A version of this article will appear in the first edition of Karateng Magazine of the African Chamber of Commerce in Shanghai.
Some of China’s largest tech giants are establishing roots in Africa’s budding e-commerce market, where structural limitations and immature markets have deterred global players. The prospect of getting an early seat at the table, however, has caught the eye of bigwigs such as Jack Ma, who has kickstarted a number of preliminary initiatives aimed at sowing seeds with promising African tech talent.
In August, Ma launched a $10 million annual award called the Netpreneur Prize, which Ma hopes will foster hundreds of future African tech leaders. Each year 10 finalists will receive a $1 million grant from the Jack Ma Foundation for a business plan, as well as mentoring from Chinese industry leaders.
“As a fellow entrepreneur, I understand the importance of getting support during the early days,” Ma said at the launch event in Johannesburg. “This prize demonstrates our support of the next generation of young entrepreneurs across Africa who are paving the way for a better future and imparting positive change in their communities.”
Two months later, Ma visited Rwanda, one of Africa’s fastest-growing economies, to sign a series of agreements promoting cross-border trade and digital infrastructure. Alibaba also welcomed Rwanda into its Electronic World Trade Platform, which helps small businesses develop logistical capacity.
But Africa’s budding e-commerce market has a heap of challenges that the world-leading Chinese giants may be ill-equipped—or unwilling—to tackle. Compared with what they are achieving back home, Chinese companies are still dipping their toes into Africa.
Testing the water
In Africa, Chinese giants such as Alibaba are hoping to emulate what they have rolled out in other emerging markets, such as Turkey and India, capitalizing where US-based competitors have shown little or no interest. But success in early stage markets requires a long-term outlook.
“Alibaba is a very smart company. They aren’t trying to go everywhere at once,” said Ashley Dudarenok, a China-based digital marketing consultant. “They see poorer countries with little infrastructure, as China was before, and know how to deal with this sort of aspirational consumer base.”
Currently, leading Chinese firms are investing in a handful of African economies, focusing on the largest, as well as some exceptional smaller ones such as Rwanda. Although Alibaba and Tencent have plans to scale up, Aubrey Hruby, senior fellow with the Africa Center at the Atlantic Council and co-author of The Next Africa, says the biggest markets will come first. “Like many technology firms invested in Africa, they tend to congregate in places like South Africa, Nigeria, Morocco, and Kenya,” said Hruby. “Expanding into smaller—though rapidly growing—markets can often prove too difficult.”
And as with any budding industry, there are roadblocks that Chinese investment won’t solve alone. Postal codes, for example, still do not exist in many regions of even the richest African nations. Low bank account penetration and widespread skepticism towards internet payments makes online deliveries a tricky business.
“There is not an established culture of online buying due to a big trust deficit,” said Stephany Zoo, head of marketing at BitPesa, a cross-border payment platform based in Nairobi. “Even the biggest players don’t have advanced inventory systems, meaning what you paid for may not be in stock and you end up with something completely different. Then there’s still the question of getting the package to your door.”
E-commerce is still fairly small in Africa, but the market is growing fast. According to Statista, the industry was worth $16.5 billion in 2017 and will hit $29 billion by 2022 as smartphone ownership and incomes continue to rise. By 2025, when half of Africans have internet access, this figure could pass $75 billion, according to McKinsey.
This growth is already paying off for Alibaba, which has 4.2 million African customers. In 2017, the value of transactions through its AliExpress portal almost quadrupled, driven by consumers in key markets like South Africa and Kenya.
Africa has experience with systems like mobile payments, which fueled the explosion of Chinese e-commerce. One of Africa’s largest service providers, Kenya’s SimbaPay, recently launched a service piggybacking on WeChat Messenger, allowing money to be transferred cheaply between merchants in Africa and China. Furthermore, homegrown e-commerce platforms such as Kilimall or Nigeria’s Jumia, both of which have operations in several countries and stock goods from China, reflect the appetite both among customers and local entrepreneurs.
The key step now is for Chinese firms to tailor services to local markets. In a diverse continent composed of many nations, languages, and cultures, this will be no easy feat. But Chinese brands have succeeded before, driving a mobile revolution.
“Look at Transsion in Hong Kong, the maker of Tecno brand phones—they’ve made Africa their focal market,” said Hruby of the Atlantic Council. “They offer keyboards in local languages, and even have extra-long-lasting batteries to deal with inconsistent electricity access.”
Africa’s challenges create opportunities for Chinese firms to provide solutions. The African pie is going to grow—and the companies that find solutions to its problems will get the biggest slice. China’s firms are well-positioned to seize these opportunities. After all, it wasn’t long ago they were solving the same problems in their home market.