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.

Southeast Asia's Digital Economy Could Reach $1T GMV by 2030

Southeast Asia's (SEA) top digital economies grew faster than expected in 2022 and are set to reach $200 billion in total value of transactions made this year, according to a report by Google, Temasek and Bain & Company. And in the face of economic headwinds, the future looks bright for SEA as the report says investors remain confident in SEA's long-term prospects and the opportunities they bring in up-and-coming countries and sectors.

Among the ten countries that are members of the Association of Southeast Asian Nations (ASEAN), which serves as a political and economic union of member states promoting intergovernmental cooperation and facilitates economic, political, security, military, educational, and sociocultural integration between its members and countries in the Asia-Pacific, the report focuses on ASEAN's six largest members: Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam. The report's key findings include:

• Navigating macroeconomic headwinds: Just as countries in SEA embarked on a return to pre-pandemic normality, global headwinds started to blow, threatening to derail a full economic recovery. Rising interest rates and high inflationary pressure have also been impacting consumer demand, particularly the discretionary sectors that sit at the core of the digital economy.
• Approaching $200B in rough seas: Despite these macroeconomic headwinds, SEA's digital economy remains on course to reach ~$200B in gross merchandise value (GMV) in 2022. In fact, it is reaching this threshold three years earlier than expected in the e-Conomy SEA 2016 report. Digital adoption continues to rise even today, albeit at a slower pace than the steep acceleration seen at the height of the pandemic.
• Urban consumers still drive the economy: Across urban areas, affluent consumers and their young digital native counterparts continue to represent the largest portion of the digital economy. For these two segments, the opportunity for growth lies in deeper engagement, including more frequent and valuable orders, subscriptions, or cross-selling services such as consumer lending. Meanwhile, adoption and spend by urban consumers 'on a budget' and suburban consumers remain lower, leaving digital players to figure out more economically sustainable ways to serve them.
• Sectors encounter different growth trends: SEA's digital economy sectors are following three distinct trendlines. E-commerce follows an S-shaped growth curve, in which it continues on its growth trajectory, but from a higher starting point after the steep acceleration during the pandemic. Others, such as food delivery and online media, are returning to their trendlines after a two-year spike. And lastly, travel and transport are moving along a U-shaped recovery, with pre-pandemic levels still some miles away.
• Favorable conditions uplift financial services. The adoption and usage of digital financial services (DFS) have flourished across the board, propelled by a shift from offline to online and the positive financial market conditions of the last few years. With rising interest rates and a riskier lending environment, however, fintech players, platforms, and newly launched digibanks will see their business models stress-tested. Meanwhile, banks and insurance companies are rapidly digitalizing their services and maintaining a stronghold on affluent consumers.
• Prudence clouds tech investments. Tech investments in SEA remain robust this year. However, the funding landscape tells a tale of two ends: early-stage deals are continuing with strong momentum, while late-stage deals are seeing more pronounced dips and a pause in IPOs. Meanwhile, DFS has overtaken e-commerce in investment volume. Investors will be cautious in the short-term as most do not expect a return to 2021 deal activity and valuation peaks in the next couple of years. Nonetheless, most investors remain bullish in SEA's medium- to long-term potential, and have $15B dry powder on hand. The report notes that increasing interest in emerging markets, like the Philippines and Vietnam, and in nascent sectors, like SaaS and Web3.
• Towards a sustainable digital economy. The SEA digital economy is expected to produce 20MT of emissions by 2030—significant, albeit an order of magnitude lower than other environmental impact-intensive sectors. Digital players have been rolling out reducing and recycling initiatives, but more can be done to further lower impact by up to 30-40% over time. In the meantime, platforms can play a positive role in raising awareness among SEA consumers, and move towards closing the prevailing ‘say-do’ gap.
• Economic contribution meets social concerns. On the social front, the digital economy has created 160K high-skilled jobs and indirectly supports nearly 30M jobs, while platforms have enabled over 20M merchants and 6M restaurants to grow their businesses online. Concerns exist, nonetheless, around the welfare of worker-partners, necessitating dialogue between institutions and platforms.
• Charting the course for the digital decade. SEA's 'digital decade' has just begun. The course to exceed $300B by 2025 depends on the shape of recovery amid today's uncertainties, while the path to a $600B-1T digital economy in 2030 remains geared on SEA's economic fundamentals. A growing emphasis on sustainable growth means profits may become as relevant as GMV when it comes to measuring progress.

Existing enablers like payments and logistics have come into place, but the talent challenge is now shifting from quantity to quality. New enablers, like digital inclusion of consumers ‘on a budget’ and suburbanites, are key to unlocking SEA's full potential. Progress has been limited, however, with institutional support potentially the missing link to bridging the divide. All in all, SEA's digital economy is grounded on strong social and economic fundamentals, and offline to online trends, which provides much to be optimistic about especially as the region settles into its digital decade.'

Over the past 20 years, I have observed Southeast Asia's impressive economic rise. When my clients supporting the digital economy ask which global markets should they consider for corporate expansion, Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam are almost always at the top of my list. Despite economic headwinds, I remain optimistic about the sustainable development of the region's digital economy which could reach $1 trillion GMV by 2033 provided such growth is pursued in a sustainable way.

What are your thoughts about SEA's future economic outlook?

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.

Returns Are a Headache for Retailers

Whether through my capacity as a strategic advisor at Koba, LLC, which owns the e-commerce platform Koba Roots, or being a long-time shareholder of Amazon.com, I have learned that returns are a significant problem online retailers face which can negatively impact their financial performance. Therefore, it was with great interest to read an article by The Economist that notes 21% of online orders in the United States, "worth some $218bn, were returned in 2021, according to the National Retail Federation, up from 18% in 2020. For clothing and shoes it can reach around 40%. It is a headache for retailers."

The article adds that online shopping in the U.S. "now makes up 15% of retail sales by value, up from 10% at the start of 2019." What is more, "only 5% of returned goods can be resold immediately by retailers. Most go to liquidators at knock-down prices or are thrown away. Retailers typically recoup about a third on a $50 item, says Optoro, a firm that helps with returns." Interestingly, "Over half of items are returned because they are the wrong size."

Some companies like Japan-based Uniqlo, or Zara, a global retailer based in Spain, are levying "a small fee for posted returns." The article point out that "Other firms, including Amazon, are selling more refurbished goods as a way to cut loses."

Online retailers are starting to use artificial intelligence (AI), virtual reality (VR), and augmented reality (AR) to simplify the ordering process for the costumer and reduce returns. According to The Economist, "Using artificial intelligence to help retailers decide what to do with the returned goods, taking into account factors such as price trends in second-hand markets is the brainchild of goTRG," a Florida-based startup which helps retailers sort returns. The article adds that Walmart, through its planned acquisition of AR startup Memoni, will let "shoppers virtually try on glasses. Walmart also offers ways to try on clothes and arrange furniture in rooms using AR. Amazon recently launched a VR feature that lets users try on shoes." The article concludes that "Retailers will now try virtually anything to cut down on returns."

