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.