A multitude of solutions including Online Retail are required if economies across Africa are to return to the kind of high growth rates they experienced prior to the pandemic according to Bryan Turner, Partner, SPEAR Capital.

Nowhere has the economic devastation of the past two years been as acute as it has been in Sub-Saharan Africa. Overall, the region’s GDP shrank three percent in 2020. And, while it emerged from that recession in 2021, the World Bank predicts that growth will remain below four percent in 2022 and 2023 and economic recovery will lag that of developed nations.

A multitude of solutions is required if economies across the continent are to return to the kind of high growth rates they experienced pre-pandemic. In 2019, six of the world’s 10 fastest growing economies were in Africa, with Ghana topping the charts at 8.79 per cent While some traditional fixes might work and may even be important, it’s also critical that all major participants in these economies keep an eye firmly on the future and look at emerging industries that will help fuel ongoing growth and innovation.

One sector that’s emerged as a green shoot in the wake of the economy, and which could prove vital to Africa’s economic revival, is online retail.

BUDDING SHOOTS

Through the course of the pandemic, e-commerce across a number of verticals took off in Sub-Saharan Africa. According to Visa, new e-commerce users grew by five percent across the region. Research from WorldWideWorx meanwhile shows that online retail in South Africa grew 66% in 2020 and was expected to hit Rand 42-billion (nearly £2 billion) in 2021.

While this growth is remarkable, it’s not wholly unexpected. After all, online retailers around the globe saw significant growth through 2020 and 2021. It’s no accident, for example, that Amazon – the world’s biggest online retailer – saw a 40% increase in year-on-year sales in the second quarter of 2020 and a 27 per cent increase in the same quarter in 2021.

What really sets African markets apart is how much growth potential there still is. Even with the phenomenal growth e-commerce experienced in 2020 and 2021, it still accounts for just under four per cent of total retail sales in South Africa. Compare that to a market like the UK, where e-commerce accounts for around 38 per cent of retail sales.

If any African economies can reach similar levels of e-commerce activity, the most active companies in the sector stand to see serious returns.

THE RIGHT INGREDIENTS

But that potential for growth isn’t the only reason to be optimistic about online retail in Africa. It’s certainly not the primary motivation behind our decision to invest in the sector, most notably through fashion e-tailer MyRunway. It’s also because there are several other factors that mean Africa is ideally poised for an online retail explosion.

The first of those factors is the age of its population. The continent’s median age is under 20-years-old, with 60% of the population under the age of 25. This youthful population will very likely become the world’s labour engine in coming decades, especially as other populations around the globe start to age out. That will, in time, mean a working population with disposable income and the kind of desire for convenience that’s helped spur online retail around the world.

Africa’s young population is also eager to embrace technology. And with the growing levels of connectivity on the continent, they’ll increasingly be able to do so. Southern Africa has an internet penetration rate of 62 per cent, higher than the global average. To date, however, the cost of connectivity has been prohibitively high. This not only limits the amount of time people can spend online, but also means that they spend a disproportionate amount of their budget on staying connected. The freeing up spectrum, thanks to digital migration, coupled with the arrival of more submarine cables, will see those costs slashed and ever-larger numbers of people come online.

Small wonder then that one of Africa’s handful of “unicorns” (startups valued at more than US$1-billion) is an e-commerce play and that Amazon is reportedly sourcing warehouse space in South Africa. International players will find their way to the continent, but it will take time for them to get a foothold. There is massive potential for local operators to grow and expand in the interim.

ECONOMIC AND SOCIAL GOOD

Supporting the development of these online retailers brings a lot of potential good to the economies that get it right. Employment and additional tax revenues are two of the more obvious ones. But online retailers also have an indirect impact, through the infrastructure required to keep them going – such as warehousing and data centres – and by enabling entrepreneurship (especially in the case of marketplace-style retailers).

There are many uncertainties in Africa, but you can be sure that encouraging, and investing in, the right online retailers will reap dividends for everyone concerned.