In a CNBC article, Mehmet Sekip Altug, associate business professor at George Mason University, said: "In the past, retailers tended to overlook what happened after the sale. But 'as online sales increase, the return rate has also increased significantly, and I don't think it's a secondary problem anymore.'"

What are your recommendations for how retailers can reduce their return rate?

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.

Recommendations to Increase Access to E-Commerce Services in Central Africa

According to a report jointly produced by the UN Economic Commission for Africa (ECA) and the GSMA, the digital economy in the Economic Community of Central African States (ECCAS), which is comprised of the nations of Angola, Burundi, Cameroon, Central African Republic, Chad, Congo, Democratic Republic of Congo, Equatorial Guinea, Gabon, Rwanda, Sao Tome & Principe, "is expanding rapidly, driven by strong adoption of mobile services. Overall mobile subscriber penetration in the sub-region grew from just 18% at the start of the last decade to 42% by the end of 2019, while the number of mobile internet users had reached 46 million by the same date."

Titled Enabling e-commerce in Central Africa: the role of mobile services and policy implications, the report adds: "E-commerce is a key component of the digital economy, allowing buyers and sellers to interact and transact online regardless of time and location. This has the potential to generate significant social and economic benefits, particularly in emerging countries. It can create jobs and stimulate economic activity by encouraging investment and opening up new markets to otherwise isolated rural communities. Women and young entrepreneurs in particular are increasingly using e-commerce platforms to grow their businesses, reducing inequalities and helping local value creation."

The ESA and GSMA note that governments in the sub-region have a significant role to play in implementing policies to support and stimulate investment in e-commerce services. And as such, they identify key areas where action is required to increase access to digital services in general and e-commerce services in particular: enhancing digital and financial inclusion; taking the right approach to data regulation; addressing key challenges in the business environment; and leveraging stakeholder collaboration.

I support the recommendation for Central Africa's eleven governments to adopt policies to accelerate e-commerce, including better access to digital services and public-private collaboration. Yet, the report says "ECCAS member states are still a long way from maximizing the e-commerce opportunity due to a combination of infrastructure, macro-structural and regulatory constraints. As governments in the sub-region increasingly recognize the potential for e-commerce to drive economic growth and sustainable development, they must now move to address the key challenges to e-commerce adoption, working together with other stakeholders in the e-commerce ecosystem."

"A first step is to get more people online, by addressing the access and affordability barriers to connectivity for unconnected citizens, and create an enabling environment for e-commerce services to scale and reach new customers."

What are your recommendations for how Central African governments can support the growth of its e-commerce sector?

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.

Report Landscapes the Agritech Ecosystem for Smallholder Farmers in Latin America and the Caribbean

In 2009, I had the opportunity to lead a project that created a Short Message Service, a system that enables mobile phone users to send and receive text messages, for farmers in Peru. Those farmers who possessed a feature phone, which is a mobile phone that incorporates features such as the ability to access the Internet and store and play music but lacks the advanced functionality of a smartphone, received text messages containing valuable information such as localized weather information, up-to-date market prices for the crops being cultivated, and best practices for maximizing yields. It was through this experience where I learned the importance of the agriculture sector to the Peruvian economy as well as the Latin American economy as a whole. Over a decade later, the GSM Association (GSMA), a UK-based organization representing the interests of mobile operators worldwide, published a report that focuses on landscaping the agritech ecosystem for smallholder farmers in Latin America and the Caribbean.

Published as an output of a project funded by IDB Lab, the innovation laboratory of the Inter-American Development Bank (IDB) Group, for the benefit of smallholder farmers in Latin America and the Caribbean, the report points out that "Agriculture is an important source of employment in Latin America and the Caribbean, particularly in rural areas where 54.6 percent of the labor force is engaged in agricultural production." Furthermore, "The region is an important source of food globally, generating 13.6 percent of total agricultural exports. Thanks to a wealth of natural resources and a vast and varied topography capable of producing a range of crops, Latin America is becoming known as the breadbasket of the world."

What is more, "The study is part of this endeavor to better understand technological solutions and opportunities in agriculture that will allow IDB Lab to support strategies and investments with social and economic impact and expand the agritech ecosystem in the region. The report features innovations aimed at smallholder farming, particularly in countries of Central America and the Andean region, thus bridging the information gap left by much of the literature to date."

"Although much of Latin America shares the same language and cultural heritage," the report says "the structure and scale of the agriculture sector vary significantly from country to country. Southern Cone countries are characterized by capital-intensive, highly-mechanized farming of export crops, while Central American and Andean countries rely much more on smallholder farming for crop production."

In addition, "Several barriers have prevented the region's agriculture sector from achieving its full potential, including some of the world's lowest productivity levels, low financial inclusion and a lack of resilience to external shocks, such as those caused by climate change and the global COVID-19 pandemic. Recognizing the positive impact that digital agriculture tools can have on productivity, incomes and resilience to climate change, agriculture-sector stakeholders throughout Latin America are implementing a range of tools aimed at easing pain points and benefiting those in the agricultural value chain, both on the supply and the demand side."

Examining 131 digital agriculture tools deployed throughout Latin America that are addressing the challenges of smallholder farmers, the GSMA AgriTech team looked at five use cases: digital advisory, agri digital financial services (DFS), digital procurement, agri e-commerce and smart farming. Key trends emerging from this review include:

• "Latin America's digital agriculture tools have failed to reach the scale of those in Asia and Africa. Most digital agriculture services available in Latin America today are led by governments or NGOs and have between 1,000 and 5,000 users, making them difficult to sustain long term.
• "Smallholder farmers in Latin America are increasingly looking for holistic solutions that address a range of farmer challenges, from knowledge gaps and low productivity to financial exclusion, climate change and poor access to markets.
• "New technologies, such as IoT sensors, drones, satellites, AI and big data, are increasingly underpinning digital agriculture tools in the region. IoT sensors, drones and satellites are automating data collection, making the process more efficient and accurate for ecosystem players. Meanwhile, AI and big data analytics are enabling richer, more personalized and actionable data for smallholder farmers to increase production and decrease costs.
• "Blockchain is being used for agri DFS and digital procurement. Heifer International, EthicHub, COOPSOL and other organizations are taking advantage of the transparency, security, speed and low-cost offered by blockchain to facilitate loans between lenders and smallholder farmers, provide traceability to crop buyers and support land registration.
• "Colombia has emerged as an agritech innovation hub for smallholder farmers in Latin America. This has been due to a confluence of factors, including a strong (by regional standards) DFS ecosystem, an enabling regulatory environment, a robust startup and investment culture, rising incomes and a relatively strong middle class. In Central American countries and Bolivia, where the opportunity for digital agriculture innovation is as strong due to the prevalence of smallholder farming, the sector has suffered from a less enabling and comparatively weaker environment."

