If they have not already, companies have to start creating strategies for expansion into the available 1.2 billion people African market, projected to grow to 2.5 billion by 2050.
54 of the 55 African Union(AU) Member States have now signed the Africa Continental Free Trade Agreement – AfCFTA. The main objectives of which, are to create a single continental market for goods and services, with free movement of business persons and investments, and thus pave the way for accelerating the establishment of a continental customs union.
As of January 2020, 30 member states had ratified the agreement; meaning that the rights, provisions, and obligations of the agreement now apply. It has been agreed that there should be 90% tariff liberalization – Over 10 years with a 5-year transition. There will be an additional 7 % for “sensitive products” that must be liberalized. Trading is set to commence under AfCFTA in July 2020.
As with all markets, there are always businesses tipped to benefit most, based on their business model, available infrastructure and ability to overcome barriers to entry without much effort. E-Commerce businesses are such companies. The hard infrastructural needs required are minimal and for the most part, the soft infrastructure is already there.
Most E-Commerce businesses today are offering a ‘shipped from abroad’ option with items primarily being shipped-in from China.
I remember assisting a colleague set up an online shop on one of the biggest online shopping platforms in Ghana. During the onboarding and training on how to use the system, the Executive was hard-pressed to explain why they could not open up the ‘online shops’ to African vendors from other African Countries yet, Chinese sellers had their shops complete with Chinese people modelling what they had available for sale.
There should be no more excuses from 1st July 2020, as to why African vendors are not featured on E-Commerce platforms in the different African Union member states. Between now and July, these businesses should be restructuring and configuring their systems to allow shoppers access to products from all over Africa, as well as make payments accordingly.
To do this, there are some critical factors that these businesses must consider:
Understanding the tariff breaks and implications that come with AfCFTA
During an interview with journalist Micheal Mugisha, the African Union Commissioner on Trade – Albert Muchanga, confirmed that through an online application, each member state can upload their tariff offers online (though password-protected currently). He added that indeed some countries have uploaded their offers. E-Commerce businesses can request access to some of this information for them to generate indicative pricing of some of the products they would sell.
Figuring out the logistics
Twenty-three African Countries in January 2018 signed up for the African Single Aviation Market. These are some of the steps being taken to make the movement of goods and people easier and cheaper within Africa. However, logistics has been the bane of Intra-African trade for a long time. So while measures are being taken, a lot of experimentation would be required here, to establish approximate delivery times as well as develop a database of reliable carriers. When I order online from China, delivery takes about two weeks. What time will it take across each African country?
Securing vendors – armed with a plan that allows them to make money
This sounds pretty straightforward however, even in the local markets they operate in, E-Commerce platforms have lost vendors due to low margins. Additional costs such as packaging and pick-up fees deter vendor sign-ups or longevity. A vendor in the neighbouring country might decide to put a package on a bus directly to the client, even though an e-commerce platform is their best option for visibility and safety. Though the platforms are also in it to make money, they must first attract vendors through attractive margins. CEO Jeff Bezos has long maintained that investing in future growth is more important than hitting quarterly earnings targets.
Synchronising and securing payments
One of the outcomes at the signing of the AfCFTA, was the launch of the Pan-African Payment and Settlement System (PAPSS), by the African Export-Import Bank (Afreximbank).
This is a platform that will domesticate intra-regional payments, making it possible for African companies to clear and settle intra-African trade transactions in their local currencies. There is an opportunity here for E-Commerce platforms and businesses to integrate their payment gateways into this system. In addition to efficiency, this will save users the high transaction costs of using a third party currency such as the popularly used US Dollar.
By offering producers and sellers a chance to enter new African markets without stepping away from their desks, these companies also increase their attractiveness to investors.
Undoubtedly, there are more factors to consider when seriously looking at enabling online selling and buying across Africa. However, based on their existing infrastructure, this is the time for E-commerce businesses to start considering themselves pioneers of bringing AfCFTA to life.
Article by Leah Nduati-Lee
Leah Nduati-Lee is the Founder of the Kenya Trade Expo in Ghana that facilitates trade between East and West Africa. She is also a Growth Catalyst with GrowthAfrica, enabling businesses to scale-up and become Investor-ready.
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