2.5 trillion in 2015 – now amounts to $4 trillion. Nearly half of all humanity, or 3.3 billion people, lives in countries that spend more resources on debt servicing than on funding health or education. At this pace, only 15 percent of the Sustainable Development Goals will be achieved by 2030."

Ms. Grynspan points out that UNCTAD's report "identifies three specific global challenges that have crystalized during the year 2023. Weak global growth, divergence between major economies and between developing countries, as well as the increased role of geopolitical factors, indicate that we are witnessing a change in the nature of global interdependence, or a transition from the period of hyperglobalization to one of polyglobalization."

Focusing on how to realign the global financial architecture, the report identifies five core policy priorities:
  1. Reducing inequality. This should be made a policy priority in developed and developing countries. This requires concerted increases of real wages and concrete commitments towards comprehensive social protection. Monetary policy is not to be used as the sole tool to alleviate inflationary pressures. With supply-side problems still unaddressed, a policy mix is needed to attain financial sustainability, help lower inequalities and deliver inclusive growth.
  2. Balancing the priorities of monetary stability with long-term financial sustainability. In light of growing interdependencies in the global economy, central banks should assume a wider stabilizing function within this landscape.
  3. Regulating commodity trading generally, and food trading in particular. This needs to be done internationally, using a systemic approach developed within the framework of the global financial architecture.
  4. Addressing the crushing burden of debt servicing and the threat of spreading debt crises. To do this, the rules and practices of the global financial architecture need to be reformed. The mechanisms, principles and institutions of global finance should ensure reliable access to international liquidity and a stable financial environment that promotes investment-led growth. Given the failures of the current architecture to enable the resilience and recovery of developing countries from debt stress, it is crucial to establish a mechanism to resolve sovereign debt workouts. This should be based on the participation of all developing countries and include agreed procedures, incentives and deterrents.
  5. Providing reliable access to finance and technology transfer to enable the energy transition. This would require not only fiscal and monetary agreements among the Group of 20, but also agreements within the World Trade Organization (WTO) to implement technology transfer, and within the International Monetary Fund (IMF) and World Bank to ensure dependable financing. Without eliminating the incentives and regulatory conduits that make cross-border speculative investment so profitable, private capital is unlikely to be channeled to measures to help adapt to climate change.
UNCTAD's report also presents the following specific policy recommendations for a development-centered global debt architecture:
  • Increase concessional finance through capitalization of multilateral and regional banks, and issuance of special drawing rights.
  • Enhance transparency in financing terms and conditions, using the digitalization of loan contracts to improve accuracy.
  • Revise the UNCTAD Principles for Responsible Sovereign Lending and Borrowing to motivate and underpin the importance of guiding principles throughout the stages of sovereign debt acquisition.
  • Improve debt sustainability analysis and tracking to reflect the achievement of the Sustainable Development Goals and empower country negotiators with improved data on their potential for growth and fiscal consolidation.
  • Enable countries to utilize innovative financial instruments such as sustainable development bonds and resilience bonds. Develop rules for automatic restructurings and guarantees.
  • Enhance resilience during external crises, for example by implementing standstill rules on debtors' obligations in crises, and create a space to enable the avoidance of debt distress.
  • Encourage borrowers to share information and experiences, drawing inspiration from private creditor coordination.
  • Initiate work on a more robust debt workout mechanism and a global debt authority.

With the global economy at a crossroads where divergent growth paths, widening inequalities, growing market concentration and mounting debt burdens cast shadows on the future, I appreciate how the report "outlines an approach based on balancing the pace of disinflation and the impact of high real interest rates not only against inflation indicators, but also in relation to economic activity, employment, income inequality and fiscal stability."

What are your recommendations for how to get the global economy moving in the right direction by using a balanced policy mix of fiscal, monetary and supply-side measures to achieve financial stability, boost productive investment and create better jobs?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.