Crucially, "The GSMA AgriTech team's research highlighted two opportunities in digital agriculture that could address farmers' low productivity and access to financial services in the short to medium term. These include:

• "Smart farming tools: Over the last two years, smart farming pilots for smallholders in Latin America have shown promising results, with production increases as high as 50 to 80 percent, and cost reductions of 20 to 40 percent. Despite these benefits, few smart farming solutions have moved from the pilot phase to commercial viability. Implementation costs are the main barrier, including the cost of equipment (sensors, gateways, drones) and the cost of on-going connectivity (sensors powered by cellular data).
• "Using farmer data from digital agriculture tools to extend financing to smallholders: Smallholder farmers in Latin America face significant gaps in short- and long-term financing, both for agricultural and non-agricultural financial needs. Access to credit from formal financial institutions requires an economic identity that most smallholder farmers do not have, but mobile-based digital agriculture tools can generate digital financial footprints populated with farm and farmer data. This data can be used to perform credit risk assessments thus offering a pathway to financial inclusion for farmers. This offers huge potential to bridge the data gap in smallholder financing and open a pathway to financial inclusion. Digital tools that enable farmers to access markets, such as digital procurement solutions and e-commerce services, are especially useful in generating rich data sets, such as transactional data from the sale of crops."

The report also presents the following seven enablers driving the adoption of digital agriculture solutions by smallholder farmers in Latin America and the Caribbean:

1. Coverage for mobile internet services is nearly ubiquitous in Latin America, but there are gaps between urban and rural areas;
2. Smartphone penetration in Latin America is the highest of all developing regions;
3. Mobile money services are available in Latin America and the Caribbean, but have not been widely adopted outside Paraguay, Haiti and Honduras, limiting the potential of agritech tools;
4. A growing middle class is changing consumption patterns;
5. Investment in agritech is increasing;
6. Latin America is a leading producer of crops that are well suited to digitization; and
7. An enabling regulatory environment is key to the success of many digital interventions.

Lastly, "The GSMA AgriTech team has developed a set of 11 recommendations to support funding, product development and marketing for several key stakeholders in the digital agriculture ecosystem, including agritech companies, donors and investors."

1. Support viable, private sector-led digital advisory services;
2. Ensure that users are at the center of service design;
3. Focus on developing a strong value proposition that offers an end-to-end solution and a clear revenue model;
4. Build reliable partnerships;
5. Carefully assess smart farming opportunities before launch;
6. Do not approach the region with a one-size-fits all approach;
7. Focus on value chains where digital interventions can have the greatest impact;
8. Create an enabling regulatory environment, focusing on markets with the greatest need;
9. Help address the financing gap;
10. Support smallholder farmers to mitigate the impact of climate change; and
11. Leverage existing mobile assets and explore partnerships to develop digital solutions for smallholders.

As noted in a blog post published just over a couple of months ago on GSMA's report about Latin America's mobile economy, the region's digital landscape is evolving rapidly. The report said that in "Latin America, mobile technology continues to play a key role in bringing unconnected populations online and providing a platform to create, distribute and consume life-enhancing digital services." This provides hope that the 11 aforementioned recommendations will be implemented to build and strengthen the region's digital agriculture ecosystem.

What are your recommendations for how to improve the agritech ecosystem for small farmers in Latin America and the Caribbean?

 

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.

TradeTech Has the Potential to Facilitate and Promote Further International Trade by Lowering Barriers for Companies to Enter New Markets

According to a report published by the World Economic Forum (WEF), a Swiss-based international organization promoting public-private cooperation, "TradeTech is the set of technologies and innovations that enable global trade to be more efficient, inclusive and equitable. The interplay of technology and trade has a long history, spanning from advances in transportation to the advent of the container to the emergence of coordinated production networks."

Mapping TradeTech: Trade in the Fourth Industrial Revolution "considers modern TradeTech in two layers: (1) a first layer in which trade data and processes are transformed from analogue to digital; and (2) a second layer in which trade process optimization and synchronization occurs between different parties, and where emerging technologies play a key role." The report adds that  "TradeTech solutions work in bundles. While the second layer depends on data generated in the first one, it is also hard to separate artificial intelligence (AI) from robotics or the internet of things (IoT) from 5G."

Aiming "to shed light on the landscape of emerging trade technologies and consider the opportunities and challenges for each, with case studies used for illustration," the report notes:

Business perceptions show that many technologies have a significant impact on trade. The World Economic Forum launched a global survey to understand how firms are currently using technologies in international value chains and to assess which technologies will have the biggest impact on global trade. The results are being used to determine a landscape of technologies that have the biggest effect on trade in the short and medium term. According to this survey on TradeTech, conducted from June to September 2020, "fundamental" technologies such as digital documentation, digital platforms, digital payment and cloud computing are perceived as most relevant in the shorter term, along with IoT, digital

services and 5G. Technologies expected to affect trade in the longer term are robotics, virtual reality, 3D printing and AI.

On the topic of TradeTech for micro-, small and medium-sized enterprises (MSMEs), the report says: "As the Fourth Industrial Revolution sets in, MSMEs face both opportunities and challenges in this wave of technological transformation. New technologies in trade, such as cloud computing, blockchain, IoT, big data and AI, present MSMEs with opportunities to tap into the technological edge previously only available to large firms. The application of new TradeTech can help MSMEs save costs, improve efficiency, streamline operations and scale up. Software as a service (SaaS) and e-commerce platforms have made trade more inclusive as there are no upfront costs."

As for supporting TradeTech adoption by MSMEs, the WEF suggests governments could support MSMEs in a number of ways, including by:

• Promoting education and IT skills development, through the inclusion of IT in school and university curricula, and encouraging public-private partnerships through internship programs
• Facilitating big data and AI tools that help MSMEs reduce market research costs and improve online visibility
• Improving information and communications technology (ICT) and logistics infrastructure
• Providing cybersecurity training
• Setting up a TradeTech network, composed of key stakeholders, that has the potential to maximize the scope and outreach of any given solution while encouraging the development of local solutions (for instance, a single web page might compile and easily display all the resources, tools and services offered by the members of the TradeTech network); given the lack of skilled human resources affecting companies, external experts might bridge the gap by providing qualified advice
• Establishing a benchmark for TradeTech adoption by MSMEs, which could help incentivize government reform actions to promote TradeTech adoption.

"Internationally," the report explains that "an increasing number of trade agreements include chapters on e-commerce and digital trade. Recent agreements, such as the Digital Economy Partnership Agreement (DEPA), include provisions on MSMEs and digital inclusion specifically. Commitments go from information sharing to enhancing public-private dialogue and cooperation involving e-commerce platforms."

