The vast continent of Africa presents a significant opportunity for e-commerce retailers, but a lack of infrastructure has held back online shopping in the region. Now the use of mobile devices to shop online is unlocking some of the potential, and big players are starting to take notice.
MTN, the largest telecommunication operator in Africa, recently announced a partnership with Swedish e-commerce company Millicom International Cellular and incubator Rocket Internet. The three firms will each hold a 33.3 percent stake in Africa Internet Holding, set up to develop e-commerce businesses across Africa. Millicom and Rocket Internet will attempt to leverage MTN's presence across the continent to create startups in some of the world's fastest-growing internet markets.
Business-to-consumer e-commerce sales in Africa totaled less than $1.4 billion last year, but annual growth is expected to rise by 40 percent in the next ten years, according to a report released by yStats.com this month.
The same research states that South Africa currently leads in online shopping, but other countries such as Egypt, Morocco, and Nigeria have higher mobile shopper penetration and may overtake the country in the future.
More than 10 percent of active Internet users in Africa shopped on mobile during 2013, according to yStats.com, illustrating the increasing importance of mobile connectivity on the continent. In areas where computers are hard to come by, consumers increasingly use mobile devices to connect to the Internet.
But some countries in Africa are seeing connectivity increase over the past few years. In Kenya, the number of Internet users reached almost 20 million this year, half of the country's population, according to the yStats.com report. E-commerce has room to grow in the country as mobile Internet penetration trumps lack of fixed broadband infrastructure.
The Middle East faces the same structural issues as Africa, and MTN recently announced a similar partnership with Rocket Internet in that region. MTN expects to invest a total of around $400 million into the projects in Africa and the Middle East.
But MTN's move into e-commerce in Africa highlights the risks of betting on the continent's digital shopping sector. As a result of this announcement, ratings agency Moody's Investor Service downgraded its outlook for MTN from positive to stable, citing the company's increasing exposure to more unstable markets.
"MTN's exposure to the risks within the political, social, regulatory and economic environments in the key countries in which it operates such as South Africa and Nigeria are important drivers for MTN's ratings," said Dion Bate, vice president and senior analyst at Moody's.
Worldwide e-commerce sales topped $1 trillion for the first time in 2012 and eMarketer predicts that figure to rise to $1.3 trillion this year. Sales in the Middle East and Africa accounted for just 1.9 percent of sales in 2012, which is expected to grow to 2.1 percent this year, according to figures from eMarketer.
The e-commerce market in Africa holds great riches for whichever companies make the bold decisions to move into the likes of Nigeria and Kenya. Mobile Internet penetration grows every year, and with it the opportunities in e-commerce. Investors may not see immediate payoffs from the continent, but in time are sure to reap rewards.