INTERNATIONAL E-COMMERCE IN NIGERIA AFRICA: THE WAY FORWARD

The paper discussing the barriers hampering development of e-commerce in Africa – gives an overview of the e-commerce potential throughout Africa; explores common barriers grouped into four broad areas – financial, infrastructure, socio-political and digital divide, each of which is discussed in a separate chapter; seeks to identify the reasons for these barriers, using insights provided by e-commerce entrepreneurs in several African countries; presents examples of local successes such as Nigeria, alongside examples which illustrate the challenges to replicating such successes elsewhere on the continent; suggests avenues for reducing the obstacles and facilitating international e-commerce on the continent; includes endnotes and sources (pp. 45-47).

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Foreword The landscape of trade is constantly evolving. And the way that goods and services cross borders is transforming. Businesses today can use the Internet to manage almost every business process, from product sourcing and purchase to financial management, sales, marketing and distribution, cutting down on costs and reaching new markets. The growth of e-commerce is a unique opportunity to open access to international markets for small and medium-sized enterprises (SMEs) in developing and least developed countries (LDCs). E-commerce – estimated at over US$15 trillion for annual business-to-business transactions and well over US$1 trillion for annual business-to-consumer trade – is now business as usual in developed countries. However, this is not the case in many developing countries where use of e-commerce remains low. The current share of consumer e-commerce by African enterprises, for example, is below 2%, and has enormous potential. By 2018, the African e-commerce market is projected to soar to US$ 50 billion, from just US$ 8 billion in 2013. Field experience in developing countries and LDCs confirms that to realize this potential, additional support is required to help SMEs overcome the barriers to trading through online channels and marketplaces. These barriers are not new, but take on greater importance when transactions become digital. Receiving international payments is a key part of trade, whether online or offline. Without an international bank account or credit card enterprises may not be able to list products on well-known online marketplaces. Some (in particular those for digital goods) may allow enterprises to list products, but exclude them from having an account to receive payments.

These restrictions are not the result of government policy or company weakness but are decided by private owners of e-marketplaces and payment platforms, who determine transaction risks. Work is also needed to better position Africa as a new source of opportunities and growth for their platforms. Selling online requires enterprises to master information and communications technologies, and develop suitable packaging, attractive product descriptions and well-managed inventory of stock, production and orders. For small enterprises, especially from LDCs, the learning curve is very steep. Getting it wrong can have serious consequences. In a virtual marketplace, meeting consumer needs and expectations becomes even more important. Word of mouth, electronic messaging and buying on the basis of personal recommendation can make or break commercial reputations. These reputations are quickly built and destroyed on the Internet. But using the platforms offers a great opportunity for African businesses, given that many African countries have been quick to adopt mobile technologies, with a young and innovative population of enthusiastic social media users. There is great potential here.

This is why ITC’s interventions on e-commerce have evolved in recent years, from general awarenessraising to specific support and coaching: taking groups of enterprises through the steps of preparing their goods and services for sale, and accompanying them as they develop their trade through online channels. We sought to learn from the testimonial of managers from across Africa. Their own words outline their challenges in selling products and services online. We identified recurrent issues and proposed some practical actions that African firms can take, collectively or with the help of international partners. Access to better training and coaching can reduce some barriers. More comprehensive solutions require new forms of partnership and innovative approaches from government, trade and investment support institutions, and enterprises themselves. This paper provides insights to shape such solutions. We hope that businesses in Africa interested in taking advantage of e-commerce will be inspired by it.

Executive Summary xi
Chapter 1: Africa’s e-potential 1 The global context 1 Rising e-potential for Africa 4 Nigeria, a regional e-commerce leader 6
Chapter 2: Challenges to international e-commerce in Africa 9 SME readiness 9 Connectivity 10 SMEs cite barriers 10
Chapter 3: Addressing financial and related barriers 13 International payments 13 Regional cross-border initiatives 14 Compliance with financial regulations 15 Gaining consumer trust 17
Chapter 4: Tackling infrastructure barriers 23 Access to affordable broadband 23 Road barriers 25 International logistics 26
Chapter 5: Moving beyond sociopolitical barriers 29 Government commitment 29 Sociocultural concerns 30 Access to enabling services from abroad 32
Chapter 6: The remaining digital divide 35 Access to ICTs 36 Using ICTs 37 Digital opportunities: The ultimate barrier? 38
Chapter 7: The way forward 41 Appendix: Methodology 43 Endnotes 45