Given my experience working in developing countries, I appreciate the report's assertion that "TradeTech offers developing countries leapfrog opportunities. The potential to seize these opportunities may vary by technology. TradeTech that requires higher capital, such as robotics and IoT, may be more challenging to diffuse in low-income country settings than technologies that are mainly software defined (e.g. blockchain, AI and digital platforms)."

What is more, "The network nature of TradeTech’s benefits, in which the more users there are of the technologies, the more value each user can derive from them (positive network externalities), creates incentives for the diffusion of technology worldwide.

"The most straightforward opportunities might come from the first layer of TradeTech, that is the digitalization of trade and logistics-related documents. This is a mature innovation in developed countries, where the opportunities for additional market expansion are limited, although certain developing countries have also advanced significantly in this area, for instance regarding e-invoicing."

The WEF says "TradeTech has the potential to facilitate and promote further international trade by lowering barriers for companies to enter new markets. Major TradeTech gains originate in good coordination between the different actors in supply chains. TradeTech, especially in its second layer, allows holistic decisions that can result in efficiency and environmental advantages for the whole value chain. Yet unintended consequences in terms of job displacement, competition and techno-nationalism trends require attention."

Moreover, "TradeTech's impact will depend on how data and tech interoperability are addressed, regulations are harmonized, and inclusive access to close the digital divide, also present in the trade space, is ensured. To deliver on TradeTech's promise, action is needed to build the trust required for supply chain transparency, to promote cooperation in tech regulation, to drive a trade facilitation agenda around interoperability, and to provide training for upskilling and reskilling workers."

Many will agree with the report's assertion that "[t]he COVID-19 pandemic has significantly accelerated the adoption of digital technologies and opened a window of opportunity to drive tech innovation in trade. The moment should be seized to use TradeTech to make global trade more efficient, inclusive and equitable."

How do you see emerging trade technologies facilitating and promoting international trade?

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.

E-Commerce Can Create Opportunities for Young People, Women, and Entrepreneurs in Iraq, Says UN Report

Even before the coronavirus pandemic, e-commerce was disrupting the brick-and-mortar retail industry. Not only did digital retail explode in industrialized markets, but developing countries are seeing signs of the industry's growth. The potential for a thriving e-commerce industry in developing countries has long existed provided that the necessary mechanisms (i.e., smartphones, mobile broadband, physical infrastructure and trade logistics) are in place. For example, while performing due diligence on Iraqi businesses that applied for business development funds provided by the United States government in the late 2000s, I had the opportunity to see role e-commerce can play in the development of the country's private sector. I witnessed how a thriving private sector powered by micro, small and medium-sized enterprises (MSMEs) is necessary for stabilization and sustainable development. Therefore, it was with great interest that I read a report by the United Nations Conference on Trade and Development (UNCTAD) assessing Iraq's e-commerce and digital trade readiness.

Highlights from the report include:

The e-commerce ecosystem in Iraq, while emerging, is still facing major challenges.

• The country lacks a unified vision on e-commerce and the coordination required among stakeholders to accelerate the Iraqi digital development agenda.
• Years of conflict in Iraq have caused major damage to physical infrastructure. Rebuilding ICT infrastructure and improving trade logistics – especially in terms of customs' clearance processes – are key to building the foundations for e-commerce and the digital economy in Iraq.
• The customs' operational model in Iraq also needs an update, as time and costs to export and import goods in Iraq are among the highest globally. Some improvements have been made, by introducing new regulations on electronic processing of moving goods, but further reforms are needed.
• Other challenges are the limited role of Iraqi Post in the digital economy and the low integration of postal services with other e-commerce stakeholders, for both national and cross-border transactions.

Despite these challenges, there are important opportunities for Iraq to tap into the potential of e-commerce for development:

• The assessment shows that e-commerce would help stimulate domestic demand, boost trade and diversify Iraq's largely oil-based economy. Increased productivity and competition would push local industries to create new jobs, especially for the youth, who represent nearly 60% of the population.
• With the improved security environment, Iraq has a chance today to leverage digital technologies for economic diversification and for supporting more sustainable and inclusive development.
• The assessment can help the Government of Iraq mobilize the resources needed for the implementation of the key policy actions, thus moving the country towards its digital economic and social transformation.

On the topic of e-commerce skills development, the report asserts that Iraq's "entrepreneurial ecosystem is still nascent and shallow. Private sector institutions, companies and employees - especially MSMEs - lack the knowledge and expertise to effectively engage in e-commerce. Among MSMEs there is a general lack of awareness about the benefits of e-commerce; this is reflected in their priorities and plans that do not consider the potential benefits of online commerce, including access to new markets. Among the general population, trust in online transactions remains low."

Moreover, "The Iraqi public sector also lacks the skills and knowledge to develop an enabling environment for e-commerce and digital economy, which has been identified as a major challenge. This reality prevents public sector institutions from developing the necessary policies and programs to support the private sector, which relies on an enabling environment to drive innovation and introduce new products and services. Without an enabling environment supported and enhanced by the public sector, the potential of the private sector is constrained."

Once an enabling environment by the public sector to support private sector development is established, "the lack of access to financing for e-commerce startups and MSMEs, from the formal banking system and the non-banking financial system, is another barrier to the development of e-commerce in Iraq," the report explains. "The main reasons include the limited use of formal financial institutions by citizens and MSMEs, and the inability of financial institutions and financing initiatives to address the needs of customers such as startups, small businesses and women-run enterprises. Typically, the products and services offered by these financial institutions are geared towards large established firms in traditional sectors."

While "the Iraqi entrepreneurial system remains nascent," the report notes that "promising developments are emerging. Five innovation hubs have been established across the country and there is growing interest in digital innovations from local incubators and accelerators, the telecommunications company Zain, the donor community and other stakeholders."

The report optimistically concludes that the "emergence of e-commerce in Iraq is very promising and has the potential to create jobs, diversify the economy, stimulate domestic demand and increase exports. As the country continues to rebuild after years of conflict, e-commerce can provide a boost to many existing industries and create new opportunities for young people, women and aspiring entrepreneurs." Although it is unknown how covid-19 has impacted these innovation hubs, the drive to build a thriving e-commerce sector and digital economy in Iraq and throughout the Middle East region remains strong based on discussions with my colleagues in the region.

What are your recommendations for how Iraq can develop a thriving digital economy?

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.

UNCTAD Report on Maritime Trade Presents Six Policy Actions to Be Taken in Response to the COVID-19 Pandemic

Until the global spread of the coronavirus disease (COVID-19) pandemic earlier this year, most consumers worldwide never considered how the toilet paper or baking goods they purchase arrive on the shelves of their local grocer. Reports about disrupted supply chains, reduced cargo volumes, and shortage of healthy workers at seaports in distance lands, which normally are found in specialized news sources, started to appear in the mainstream media as the COVID-19 began to impact the global economy. Even if they did not comprehend its specific nuances, people took notice of the role maritime transport has on transporting their home goods to a regional distribution center for ordering via an e-commerce platform. And these consumers quickly began to understand disruptions in the maritime transport industry has a direct impact of obtaining goods they rely on purchasing with ease.

