Employment in Africa through Business Convergence

By Atlanta Mahanta

Across Africa, online marketplaces are starting to boost incomes, create jobs, and offer new opportunities. These digital platforms could create around 3 million new jobs on the continent by 2025. Along with creating new jobs, they can stimulate skill development, boost supply and demand for goods and services. We suggest an approach that fosters mutual understanding, involves a sharing of resources and builds the right technological infrastructure. Jumia, Uber, Souq, Thundafund, Travelstart and a number of other online markets are starting to increase revenues, create jobs and offer employees new possibilities. It is a heated trigger for debate in many developed countries whether such platforms merely cannibalize the revenues of brick and mortar companies and undermine job security. However, the potential downside of rapid online market expansion in many African regions where the retail sector and formal labour markets are still underdeveloped and the efficiency benefits are substantial.

Online marketplaces could create around 3 million new jobs across Africa by 2025 according to a research analysis by Boston Consulting Group. They could also boost African economies by expanding the supply of goods and services. These businesses will unlock new demand in remote locations, which will boost consumer spending. Governments need to create a healthy environment in which these businesses can thrive. Governments need to create a healthy environment in which these businesses can prosper, deliver inclusive economic growth in less served regions and promote national development goals, in order to ensure that online markets realize their full potential. We recommend a three-pronged approach that promotes mutual understanding both of public and private sectors’ opportunities and concerns, involves resource-sharing and builds the right technological infrastructure and management systems.

Digital Business

Online markets are digital platforms which essentially communicate with customers with independent third-party suppliers of products and services. For these platforms there are four basic business models:

• business-to-consumer
• business-to-business ­
• consumer-to-consumer
• consumer-to-business

Platforms such as Jumia, Konga.com, and Takealot.com can serve as both B2C and B2B marketplaces. ­Classified-ad sites OLX and Avito are C2C platforms. South Africa’s Thundafund, a crowdfunding platform for entrepreneurs, is an example of a C2B marketplace. Marketplace platforms operate within complex ecosystems that often span many countries. The typical ecosystem includes merchants, customers, and logistics providers, all of whom interact with one another. In Africa, online marketplaces also often employ field agents who recruit and train merchants and customers who are new to such platforms. Their role is mainly to remove friction among users unfamiliar with the online world. In the typical transaction, merchants offer their products and purchasing information through the online marketplace. After a customer searches the platform and purchases a product, the logistics partner delivers the product to the customer. Customers who do not wish to pay electronically in Africa often pay in cash upon delivery. If unsatisfied with the product, the customer ships it back to the merchant through the same logistics company and receives a refund. If the payment is made electronically, the refund is processed through the online marketplace. Online marketplaces can boost economies, especially in developing African nations by improving market efficiency and increasing supply and demand. 

Globally, there is a correlation between higher ­e-commerce penetration and how efficiently commercial transactions are made. There seems to be a clear difference in efficiency based on “goods market ­efficiency” scores published by the World Economic Forum between African countries in which e-commerce accounts for more than 0.5% of retail sales and those in which it accounts for less. Similar correlations between e-commerce penetration and labour market efficiency are found in the rest of the world, and they grow stronger as economies become more developed.

As has been shown in regions where online marketplaces have proliferated, these platforms improve market efficiency in several ways. For one, they reduce the number of intermediaries in commercial transactions by enabling merchants to sell directly to consumers. This is especially valuable to merchants in Africa, where conventional retail channels remain underdeveloped. Crowdfunding marketplaces, for example, allow entrepreneurs to bypass banks and other intermediaries when raising funds. Online marketplaces also make information on buyers and sellers more transparent, such as by indicating trustworthiness through the publication of reviews, reducing the time and expense required to verify the reliability of both parties. Hospitality marketplaces, which provide relevant information and reviews about both hosts and guests, also exemplify the value of online transparency. This is particularly important in Africa, where trust in online transactions remains low.

