KAMPALA/ACCRA (Reuters) - Young Ghanaian entrepreneur Nana Tamakloe could hardly have a simpler business plan. When people order clothes from his website, he buys the items from stalls and shops in Accra, ships them with DHL and gets paid online.
His suppliers love him as a regular customer and don’t care that he doubles their prices to cover his costs.
“Most of the clothes sellers and tailors don’t have a way to reach clients abroad, so I was like: ‘Let’s create an e-commerce platform,'” said Tamakloe, whose www.fashionghana.com website serves customers in the West and some in Africa.
Tamakloe’s business is small but he is tapping into a market manufacturers and internet companies say will be big: online retail in Africa.
The backdrop is simple. The growth of Africa’s middle class has created demand for products that conventional retail struggles to satisfy due to a shortage of malls and grinding traffic in many cities that deters shoppers.
At the same time, giants such as Amazon and Chinese e-commerce firm Alibaba are out of reach for most consumers. Step forward companies who tailor their service to African markets.
The sector is still in its infancy. The internet’s contribution to Africa’s gross domestic product stood at 1.1 percent in 2013, much lower than other emerging markets. But this could rise to 10 percent, or $300 billion (197 billion pounds), by 2025, according to a report by consultants McKinsey’s & Company.
Even in South Africa, the market leader, online retail sales are less than 1 percent of total sales, said Arthur Goldstuck of market research firm World Wide Worx.
Last year, hedge fund Tiger Global invested $100 million in South African online shopping company Takealot. The German firm Rocket Internet also ploughed 120 million euro in Nigeria-based online retailer Jumia in November.
Rocket, emerging markets telecoms group Millicom and MTN own Africa Internet Group (AIG), an e-commerce company that operates in 27 countries and has firms that include Jumia and Lamudi, a site to trade real estate.
The newness of the sector creates a scramble for dominance and consumer choice. If a customer wants to trade second hand goods then OLX, owned by South African media and technology giant Naspers, provides an service online.
If it is Western goods, then Mall of Africa facilitates that online in Nigeria as does e-commerce store Konga.
Inevitably, the sector is growing quickest in sub-Saharan Africa’s sturdier economies and fastest of all in South Africa, where retail resembles that of South East Asian countries with its more developed e-commerce sector, experts said.
But the potential in countries such as Kenya, Uganda, Nigeria, Ghana, Ivory Coast and Senegal is such that online retailers say their main aim is not to beat their competitors so much as to grab a bigger slice of the overall retail market.
“Becoming number one is not difficult. The real objective is to be the leader across online and offline,” said Jeremy Hodara, co-chief executive of AIG.
Expansion requires attracting new customers, allaying fears of fraud, building trading platforms and mastering delivery networks, all on a continent where few use credit cards. African e-commerce firms take cash payments on receipt of goods to overcome this hurdle.
It also means persuading vendors that online sales can boost trade.
That’s why Justin Christianson’s job as Uganda manager for online retailer Kaymu involves wading through the dusty maze of downtown Kampala to convince wary shopkeepers that selling their wares online can give them an edge.
Kaymu got off to a slow start in Uganda but, by June, it was processing transactions worth 43,000 euros ($48,857) a month and that figure quadrupled by December, Christianson said. Even so, many Ugandans remain cautious.
“I am reluctant to do any major online purchases for fear that someone will just take my money and disappear,” said Ronald Matsiko, a banker in Kampala. Despite his scepticism, money is pouring into the sector.
The example of China points the way for Africa because of its use of mobile phones as a platform and its growth in rural areas as well as cities, said Charmaine Oak, author of The Digital Money Game.
But it is hard for African firms to replicate the success of the global giants in mastering every aspect of e-commerce, said Maurizio Caio, founder of Tlcom venture capital firm.
The African firms trying to do that require heavy investment and there is an opportunity for firms to serve a niche, such as managing deliveries and even erecting street signs in African cities to facilitate deliveries, he said.
African firms are also hampered by the continent’s national boundaries, currencies and regulatory systems and this could make them vulnerable to acquisition by Amazon and Alibaba once they turn their attention to Africa’s market, experts said.
“It’s completely appropriate for (African) companies to design and grow with the perspective that they will be bought by a global player with an Africa strategy,” Caio said. Alibaba declined to comment.
Additional reporting by Paul Carsten in Beijing and Jeremy Wagstaff in Singapore; Editing by David Clarke and Vincent Baby