I have long been interested in the logistics industry starting with a tour of a local post office during my childhood where I learned how a letter dropped in the corner letter box is delivered to a friend who lived a few blocks away or my grandparents hundreds of miles from my residence. And I was enthralled by the massive cargo ships docked at the Port of Seattle when I moved to the Pacific Northwest in the 1990s. As a member of board of advisors of TRInternational, Inc., a Seattle-based chemical distributor, which imports many products into the United States via cargo ships, I closely follow the maritime transport industry. Therefore, I took a great interest in reading the Review of Maritime Transport 2020, a recurrent publication prepared by the United Nations Conference on Trade and Development (UNCTAD) secretariat since 1968 with the aim of fostering the transparency of maritime markets and analyzing relevant developments.

Structured around five substantive chapters, the report explains that the "pandemic has brought to the fore the importance of maritime transport as an essential sector for the continued delivery of critical supplies and global trade in time of crisis, during the recovery stage and when resuming normality." What is more, "The global health and economic crisis triggered by the pandemic has upended the landscape for maritime transport and trade and significantly affected growth prospects. UNCTAD projects the volume of international maritime trade to fall by 4.1 percent in 2020. Amid supply-chain disruptions, demand contractions and global economic uncertainty caused by the pandemic, the global economy was severely affected by a twin supply and demand shock." Encouragingly, "UNCTAD projections indicate that maritime trade will recover in 2021 and expand by 4.8 percent."

On the topic of cybersecurity, "Increased cyberattacks in shipping during the COVID-19 crisis were exacerbated by the limited ability of companies to sufficiently protect themselves, including because of travel restrictions, social distancing measures and economic recession." Moreover, "With ships and ports becoming better connected and further integrated into information technology networks, the implementation and strengthening of cybersecurity measures are becoming essential priorities."

New International Maritime Organization (IMO) "resolutions encourage administrations to ensure that cybersecurity risks are appropriately addressed in safety-management systems. Owners who fail to do so are not only exposed to such risks but may have their ships detained by port State control authorities that need to enforce this requirement. Cybersecurity risks are likely to continue to grow significantly as a result of greater reliance on electronic trading and an increasing shift to virtual interactions at all levels. This deepens vulnerabilities across the globe, with a potential to produce crippling effects on critical supply chains and services."

The report also presents "six priority areas for policy action to be taken in response to the COVID-19 pandemic and the persistent challenges facing the maritime transport and trade of developing countries":

1. Support trade so it can effectively sustain growth and development.

"Trade tensions, protectionism, export restrictions, particularly for essential goods in times of crisis, bring economic and social costs. These should, to the extent possible, be avoided. Further, non-tariff measures and other obstacles to trade should be addressed, including by stepping up trade facilitation action and customs automation."

2. Help reshape globalization for sustainability and resilience.

"Disruptions caused by the COVID-19 outbreak have re-ignited the debate on the risks associated with international manufacturing production and extended supply chains. It will be important to carefully assess the varied options when it comes to changes in supply-chain design and outcomes that are aligned with the Sustainable Development Goals and the 2030 Agenda for Sustainable Development. For example, a shortening of supply chains through reshoring or near shoring may reduce transport costs and fuel consumption, but it does not necessarily future-proof supply chains against disruptions that could take place, regardless of the location. Multi-sourcing approaches may guarantee greater resilience than approaches that concentrate production in a single location, whether at home or abroad. The debate on globalization should focus on identifying ways in which unsustainable globalization patterns could be mitigated to generate more value to a wider range of economies."

3. Promote greater technology uptake and digitalization.

"Polices should support a digital transformation that improves the resilience of supply chains and their supporting transportation networks. For maritime transport to play its role in linking global economies and supply chains, it should leverage the crisis by investing in technology and adopting solutions that meet the needs of the supply chains of the future and support resilience efforts. Digitalization efforts should enable enhanced efficiencies, including energy efficiency, and productivity in transport (for example, smart ports and shipping). It should also help countries tap e-commerce capabilities and transport facilitation benefits that boost trade. For more impact, cybersecurity should be strengthened

at all levels."

4. Harness data for monitoring and policy responses.

"The use of fast-evolving data capabilities can support efforts to forecast growth and monitor recovery trends. New sources of data and enhanced possibilities emanating from digitalization provide ample opportunities to analyze and improve policies. The pandemic has highlighted the potential for real-time data on ship movement and port traffic, as well as information on shipping schedules to generate early warning systems for economic growth and seaborne trade."

5. Enable agile and resilient maritime transport systems.

"There is a need to invest in risk management and emergency response preparedness beyond pandemics. Future-proofing the maritime supply chain and risk management require greater visibility of door-to-door transport operations. To do so, it is necessary to formulate plans setting out key actions and protocols to be implemented in response to crises while ensuring business continuity. Special consideration is needed to address seafarers' concerns, most of whom come from developing countries. Collaboration across port States and among different actors within countries remains key to improving crew changeover processes and ensuring standardized procedure and risk management protocols."

6. Maintain the momentum on sustainability, climate-change adaptation and resilience-building.

"Current efforts to deal with carbon emissions from shipping and the ongoing energy transition away from fossil fuels should remain a priority. Governments could direct stimulus packages to support recovery while promoting other priorities such as climate-change mitigation and adaptation action. Thus, policies adopted in the context of a post-pandemic world should support further progress in the shipping industry's transition to greening and sustainability. Meanwhile, sustainability and resilience concerns, such as connectivity among small island developing States and climate-change adaptation, remain key priorities. In these States, critical coastal transport infrastructure is a lifeline for external trade, tourism, and food and energy security. The generation and dissemination of tailored data and information plays an important role in risk assessment, the improvement of connectivity levels, the development of effective adaptation measures, the preparation of targeted studies and effective multidisciplinary and multi-stakeholder collaboration. In addition, progress towards the realization of target 8.1 of the Sustainable Development Goals – sustainable economic growth in the least developed countries – is ever more important to strengthen the resilience of the least developed countries and their ability to cope with future disruptions."

I concur that the "COVID-19 pandemic is a litmus test, not only for globalization but for global solidarity and collaboration as well. The success of the above-mentioned policy measures will depend on effective international collaboration to ensure coordinated policy responses. Coordinated efforts are also necessary for the standardization of data, tracking of port performance and development of protection mechanisms against cybercrime."