Online marketplaces also enable assets to be used more productively. Uber vehicles carry passengers for 30% more of the time they are on the road compared with conventional taxis, thanks to the company’s system for matching drivers and passengers, which reduces idle time, according to a 2016 study by economists Judd Cramer and Alan B. Krueger. Uber vehicles travelling the same distance over the course of a day as taxis also carry passengers 50% more of the time. The large scale and dynamic pricing models of such marketplaces help them more efficiently match supply with demand throughout the day. These tools are especially useful in regions where low population densities and limited traffic flow can depress taxi utilization rates.

By creating new ways to reach customers and raise capital, online marketplaces significantly boost the supply of goods and services to meet untapped demand. Conventional hotels and inns, for example, are limited in Africa and can be too expensive for budget travellers. Airbnb creates new supply by enabling owners of apartments and houses to rent their residences to travellers who otherwise might not have booked an overnight stay. Such hospitality sites also open up new travel destinations without the need for heavy investment in dedicated hotel infrastructure.

New Approach Towards Digital Business

The funds required to start or expand enterprises via online marketplaces, especially in areas where access to capital are limited, are better for small entrepreneurs. Traders looking for loans can share their data with financial institutions on many African market places. In order to provide small instant start-up loans to qualified dealers who sell on its website, Jumia, for example, formed a partnership with the mobile lender industry. Uber also provides financial support of various types. Partnerships have been formed with the vehicle leasing firms Easyway Leasing, Egyptian Easyway Auto-Care and financial institutions like Stanbic Bank and Barclays, Tanzania Bank of Africa and CRDB Bank and Uganda. Moreover, several online businesses in Africa serve crowdfunding platforms. For example, in 2017 Thundafund helped raise over $1.4 million, which financed over 400 projects. Patrick Schofield, the founder of Thundafund, also launched Uprise recently. Africa is a small-scale, $400, 000-$6 million crowdfunding company for small businesses. Many online sceptics argue that purchases do not contribute anything or nothing to the economy, because the sales of brick and mortar retail channels are simply cannibalised. However, recent evidence suggests that online markets generate mainly incremental growth in sales, even in developing economies. In the European capital, a BCG survey found that only 19 per cent of riding hailing excursions represented taxi cannibalization.

We believe that Africa will increase the economic benefits of online markets and the possible adverse risks to existing companies and employee performance are minimal. This mainly reflects the underdevelopment of many of the continent’s economies and formal job markets. First of all, it is important to consider that the market potential in Africa is still enormously untapped. Whereas GDP growth in the United States, Europe and Japan averaged 1.7 per cent from 2007 to 2017, low-income economies like Ethiopia and the Republic of the Congo, as well as middle-income countries such as Botswana and South Africa, increased from 7 to 8% over that period. The International Monetary Fund projects, the GDP of Africa as a whole, will continue to grow 3% to 4% annually by 2023. The retail market in Africa is still extremely undeveloped. From the outlook, 136 retail outlets were located in Latin America per 1 million in 2018, 568 per million in Europe, and 930 in the United States. Less than 15 formal retail stores per million people were found in Africa. This very low penetration indicates that e-commerce has only a marginal potential to move current revenues to the formal retail market. 

The geography of the country, scarce transport facilities and lean capital markets are preventing the rapid expansion of retail brick and mortar. While Europe has an average distance of 1,300 kilometres from major cities, Africa has a distance of 4,100 kilometres. The cost to bring a product within Europe from the manufacture to an end-user is nearly 90% more costly than that of the outside. The average cost for the logistics industry in Africa is 320 per cent. In Europe, 17% of businesses cite access to finance as a major restriction, while in East Asia, only 11% of businesses cite access as a restriction. 39% of companies in Sub-Saharan Africa report restricted financial access. 