Tables Table 1: ICT indicators for developed and developing countries 3 Table 2: Regional average values in the UNCTAD B2C E-commerce Index 9 Table 3: B2C e-commerce sales, by region 15 Table 4: B2C e-commerce buyer penetration, by region 15 Table 5: Secure Internet servers, by categories (2014) 18 Table 6: African countries in UNCTAD’s B2B index ranking 19 Table 7: Lack of G2B e-commerce and government commitment 30 Table 8: Language disparity in terms of users and content 30 Table 9: A selection of different digital divides facing SMEs in developing countries 35 Figures Figure 1: Global B2C growth, 2014–2020 2 Figure 2: Internet contribution to GDP in selected countries, 2012 4 Figure 3: M-commerce opportunities and concerns in Nigeria 6 Figure 4: The link between e-commerce and concerns about security in Nigeria 17 Figure 5: Data records breached, by sector (2013, %) 18 Figure 6: Fixed-broadband subscription, by level of development 23 Figure 7: Fixed-broadband subscription, by region 24 Figure 8: Modes of mail delivery, by region 26 Boxes Box 1: Defining e-commerce 1 Box 2: A snapshot of SME e-commerce barriers in Tunisia 11 Box 3: A domestic payment solution in Nigeria 14 Box 4: Concerns about cybercrime impeding e-commerce in Africa 20 Box 5: Transparency and trust in payments 21 Box 6: Broadband costs in Kenya 25 Box 7: Costly B2C order fulfilment in Morocco 27 Box 8: Finding B2B success but still facing sociocultural barriers 31 Box 9: Made in Morocco: Building an online market presence through resource-sharing 33 Box 10: Unique products, niche markets: Artisans from Ghana 36 Box 11: Working with local businesses in Rwanda to address the enterprise-level digital divide 37 Box 12: E-payment training can open business opportunities 39

Executive Summary E-commerce has great potential to become a significant part of the economic activity of countries throughout Africa. Increasing digital literacy and unprecedented new demand are occurring at the same time as breakthrough developments in infrastructure and technology. News of successful investment rounds for local e-commerce platforms, the increasing adoption of mobile money, and the reach of Internet connectivity to a significant percentage of the population all suggest a dynamic continent that is developing new ways of conducting business digitally. Innovations abound as African entrepreneurs devise solutions to low consumer trust and limited access to formal banking. There are, however, a number of barriers to the fulfilment of this potential. This paper examines the reasons for these barriers, using insights provided by e-commerce entrepreneurs in several African countries. It then suggests avenues for reducing the obstacles and facilitating international e-commerce on the continent. Although the focus is on Africa, the paper’s findings can apply to the many practical challenges to digital trade for small and medium-sized enterprises (SMEs) in developing countries more generally. Africa is extremely diverse, and examples of local successes are presented such as Nigeria, which is seen by many as a leader in regional e-commerce, alongside examples which illustrate the challenges to replicating such successes elsewhere on the continent. The paper, launched to coincide with the 10th Ministerial Conference of the World Trade Organization (WTO), draws on the growing body of work in this area, including UNCTAD’s Information Economy Report 2015 and an ITC survey of Tunisian SMEs, along with ITC interviews and case studies.

Domestic e-business thrives: International e-commerce remains marginal There are two competing stories in Africa: vibrant domestic digital businesses, and feeble development of international e-commerce. Several domestic e-commerce businesses in large African countries (such as Nigeria, Kenya and South Africa) are strong and growing, even if similar platforms are currently absent from smaller countries. While considerable innovation is applied to serving local markets, international digital entrepreneurialism in Africa would appear to be blocked. This paper identifies six main issues, which also represent the greatest obstacles to international trade more generally: Difficulties with international banking transactions. Some African countries place domestic restrictions on the amount of money that can be transferred across borders. Furthermore, a number of countries in the region may only receive payments from foreign credit card holders through costly intermediaries, because the domestic banking system lacks the necessary international links. Although global e-commerce platform providers offer integrated payment solutions, many African companies cannot actually use them because they lack the requisite foreign bank account or subsidiary. Compliance with banking regulations and related private-sector rules are yet another challenge, as are trust and perceived security issues. Exclusion from international e-marketplaces. Negative risk/return calculations, and negative perceptions about doing business in Africa, mean that the SMEs of many African countries are blocked from listing their products on international marketplaces. This only compounds the banking barriers, since even if their goods were listed and sold, the companies would be unable to be paid for them. Infrastructure deficit. Poor domestic and regional physical infrastructure, such as roads, ports and air transportation as well as the reliability of electricity supply are serious obstacles to e-commerce in much of Africa. While this can be overcome to some extent by local solutions, such as motorbike delivery, international logistics are far more complicated and costly, which puts many African companies at a particular disadvantage when competing globally. Inexperience with sales tax and import duties. It is a common mistake for inexperienced African SMEs to export through e-commerce channels without accounting for sales tax or import duties, and few local transportation partners can offer Delivered Duty Paid services. The consequences can be a costly return shipment or a loss of business.