Lastly, "In facing the challenges ahead, policymakers should ensure that financial support, technical cooperation and capacity-building are provided to developing countries, in particular the most vulnerable groups of countries, including the least developed countries, landlocked developing countries and small island developing States."

Do you agree with the six policy actions to prepare for a post-pandemic world? Which cybersecurity tools and strategies should companies in the maritime trade industry employ to combat cybercrime?

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.

Mobile Industry Driving Sub-Saharan Africa's Social Impact and Contributing to the Region's Economic Growth, Says GSMA Report

According to the GSMA, a UK-based organization representing the interests of mobile operators worldwide, the mobile market in Sub-Saharan Africa "will reach several important milestones over the next five years: half a billion mobile subscribers in 2021, 1 billion mobile connections in 2024, and 50% subscriber penetration by 2025." The Mobile Economy Sub-Saharan Africa 2020, which is authored by GSMA Intelligence, GSMA's research and consulting arm, says that "Despite the economic uncertainty brought about by the Covid-19 crisis, operators in the region will invest $52 billion in infrastructure rollouts  between 2019 and 2025."

Available in English and Français, below are the report's key findings:

Covid-19 casts a spotlight on digital connectivity

The report is accurate in explaining that the "Covid-19 pandemic has had a profound impact on the digital landscape in Sub-Saharan Africa and around the world." And I concur that that "pandemic has highlighted the importance of a robust and inclusive digital economy, underpinned by universal access to fast, reliable internet and a range of digital services for individuals and businesses."

What is more, "The mobile industry in Sub-Saharan Africa has largely risen to the challenge of keeping individuals and businesses connected during the pandemic, despite changes in data consumption patterns. However, with nearly 800 million people in the region still not connected to the mobile internet, it has never been more urgent to close the digital divide."

Nearly half a billion people subscribe to mobile services in Sub-Saharan Africa

Encouragingly, the report finds that "[s]martphone adoption continues to rise rapidly in the region, reaching 50% of total connections in 2020, as cheaper devices have become available. Smartphone financing models are gaining traction, demonstrated by the recent partnership between Safaricom and Google, allowing low-income consumers to pay for 4G devices in daily instalments. Over the next five years, the number of smartphone connections in Sub-Saharan Africa will almost double to reach 678 million by the end of 2025 – an adoption rate of 65%."

The 5G era has begun in Sub-Saharan Africa

"Vodacom and MTN launched the first major 5G networks in Sub-Saharan Africa in 2020," the report explains, "offering 5G mobile and fixed wireless access (FWA) services in several locations across South Africa." Furthermore, "5G trials have been conducted elsewhere in Sub-Saharan Africa, including in Gabon, Kenya, Nigeria and Uganda."

Despite the frequent media headlines about the deployment of 5G, GSMA asserts that "mass adoption of mobile 5G is not imminent in the region. With significant unused 4G capacity and 4G adoption still relatively low, the focus in the near term for operators and other stakeholders is to increase 4G uptake. This will involve strategies to make 4G devices more affordable and the provision of relevant digital content to drive demand for enhanced connectivity services. By 2025, there will be just under 30 million mobile 5G connections in Sub-Saharan Africa, equivalent to almost 3% of total mobile connections."

Mobile industry driving social impact and contributing to economic growth

"Beyond connectivity," the report points out that "the mobile industry has engaged with businesses and governments on initiatives to alleviate the impact of the Covid-19 pandemic on citizens. From mobile money transaction-fee waivers and discounts on data tariffs for educational and health sites, to cash and equipment donations, mobile operators and other industry players have supported the most vulnerable in society during the pandemic while also contributing to economic recovery efforts."

Moreover, "Mobile technologies and services generated 9% of GDP in Sub-Saharan Africa in 2019 – a contribution that amounted to more than $155 billion of economic value added. The mobile ecosystem also supported almost 3.8 million jobs (directly and indirectly) and made a substantial contribution to the funding of the public sector, with $17 billion raised through taxation. By 2024, mobile's contribution will reach around $184 billion as countries increasingly benefit from the improvements in productivity and efficiency brought about by the increased take-up of mobile services."

Policy actions for digital and fiscal resilience

I recently had the privilege to speak to a group of entrepreneurs residing in Africa, many of whom reside in Botswana. While I expressed my optimistic view on the long-term growth of Africa's digital economy, I also conveyed my concerns about governmental regulatory barriers that will impede business growth.

Therefore, I support the report's finding: "Access to digital services has been crucial to keep economies active and mitigate the socioeconomic repercussions of the Covid-19 pandemic. Consequently, governments and policymakers should implement policies to enhance access to connectivity and drive investment in more resilient digital infrastructure for the future. This is crucial to reactivating the region's economy post-Covid-19 as digital technologies play an even more important role in society."

The GSMA further maintains that "[t]o improve mobile adoption, policy measures should focus on encouraging investment in much-needed infrastructure and improving consumers' ability to access digital services. As such, policymakers should:

• "rethink fiscal policy on mobile connectivity
• "facilitate mobile infrastructure deployment
• "prioritize digitization of person-to-government transactions."

What is more, "Efficient and effective management of spectrum is also key to maximize the opportunities that mobile connectivity can bring to society. Making sure the required spectrum resources are available under the right conditions will lower broadband costs, increase coverage and boost connectivity. The 2020s will see strong growth in the number of Africans connected to mobile broadband. As 4G and 5G grow together throughout the decade to come, spectrum preparation can drive cost efficiency and promote growth."

 

With investments in infrastructure to reduce the digital divide and increase capacity among mobile device users, together with the implementation of regulatory reform, Sub-Saharan Africa will see a rise of key sectors including digital identity, connected devices (IoT), and e-commerce and digital payments. 

"With half the global population now connected to the internet," the report explains, "the coming years will see a steady rise in online engagement as consumers take a digital-first approach to economic and social activities. For the majority of people in Sub-Saharan Africa, the lack of a verifiable identity remains a major barrier to participating fully in the digital economy. Sub-Saharan Africa is home to only a sixth of the world’s population – but half the global population without an ID live in the region."

Crucially, "Regional and national governments recognize the benefits of online digital identity. To this end, the Smart Africa Alliance has proposed a blueprint to assist public and private sector players with the design and implementation of digital identification schemes for individuals, which are trusted by all stakeholders based on shared rules and minimum requirements, thus facilitating mutual recognition. The Smart Africa Trust Alliance (SATA) is due to be piloted in three countries – Benin, Rwanda and Tunisia."

Regarding IoT, the report says development of the industry "in Sub-Saharan Africa is still at a nascent stage and faces several challenges. These include limited investment and innovation in solutions and devices that address local use cases, unreliable power supply and low purchasing power among consumers and enterprises. However, the outlook remains positive. The number of cellular IoT connections in the region has doubled over the last five years to 16.7 million at the end of 2019. Although this is only a fraction of the 1.7 billion global connections, the upward trend is expected to continue as commercial business models become more viable."