The increase in the use of online platforms has distorted labour markets in developed economies, where labour laws and regulations clearly define themselves for a validated model. But in Africa, most of the workers are in the informal sector that is largely undocumented. For example, 71% of Nigerian workers are self-employed, and another 9%, according to the International Labor Organization, are employed as family members. In sub-Saharan Africa, the IMF estimates the informal economy is 38% of GDP. As a result, a large number of Africans are able mainly to develop labour-based standards that align with online workers and employers’ needs. Last but not least, bringing more people into the formal workforce will help governments implement the regulations, measure economic activities better and improve taxation. Official jobs shall provide workers with requisite documents to obtain mortgages and personal loans and check their skills and experience.

Job Opportunities 

Employment generation for Africa as a whole has been an urgent priority, with the population expected to grow to 1.5 billion by 2025. As of 2015, one-third of the 420 million Africans aged between 15 and 35 years were unemployed, according to the Africa Development Bank. This figure sprang to 85% when those who work in the informal sector were included in the ‘vulnerably employed.’ Our research shows that by 2025 online markets will generate about 3 million new jobs in Africa — approximately one out of 150 African unemployed or one out of 15 unemployed people aged between 15 and 24 years of age. Our estimate is based both on current direct, indirect and inductive jobs and current and projected revenue from online markets in the region. It is also based on our own estimation of online retail revenues and expects annual revenue growth of 25 % to 30 per cent by 2025, in line with recent patterns and growth rates in other regions.

According to the research analysis of BCG about 100,000 African people, including web developers, operators and marketing staff, are directly employed by online markets. There will be a million more jobs indirectly created by markets including tradesmen, logistics staff, passenger vehicle drivers, hotel staff and housekeepers. An additional 1,8 million jobs would be “driven” or generated by the increased online business operation. Car mechanics and cleaners, tour guides and craftspeople will be involved in the occupations concerned. The biggest job gains are expected in consumer goods, which will account for 58% of the jobs created by 2025 directly or indirectly which will be followed by mobility (18%) and travel and hospitality (9%).

The economic activity generated by online marketplaces can boost employment and incomes in several ways. It can create entirely new jobs, stimulate skills development programs, and increase demand for goods and services in locations currently beyond the reach of conventional retail networks. It can also bring new people into the formal workforce, such as women and youth, who in some countries have been excluded from the labour market. 

Challenges in Africa

Although online markets are economically promising, there are a number of hurdles facing both the public and private sectors. We interviewed executives at online markets in Africa who mentioned four main impediments which have to be overcome before these companies can reach their full potential. In order for online markets to fulfil their potential to create employment and boost economic growth, significant improvement in communications and infrastructure is necessary. Despite the dramatic growth in the last 10 years, only 20% of sub-Saharan Africans are internet-connected, which means that the vast majority of consumers can not shop online or pay electronically at home. 

Even when online purchases are placed it is very difficult to reliably deliver goods to consumers, particularly via a so-called last mile to buyers’ homes, through poor road and rail links between cities or even remote villages. Another problem is poor coordination of distribution networks. Some marketplaces online thus report that from the fact that delivery services are unable to reach the destination, 30 to 40 per cent of the products ordered are returned. Some online markets in India are struggling with poor infrastructure to tackle these obstacles by running their own logistics service in major cities and forming local partnerships in smaller cities. The company also tries to overcome the bottlenecks in its last-mile distribution to customers in Africa, as is the case with Ace and Exelot. However, substantial road investments are still necessary. 

For online markets in Africa, the current regulatory climate is dull. The legal framework for e-commerce in many countries on the continent has begun to be implemented, as well as guidelines on data protection, consumer protection and online payment. Many consumers are therefore wary of electronic transactions, fear of fraud or misuse of data. There is also a great lack of confidence in e-commerce between policymakers. Some African governments are reluctant to open up the traditionally closed sectors to competition via the online market because customers warn that online markets harm their companies. The severity of the problem claimed by certain parties is always exaggerated, even though caution is understandable. Nevertheless, entry barriers remain high on most of the continent for online marketplaces. Although mobile subscriptions are growing quickly, many Africans lack access to online platforms. Many consumers in the region can not understand online content or use digital technologies for transactions with high analphabet rates in some African countries. 

