Making B2B e-commerce work for Africa: introducing a case series to understand the learning and opportunities in Africa
What role can B2B e-commerce play in offering African businesses a competitive means of sourcing goods for resale?
Expectations are running high in Africa that e-commerce can be a source of accelerated economic growth, offering opportunities to firms small and large and promoting greater integration between markets. The potential is important enough for the African Union to propose specific discussions on e-commerce as a significant contributor to the African Free Trade Area (AfCFTA). Estimates of the size of e-commerce business in Africa put the business at about $16 billion in 2017 and growing to about $27 billion by 2020 (Statista / Boston Consulting Group), from which it is projected that the sector will generate about 3 million jobs. Today Africa represents less than 0.5% of this trade on a global basis (based on estimates from UNCTAD).
Globally, B2B ecommerce is massive: up to five times the size of B2C and there is good reason to believe that suitable B2B platforms could be particularly adapted to Africa. The sale of goods agreed online between two professional buyers should be simpler than the equivalent trade with consumers: there is no obligation to include a payment mechanism, and transportation arrangements can be made separately. We know from other studies (for instance ITC’s “Africa Marketplace Explorer”) that classified advertisement sites account for the majority (over 60%) of B2C platforms in the continent. However, the amount of B2B business taking place, and even the number of such platforms is far less clear.
An upcoming series of B2B case studies
ITC has worked with Ecommerce Forum Africa to research how B2B ecommerce is being exploited across Africa. In late 2019 and into early 2020, a series of telephone interviews were conducted with a sample of firms across the continent, resulting in a series of case studies which will be published on ecomConnect.
Highlights of the study:
- Africa is missing innovation in B2B marketplaces. Research underway by ITC on the African marketplaces shows that there is a healthy number of African owned and operated marketplaces: about 80% of all marketplaces operate only within national boundaries. The home grown platforms are either generalist B2C (such as Jumia, Konga, Takealot, etc), or specialised B2C (business to consumer - for example, car sales on Cars45, Webuycars, or Yeebia), or C2C (consumer to consumer - OLX, ROAM, Gumtree, etc).
- B2B marketplaces with transactional capability or value added services are rare in Africa. Where these do exist, they are usually foreign owned and designed to sell into Africa, rather than from one African country to another. The majority of local B2B business is online directories or simply using B2C platforms to place bigger orders;
- African businesses are actively buying from B2B marketplaces. A number of respondents in the study pointed out there is every reason to believe that this is a multi-billion-dollar market, but predominantly on the import side: non-African multinational marketplaces selling into Africa
- African B2B markets are sector specific. Sector specific B2B marketplaces (machine tools, car parts, etc) exist, but most of these appear to focus on national markets. Respondents pointed out that there is a lack of B2B marketplaces in some regions of Africa, of any kinds: general or sector specific
- B2B marketplaces need to make a stronger value proposition toward African companies. The majority of online B2B activity within Africa would appear to be through independent websites owned by individual firms. SMEs operating their own specialised B2B websites remarked that they prefer not to be on a marketplace because they see no value-added in using such marketplaces
- Cross-border ecommerce business is largely limited to higher value items. High value specialized products, such as medical equipment, are presently the most traded online B2B goods in Africa (according to analysis made by the EU’s digital task force in June 2019) and are easier to trade cross-border. Higher profit margins can absorb currency fluctuations, and make it easier to justify dedicated freight solutions or courier services. Lower priced goods struggle to justify the significant intra-African freight costs and delays. It is often simpler and quicker to import goods in bulk from outside of Africa: businesses reselling smaller items, such as spare parts, often source directly from international suppliers, rather than within Africa.
African solutions and adaptations
The study identified a number of interesting developments that show how Africa is developing its own distinctive approach to B2B to serve local market niches. These and other examples are explored in the forthcoming case series.
- Sokowatch provides stock for informal traders in four East African markets
- Twiga Foods in Kenya uses an online platform to link food producers with retailers, started in 2014, has now raised a total of $55 million in debt and equity.
- MaxAB in Egypt has recently raised US$6.2m similarly as the B2B online intermediary between Egypt’s rural food growers and grocery stores in Cairo.
- Gloopro, a Nigerian company, operates what it calls an e-procurement system as an intermediary for its B2B customers, providing anything from office supplies to industrial equipment.
Emily, owner of Wamakena Shop & Sokowatch customer
Opportunities for innovation in B2B business in Africa
Africa is a continent of opportunities – if the business is adapted to the realities of doing business locally. A number of models for conducting B2B business show particular relevance to Africa.
- Drop-shipping, when an intermediary purchases from manufacturers or importers and then sells on, usually to micro and small companies has become popular in Africa. This form of B2B particularly benefits small sellers in townships and informal traders. There are a number of drop-shipping companies operating in Africa; an example is Dropstore.
- B2B services (such as recruitment, ICT services and software, business travel, financial services) are not affected by borders and poor transport infrastructure. Logically B2B services should already be flourishing between countries (at least those with the same language and where restrictions on professional practice are not imposed). The opportunity for many African service companies is to set up and manage their own B2B focused websites: to do so will require greater competency in productization (more can be found out about this in ecomconnect). Additionally, there should be a space for African B2B services marketplaces.
- Transportation services: innovative players such as Nigeria’s Kobo360 (which raised $20m in private equity and another $10m in loans in 2019) and Kenya based Lori Systems are building marketplaces to integrate local transportation systems. Their ambition is to build cross border transportation marketplaces and offer customers
- Price comparison sites dedicated to B2B customers may offer another interesting potential for African entrepreneurs. In a market that is particular price sensitive being able to search for competitive online deals for businesses would likely find a ready market . Successful B2C examples such as Yaoota have already found a market in Africa.