Sociopolitical barriers. Many governments and local institutions are not doing enough to create local services and structures in support of small businesses. And companies themselves are often challenged by the cultural requirements of doing business abroad, such as foreign language skills and customer service orientation. The remaining digital divide. Internet connectivity in Africa continues to lag behind other regions, although the gap is closing rapidly thanks to mobile Internet. ITC’s SME Competitiveness Outlook 2015 found that limited access to broadband widens an already significant digital divide and noted that this gap deprives many businesses of economic development opportunities, such as business process outsourcing services. The ultimate digital divide for e-commerce may be a lack of awareness and understanding on the part of small enterprises. E-commerce platforms have emerged as an equalizing force between large and small companies and offer the tantalizing potential for enterprises from Africa to reach profitable segments in international markets. For the reasons identified in this paper, these opportunities remain difficult and costly to access and have effectively stifled the growth of international e-commerce originating in Africa. A substantial amount of work is under way at the international level to simplify customs and tax arrangements and deal with trade restrictions and network security, as described in this paper. The paper also outlines ongoing efforts at both the national and international level to build bandwidth and reduce the digital divide. However, all of these efforts are for the long term, and even when they have been completed, they will not address the more practical challenge faced by small African enterprises to increasing their competitiveness. In the meantime, players from outside the continent are building their market positions in international e-marketplaces, including Africa itself. What is the best strategy? The new digital era calls for new approaches, as proposed in the concluding chapter. New types of partnerships, involving governments, local institutions and competing companies, are needed, and should be involved in a series of well-targeted practical initiatives to develop international e-commerce from Africa: Working with policymakers: Useful public-private sector initiatives include enabling laws for the creation of e-commerce cooperatives, reviewing currency exchange controls on digital trade, adopting the Model Law on Electronic Signatures and promoting a conducive environment for ecommerce. Institutional capacity-building: Traditional business associations need to support the collective access of small enterprises to international e-commerce, by operating marketplaces, sharing ownership of technologies and pooling promotional budgets. They should help local enterprises comply with international fiscal transparency requirements and work with international specialists to create “e-trust” and enable electronic transactions. Enterprise capacity-building: Enterprises need training on the potential opportunities of ecommerce and how to overcome barriers. They need to know how to package, market and serve customers for international e-commerce, and how to comply with developed countries’ trading requirements. Corporate structure-sharing: SMEs can set up collective representative structures abroad to handle import duties and sales taxes and provide access to finance and banking facilities in international markets. Technology-sharing: Groups of local enterprises can, with the support of international partners, create locally owned and managed platforms and use open source software libraries and other technologies to list their products on international sites. Improved access to international transport and logistics: Logistics partners in developed countries can develop optimized transport and logistics solutions, including e-commerce-enabled storage and handling (“e-fulfilment”) in international markets. Such solutions should be tailor-made to the type of goods and marketing strategies of the African firms.

Chapter 1: Africa’s e-potential Today’s estimated African population of 1.1 billion represents about 15% of world’s total: this will rise to 1.5 billion by 2025, or around 18% of the world’s total population (Population Reference Bureau, 2013). Many African countries qualify as developing or least developed countries: GNI per capita in Africa at $3,010 (at PPP) is about one quarter of the world average gross national income (GNI). Estimates of e-commerce activity for the continent point to a very low participation in international trade through digital channels. According to eMarketeer (July 2014) the total international B2C trade from the entire Africa and Middle East region represented only about 2.2% of the world’s total in 2013.

Box 1: Defining e-commerce This paper uses the definition provided by UNCTAD: “The sale or purchase of goods or services, conducted over computer networks by methods specifically designed for the purpose of receiving or placing of orders. The goods or services are ordered by those methods, but the payment and the ultimate delivery of the goods or services do not have to be conducted online. An e-commerce transaction can be between enterprises, households, individuals, governments, and other public or private organizations. To be included are orders made over the web, extranet or electronic data interchange. The type is defined by the method of placing the order. To be excluded are orders made by telephone calls, facsimile or manually typed e-mail.” There are five distinct categories of e-commerce: Business-to-business (B2B): a transaction between companies Business-to-consumer (B2C): a transaction between a company and an individual Consumer-to-consumer (C2C): a transaction between individuals, often conducted via an e-commerce platform, although not necessarily Government-to-business (G2B): a transaction between a company and a government, often in the form of electronic government (e-government) procurement Coop2Coop: An emerging form of e-commerce that takes place between cooperative organizations, which are autonomous associations of persons united voluntarily to meet their common goals In addition to these categories, subsumed within the definition of e-commerce are mobile commerce (m-commerce) and social commerce (s-commerce): M-commerce is e-commerce conducted over mobile devices and networks. S-commerce is e-commerce promoted over – or potentially even conducted via – social networking platforms, such as Facebook.

Rising e-potential for Africa Hopes are high that African countries and companies will be able to seize the opportunities presented by the global rise of e-commerce to enhance their economic fortunes. Frost & Sullivan, an American market research and consulting company, estimates that the African e-commerce market will rise from US$ 8 billion in 2013 to US$ 50 billion by 2018.10 There are several reasons why this projection is realistic. First, Africa’s e-potential is as yet untapped. Currently only 26.5% of the continent’s 1-billion-plus people are connected to the Internet, compared to a global average of about 45%. This means there is considerable potential for expansion, assuming that the continent can develop its information society broadly, starting with growth in the number of Internet users and mobile connections. Second, increasing use of the Internet (and related technologies) is typically accompanied by a rise in ecommerce activity, and this is likely to apply to Africa as well. Traditional retailers in the developed world have moved online, and in the 27 member States of the European Union (EU), the share of enterprise receipts from sales through electronic networks as a percentage of total turnover reached 15% in 2014.11international-e-commerce-in-africa-itc-december-2015

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