Africa: Why Logistics Will Power AfCFTA and Africa’s E-Commerce Export Potential
Africa is the second-largest continent in the world, with an estimated 1.3 billion people. Its combined Gross Domestic Product (GDP) was $2.6 trillion in 2020, and the African Development Bank (AfDB) projects a 3.4% growth rate by year-end 2021.
This modest forecast might be ambitious considering the staggering effects of Covid-19 on commercial activities. It left international borders closed for much of last year, led to a significant devaluation of currencies, an estimated output loss of $115 billion, according to World Bank findings, and continues to restrict regional and international travel.
This dire circumstance may have catalysed an increase in consumer e-Commerce spending across the continent amid mixed year-end results. For e-Commerce giant, Jumia, headquartered in Nigeria with a presence in about 11 countries within the region, COVID-19 had an overall net negative effect on business in 2020.
According to the brand’s 2020 financial report, “As a result of only limited recourse to nationwide lockdowns across its footprint, the pandemic did not lead to a drastic change in consumer behaviour nor meaningful acceleration in consumer adoption of e-Commerce at a Pan-African level”. Conversely, despite one-off investments based on the pandemic and strict lockdown regulations, Takealot, South Africa’s biggest e-tailer, recorded major growth in the six-month period ended 30 September 2020. According to Naspers’ consolidated financial statements, its R6.26 billion in Gross Merchandise Value (GMV) signalled 85% growth year-on-year, while first-party and third-party businesses grew by 69% and 119% respectively.
Despite the conflicting outcomes of Covid-19, Africa’s e-Commerce remains on a high innovation, high-growth trajectory, owing to the convergence of key indicators: the continent’s demographics, internet and mobile penetration potentials, digital transformation and ecosystem maturity. Africa’s rapidly advancing e-commerce landscape boasts home-grown mobile-first solutions. Mobile money continues to reinforce value and efficiency for the continent’s growing digital consumers with “pay on arrival” options being adopted broadly.
Similar to global counterparts, the logistics components of the e-commerce funnel have continued to disrupt and innovate, both in response to the pandemic and in the bid to charter access to new markets driven by evolving consumer trends and purchasing behaviour.
While Africa’s e-Commerce retail stands at just 1% of its total retail performance, its potential to harness the benefits of the African Continental Free Trade Area (AfCFTA) are huge, especially in the light of its rapid digital transformation hitherto highlighted. The agreement, driven by a 54-member economic bloc looking to cut tariffs on 90% of goods and liberalise trade across Africa, might very well be the catalyst for new trans-border growth possibilities within the region. Arguments in favour of AfCFA are compelling.
As of 2017, the percentage of intra-African exports to total African exports was a paltry 17%, compared to levels in Europe (69%), Asia (59%) and North America (31%). This implies Africa needs to urgently align with the AfCFTA mandate and trade with itself to facilitate the exchange of manufactured goods, knowledge transfer and holistic economic diversification. The continent has what it takes to become a regional commerce hub. Data from Euromonitor International pegs the value of sub-Saharan Africa’s apparel and footwear market alone at US 31 billion.
From a supply chain perspective, the removal and consolidation of tariffs have immense benefits for the region’s manufacturing players; in beauty, fashion, household and gallantry, sectors that are still largely import-dependent. Eliminating the bottlenecks will no less improve competitiveness, enabling the region to serve its own need for finished goods, while improving its viability as a global sourcing destination.
Africa’s opportunity for “new” export growth will hinge on its competitiveness as a sourcing destination for both value-added products and direct to consumer goods. Beyond considerations for “cost of goods”, buyers globally will be looking for right-priced, timely and effective logistics solutions with minimal disruptions.
Indigenous small and medium businesses, while benefitting from a broadened retail landscape, will be seeking flexible logistics solutions that create inroads for global warehousing, quick turnaround on deliveries and reduced lag time on order fulfilment. These are non-negotiables should they stand a chance at making a real play in the highly competitive global retail scene. Ethiopia is blessed with a $145 million/year apparel sourcing industry and is all set to grow its exports to $30 billion annually by 2030. Textiles also account for 15% of the Moroccan economy’s GDP, but its main export partner is Europe, not Africa. Rwanda’s promise is tech-based.
In 2019, its Mara Group launched two indigenous smartphones – the Mara X and Mara Z – the first set fully manufactured in Africa. Small wonder the Brookings Institution’s Report projects that if AfCFTA is fully implemented, it will boost manufacturing and jack up continental trade to 50% by 2040.
The AfCFTA couldn’t be timelier. Its expected impact on the region’s manufacturing and intra-trade potentials converge with its rapid digital transformation, providing a real opportunity for African e-Commerce and indigenous brands to compete at the inflexion point of global logistics and supply chains, evidenced by re-onshoring and offshoring strategies being adopted globally, as China’s competitive dynamics as a sourcing destination evolves. Globally, digital transformation is aiding new business models to capture emerging sales channels.
Omni-channels are being adopted broadly to ensure modern shoppers are able to complete purchases and returns combining both online and offline alternatives. The convergence of wholesale and retail is being led by the increase in manufacturer-to-consumer models. According to Logistyx 2021 manufacturing trend report, omnichannel strategies require a range of dynamic logistics alternatives; localised warehousing, next day delivery and smaller parcel sizes. Delivery locations are also on the rise, driving increased demand for flexibility and alternative shipping approaches.
Evidence of the continent’s digital logistics innovations can be seen broadly across the key e-Commerce markets. DHL Africa’s e-Shop, a 2019 market introduction, is live in over 34 African countries. The shipping giant is also building partnerships across the continent’s small and medium business landscape, leveraging small communities. Similarly, indigenous digital order fulfilment companies have begun hybridizing storage and logistics services.
Kenya-based Africa Logistics Properties claims it has developed over 1.5 million square metres of warehousing available for rent in emerging markets over the past 10 years.
South Africa’s ACT Logistics offers multi-modal freight services, pick-and-pack warehousing and export services aggregating transportation, clearing and warehousing as its suite of services. Jumia introduced its third-party logistics services in 2020, while Kenya-based start-up Sote launched software that aims to aggregate customs clearing and forwarding processes on one platform, with a vision to help cargo owners track shipments, payment status and estimated arrivals of their consignments. These innovations will democratise access to flexible and effective logistics solutions, building the critical ecosystem required for Africa’s advancement in intra-regional and global export.
The AfCFTA mandate requires more than just having 54 countries put pen to paper. A combination of private and public sector efforts is needed to accrue the potential benefits. Policy action and adoption must be quick, governments must remain open to collaborating with innovation drivers to eliminate process and bureaucratic constraints.
Blockchain technology is available to help with decentralised ledger systems and smart contracts for quicker clearance processes at checkpoints. Automated warehousing can fast-track the processing of high-volume goods at scale and optimize floor space utilisation. Artificial intelligence can help with demand forecasting to reduce bad inventory, assess risk and automate administrative processes in logistics.
In July 2019, Nigeria joined other African nations to sign the AfCFTA agreement. This is commendable, considering the country’s influence on the rest of the continent. Africa stands to benefit from the convergence of factors driving its digital adoption and e-commerce, but actualising this feat requires all hands on deck to optimise critical success factors, including manufacturing capabilities and its logistical framework. On this, our collective will shall always find a way.
Izin is a Lagos-based fashion and logistics entrepreneur