Kevin Carter (ETF Investing, eCommerce, Emerging Markets)
Africa may represent the next exciting growth opportunity for investors in general, and for industries such as e-commerce. Africa has a large, young population with rising disposable income and is experiencing rapid urbanization. It may be in the early stages of adopting new technologies such as smartphones and transitioning from an informal network of roadside markets to a more formal model of traditional retail outlets and e-commerce.
A recent study by Brookings highlights the potential that the African continent may present for e-commerce.
There are only a few public companies that may provide exposure to e-commerce in Africa.
One of the larger public companies is Jumia Group (NYSE:JMIA), which operates one of the largest e-commerce platforms on the African continent.
Naspers Ltd. (NPN) (OTCPK:NPSNY) is a South African company with exposure to the growing internet and e-commerce market in Africa. Naspers owns a majority stake in African e-commerce platform Takealot.
Rocket Internet (RKET) (OTC:RCKZF) is a German company with holdings in several African e-commerce companies. RKET recently spun off a portion of its holding in Jumia, but still retains some ownership. Rocket also has an interest in Konga Online as well as other African e-commerce platforms.
Additionally, several global internet and e-commerce companies have units which operate in Africa.
A Large, Young Population
Currently, the African continent has a population of around 1.2 billion. However, Brookings estimates that by 2030, the population will grow to over 1.7 billion, surpassing China and India. In addition, while the global population is aging, the report highlights that Africa’s workforce is young, noting that two-thirds of the population is under the age of 25.
Meanwhile, the proportion of the African population living in cities is projected to increase from its current 40% to more than 60% over the next decade with some markets, such as Nigeria, Ghana, and Angola, likely to top 80%. An additional 187 million may reside in cities over the next decade, and by 2050, over 800 million Africans may live in cities. The report went on to note that urbanization tends to produce greater gains in consumer spending.
Growth In Consumer Spending
Household consumption grew at an annual compound growth rate (CAGR) of 3.9% between 2010 and 2015. However, official levels of consumer spending in Africa may be under-reported since much spending takes place in informal markets, overlooked by traditional methods.
Africa’s formal consumer markets are the least developed in the world, highlighting potential for future growth. Currently, Africa’s total consumer expenditures account for roughly 8% of all spending in the world’s emerging markets, putting it on par with Russia and Brazil.
Also, consumer spending is the fastest source of demand in Africa and expects this trend to continue through 2030. As such, they estimate that consumer spending will surpass $2 trillion in the next few years – a 30% increase from 2015 levels.
Boosted By Growth In The Middle Class
By the end of the next decade, one in five world consumers will live in Africa, and more of these may fall into the middle or affluent class. More than half of African households are expected to have discretionary income by 2020. In 2013, around 34% of the African population could be considered middle or upper class. That is expected to reach nearly 43% by 2030.
Growth In Technology May Support Future Growth In E-commerce
Africa has experienced rapid growth in information and communication technology. Since 2000, Africa has experienced a 30% increase in mobile phone connections, making it the fastest-growing mobile telecom market in the world. Additionally, it is the second largest mobile market in the world behind Asia. Nearly two-thirds of the African population have internet access, 75% are online daily, and the internet penetration rate has surpassed 80% in many countries.
The growth in technology may enable a change in consumption patterns in Africa. It has given some in Africa access to online banking and financial services such as online payment platforms.
It may also serve as a catalyst to further the development of e-commerce on the continent.
Formidable Challenges And Opportunities Still Exist
However, there are still challenges to the growth of e-commerce in Africa. The poor quality of infrastructure tends to impede the transportation of good and drive up costs. Crime and corruption also present challenges. The African continent is made up of many countries with different languages, culture, and regulations for doing business. Localization may be necessary for e-commerce companies to succeed.
However, with challenges lie opportunities. Those who can overcome these challenges may be able to reap rich rewards from a large, increasingly affluent population.
Potential Access To Africa
Direct access to Africa is limited to a few companies. Naspers is an internet and media company based in South Africa. Jumia Technologies, a leading African e-commerce company, went public during April 2019. Rocket Internet still holds a 17% interest in Jumia. However, companies such as Tencent (OTCPK:TCEHY) and Baidu (NASDAQ:BIDU) have units that operate in Africa. Buying shares of many of the world’s largest internet and e-commerce companies may provide indirect access to the potential in Africa.
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