Moreover, "IoT has the potential to help address regionwide challenges in key sectors, such as energy, water, agriculture, transportation & logistics, manufacturing and healthcare. With many countries in the region lacking an efficient system to deliver these essentials, demand for IoT-enabled solutions is set to increase over the coming years."

As for e-commerce, the sector "is experiencing a renaissance as shopping behaviors change, in part due to social distancing measures introduced to curb the spread of the pandemic. A survey from Visa found that 71% of respondents in Nigeria and 64% in South Africa bought groceries online for the first time because of the pandemic. During the first half of 2020, pan-African online retailer Jumia also reported increased demand from sellers across the region to expand their business on its platform, as the Covid-19 crisis further established e-commerce as an important route to market. As online shopping grows in popularity across Sub-Saharan Africa, mobile operators will play a key role in enabling digital payments to replace cash transactions."

What do you think of the report's findings? Do you see opportunities in building digital identity, IoT or e-commerce and digital payment solutions?

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.

Six Digital Consumer Trends That Are Shaping the Next Normal in Southeast Asia

The previous post focuses on a report published in 2019 by Facebook in collaboration with Bain & Company, a global management consulting firm, that explores the spending behavior and preferences of Southeast Asia's online shoppers, and the opportunities and challenges brands face in reaching them. This post looks at an update to the 2019 report, which claims that "Southeast Asia remains one of the most vibrant regions for the digital economy, a place where the growth of internet users and digital consumers have seen promise. This provides a unique opportunity for every type of business, making this region the world's growth engine."

Published on June 8, 2020, the update notes: "As we move into the second half of 2020 and 'the next normal,' we review those findings and ask: What's changed and what hasn't? What might the future look like for companies? To this end, we have observed six emerging consumption themes in Southeast Asia for digital consumers — those who have made purchases online in the last 6 months":

1. Essential shopping moves online

"In Riding the Digital Wave, we observed that Southeast Asian firms have a huge opportunity to fill the online retail gap, mainly in areas of clothing, accessories and personal care, which are expected to see growth of 25% to 30% every year. In addition, we indicated that one of the largest untapped opportunities for online spend lay in groceries: a US$350 billion market in Southeast Asia whose 0.3% penetration in the region, especially when compared with China, was much lower than other categories.

"Fast forward to Q2 2020. As businesses adjust to the new normal, this shift to online purchases has accelerated, mainly for essentials. People staying at home has increased the demand for essentials in the short term, both online and offline."

What is more, "during the current environment, at least 44% of digital consumers across Southeast Asia have spent more on packaged and fresh groceries online. This trend is here to stay. Among consumers who have been buying more since April, at least 80% indicated they plan to continue buying groceries online even in the future."

2. Discovery of new apps accelerates

"Consumers are turning to digital devices to keep themselves occupied while indoors. As a result, the usage and adoption of different digital apps have accelerated and will likely continue — a trend we described in our previous Southeast Asia digital consumer report.

"Across the region, 85% of respondents said they have tried new digital apps during Q1 this year." As reflected in the chart on the left, "Not all apps are equal, however. Apps that have seen the highest increase in first-time and continued usage are social media, video streaming, and instant messaging apps, followed by ecommerce, food delivery, and digital payments platforms."

The report adds: "When divided by age groups, categories such as social media, video streaming, and instant messaging continue to lead the pack, as these apps saw nearly similar spikes in usage across all age groups. Meanwhile, among middle-aged groups (25 to 54 years old), apps that saw relatively higher usage were ecommerce, food delivery, and digital payments apps. Among youth aged 18 to 24, it was short videos, music, and gaming."

3. Value for money is key consideration

The 2019 study "observed that 22% of consumers across Southeast Asia were value hunters, who make up a minority of spending online." The covid-19 pandemic in this year's second quarter, however, has caused "a shift to value-for-money purchasing across markets as conservatism sets in. Across Southeast Asia, 57% cite 'value' among their top-three purchasing considerations. The effect differs by country, and is more pronounced in Thailand and Singapore, where ~70% cite it as a top consideration purchase."

4. Reliable brands are on the rise

The report notes that "Southeast Asia's digital consumers have always been open to trying new brands. Their purchasing habits are largely driven by inspiration and openness to digital discovery, hence the term 'Discovery Generation' in our previous report."

Moreover, "This year we looked closely at the types of brands consumers buy — and they showed a strong preference for trusted and established brands. Forty-two percent said they bought more established brands in the recent months. This preference is driven by the fact that established brands have the consumer trust and robust supply chain to ensure their products are always available and visible.

"When it comes to perfect sales execution in-store and online, availability across channels is imperative: 1 in 3 consumers have switched brands when they don’t find their preferred brands."

Importantly, "The change is starker in some categories than others. The move towards established brands is happening not just for individual items such as hand sanitizer, but is also pronounced across all broad categories. Among the Southeast Asian countries, Vietnam consumers are most inclined to buy from more established brands."

5. Health and welfare top of mind

"Across the board, the past few months have prompted increased focus on the health, safety, and environmental impacts of consumer products," the report says.

"In Southeast Asia, 73% of consumers said they were more likely to be more health conscious going forward. This is nearly twice as high as the increase in sentiment in the US, which stands at 40%. At the same time, at least half said they were now more environmentally conscious — at least twice as likely to increase as in the US."

Interestingly, "In countries like the Philippines and Vietnam, consumers prioritize health and wellness or corporate social responsibility even more highly than value-for-money."

6. 'At home' and contactless here to stay

The report maintains that up to 77% across Southeast Asia "are now preparing food at home more often, while at least 65% are watching more on-demand and broadcast TV." And "This behavior is likely here to stay as Southeast Asian consumers adopt more favorable attitudes to working from home and use remote-presence apps more often."

"Furthermore, contactless innovations and behavior have increased. Contactless payments are aggressively rising even in cash-dominant markets, while service providers and food services are innovating to offer contactless options.

"Even in cash-dominant markets in Southeast Asia, contactless payments, including mobile ones, have become a critical application. For example, in the Philippines GCash has seen a 30% increase in transaction volumes since March and has become the most downloaded finance app in Google Play Store."

For those businesses planning to capitalize on the changing digital consumer trends in the region, the report provides the following useful information:

The trends are still evolving, but companies will have to start thinking about its long-term implications. As the rise of the digital consumption accelerates throughout the region, businesses may have to drive product availability online and ensure multi-channel, online presence, especially via apps. For example, the grocery firm FairPrice On leveraged its offline store inventories to double down on its online grocery presence, while Indonesian retailer Matahari shifted emphasis to its online site and mobile app.

Further, the decline in consumer spending may pose a challenge for high-end products and bring back focus towards value-for-money items. The shift towards more established brands means having an extensive and reliable supply-chain network can have greater foothold on consumer trust. To this end, some small and medium enterprise vendors may consider finding a more established partner, as some vendors have done with Lazada.

