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.