Finally, a home-centric and health-conscious lifestyle suggests companies will need to design around home consumption and address concerns around health and safety. For a company like Grab, for instance, this meant reallocating their driver capacity to food delivery, as well as unveiling a US$40 million fund to sustain their service and delivery partners (with personal protective equipment, insurance, and subsidies for local businesses).

The new normal poses new challenges, but it also presents companies with the opportunity to help society redefine what this future would look like. It's the beginning of a journey for businesses to form new partnerships, boost resiliency, and embrace the digital future.

Changing digital trends presents an opportunity for businesses looking to capitalize on Southeast Asia's growing digital economy. The covid-19 pandemic has accelerated the adoption of the app economy in a variety of sectors including social media, video streaming, instant messaging, ecommerce, food delivery, and digital payments. While mobile phone adoption among Southeast Asian consumers will continue to grow, businesses will need to pay close attention to the six emerging consumption themes presented in this report in order to be successful.

What do you think of the report's findings?

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.

Report Explores the Spending Behavior and Preferences of Southeast Asia's Online Shoppers, and the Opportunities and Challenges Brands Face in Reaching Them

"As Southeast Asia's emerging middle class embrace the digital world, digital spending has become the new battleground for companies looking to expand their business," says a report published by Facebook in collaboration with Bain & Company, a global management consulting firm. The survey, Riding the Digital Wave: Capturing Southeast Asia's digital consumer in the Discovery Generation, explores the spending behavior of the region's digital consumers. The findings are the result of interviewing a total of 12,965 respondents from the six Southeast Asian countries of Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

The report obtained consumers' views on where they spend their money online, how much they spend, factors that influence them, as well as their consumer journey. Additionally, senior executives from more than 30 companies across a diverse range of industries weighed in on the opportunities they see, the challenges they confront and their approach to digital commerce business in Southeast Asia. While the survey was conducted in June 2019, prior to the covid-19 pandemic, the findings are valuable for companies planning to enter Southeast Asia's rapidly growing digital consumer market.

Below are the survey's top ten insights:

1. Increase in affluence and internet access have led to the rise of digital consumers. Digital consumers in Southeast Asia have grown exponentially, from 90 million in 2015 to 250 million in 2018. This number is expected to grow 1.2 times by 2025.
2. Online spending will outpace the growth of digital consumers. Digital spending is estimated to grow 3.2 times from 2018 to 2025, far bigger than the 1.2 times growth in the number of digital consumers.
3. Clothing and personal care will drive the growth in online spend. Southeast Asia's online retail penetration is still low compared with other markets. It presents an opportunity for brands to step up and offer a dominant business model that can expand the market for themselves and their peers.
4. The future of digital spending is discovery driven. Seventy percent of shoppers don't exactly know what they want when they shop online. This leads digital consumers to keep browsing till they find what they like.
5. Omni-channel comparison shopping is part of the purchase journey. The purchase journey is rarely purely online or offline. Eighty-six percent of consumers surveyed compare products online, offline or both before making a purchase. About a third still check physical stores and other websites before buying.
6. Discounts help acquire customers but don't necessarily promote loyalty. Discounting helps introduce customers to your brand, but it's not an effective differentiator over the long term. More than 50 percent of respondents don't necessarily wait for sales or deals.
7. The primary driver of discovery is social media. More than 50 percent of consumers surveyed in Southeast Asia say they often discover new products via social media. In comparison, 22 percent often discover them via other online channels and 24 percent via offline channels and other means.
8. Loyalty programs can create stickiness. Respondents with a loyalty program spend more and buy more often across categories. They are also more likely to be Promoters, who spend three times more across categories. Asked why they take part in loyalty programs, members said they primarily do so because of long-term savings.
9. Fragmented market means companies have opportunity to win customer loyalty. A dominant ecommerce player has yet to establish itself in Southeast Asia. The market share between the largest and second-largest player is still largely head to head, unlike in the United States and China where the leading player's market share is several times larger than its closest competitor. The region's Net Promoter Score®, a measure of customer loyalty, is also still relatively low. This lack of loyalty in the market offers huge potential for brands in Southeast Asia to grow.
10. Large brands need to build new muscles and examine potential for direct-to-consumer model. Brand owners need a clear, multi-channel strategy while simultaneously learning from the successful, digital-first “insurgent” companies. Some of these insurgent brands have found success by pursuing direct-to-consumer business models.

"As people go online, they move from being simply internet users to being digital consumers," the report notes. "Digital consumers are internet users who purchase online at least once in any of the following categories":

• Consumer electronics and accessories
• Household appliances and furnishings
• Clothing, footwear and accessories
• Personal care and beauty
• Toys and baby care
• Groceries and food delivery
• Airline tickets and accommodation
• Gaming apps and music

I agree with the report's conclusion that "[t]he rise of the Discovery Generation presents a huge opportunity. But navigating this landscape remains a challenge, especially for large brands. Brand owners need a clear, multi-channel strategy while simultaneously learning from the successful digital-first insurgents. These insurgents have been highly successful and are leading the way on innovative online brand building and becoming large regional brands in their own right. What can large brands do to overcome uncertainty?

"To address the challenges, large brands looking to engage the discovery generation can consider pursuing a ground-up approach instead of a patchwork of solutions. Some areas to think about include":

1. Reimagine your brand discovery. What is your zero-based budgeting approach for marketing spend?
2. Rethink your route-to-market strategy. What is your online strategy and how does it vary across categories?
3. Redefine partnerships. How do you partner effectively with ecommerce platforms and leverage their customer insights?
4. Redesign your organizational model. What capabilities should your organisational model have in order to win online?

Lastly, the report presents the following recommendations on how "large brands make their next move their best move":

1. Leverage ecommerce channels as it's estimated that majority of growth for consumer-packaged goods will come from that platform.
2. Ensure your brand is visible and available across all channels. If your brands aren't visible and available, people can't buy them.
3. Brick-and-mortar tactics will not work; ecommerce requires different capabilities and approach.
4. Pick your battles, place your bets. Consider business models outside of ecommerce. Some of these insurgent brands have found success by pursuing direct-to-consumer business models, so their potential for disruption can't be ignored. 

This blog has covered Southeast Asia's recent economic advancements resulting from improvements in the region's mobile communications network and transportation infrastructure. The former, which includes the deployment of high-speed mobile broadband and the use of low-cost smartphones, increases the number of people who transition from internet users to digital consumers. The latter provides for easier ways to deliver goods to the 423 million digital consumers residing in the six countries covered in the survey. Based on my experience of doing business in the region, I confidentially agree with the report's assertion that "[t]he opportunity has never been greater."

Do you have a strategy to capitalize on the increasing number of digital consumers in Southeast Asia?

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.