There are a number of barriers to growth in online trade-in digital analphabetism in African consumers and providers. Traders do not know how to adapt their value chains to the digital world. And digital marketers, technology experts, user interfaces and user experience designers and other professional staff need to succeed and also need to look out for online marketplaces outside of Africa. Several online markets, as well as an increasing number of public-private initiatives in Africa, offer digital talent shortage training programmes. Jumia provides, for example, online training including video tutorials and tests for pricing, optimization of the search engines, inventory management and order fulfilment. Many countries offer creative ways to fill the digital skills gap, including a school in Morocco, 1337 specialist in computer programming. However, these initiatives are still not enough to meet the broad needs of the region. 

As noted above, a significant percentage of small businesses and entrepreneurs in Africa complain that limited capital access greatly limits their ability to expand into online markets. Of all e-commerce funds collected in Africa, 90% are focused in 5 countries, according to the World Association of Promotional Agencies (WAIPA), namely Egypt, Kenya, Morocco, Nigeria and South Africa. It is difficult, for example, to borrow funds from formal financial institutions to buy or carry stocks. While certain online markets offer merchant financing of their own, more development is required to enable small businesses to access official financial markets and attract foreign direct investment. In fact, according to WAIPA, approximately 40 per cent of African nations do not even have FDI agencies. 

Access to markets in many parts of Africa can also be a challenge. It is difficult for online markets to build up by the region’s highly fragmented markets and heterogenous legal frameworks. Meanwhile, the large customs, practices and habits differences require providers to adjust their value proposals to numerous local markets. It is also difficult for governments in Africa to expand on-line marketplaces. The risks of losing regulatory control, personal data protection, the possible breakdown of employment standards, and the threat posed to traditional business sub-sectors include these concerns. There are many nations without clear e-commerce frameworks. Politicians in these countries are concerned that their financial supervision, taxation and regulatory systems might pose challenges for online markets. Most policymakers in Africa are unsure how to deal with revenues generated by online traders and markets. The collection and use of customer information are at the heart of business models in online markets. 

Governments are worried about how online markets will turn the workforce of their nations. Online businesses change traditional job structures and redetermine roles and responsibilities, raising the question of the sustainability of their workflows and whether the training or career opportunity they need is provided to their employers on a long-term basis. Another concern is to deprive traders of their ability to adapt or challenge decisions that affect their businesses in online markets that rely on computers instead of human interactions to determine prices, assignments and assessments. 

Some traditional business sub-sectors in many African economies are protected against the competition, are incentivised by the government or are closely regulated. Policymakers worry about disruptive domestic balances in online markets. In many African nations, for example, the taxi industry is highly regulated. These regulations can be avoided by the online mobility markets, policymakers worried. These new companies can also cannibalize the taxi industry. Governments also worry about social tension between displaced firms and employees. 

Public sector and online business cultures will enter into discussions to establish a shared understanding of jobs, skills development and inclusive growth opportunities. Both sides must therefore clearly consider the needs and expectations of each other, as well as the effect that they can achieve. To create a spirit of trust and collaboration, the sharing of certain data, actions and benefits is essential. For instance, online markets can exchange aggregated, anonymous information that benefits urban growth. A system for certification that dealers comply with the right standards, legislation and regulations could be part of shared actions. Online markets and the public sector might also take joint actions to ensure that opportunities are shared among all segments of the public, including those who in the offline world are sometimes excluded. Online markets and public organizations can then work together to build a healthy digital environment, taking measures to eliminate hurdles to online markets and to alleviate public sector concerns. Online markets and government organisations. 

For instance, they can work together on skills training programs and the development of techniques, such as digital identity systems, that ensure transparency on platforms on the market. The public and private sectors can also create a framework of co-regulation that balances social and political risks with the promise that online marketplaces can create value. Because of the low online marketplace use across Africa, considerable efforts must be made at many levels in order to ensure that these platforms fulfil their potential for new jobs. This promise relies on the private and public sector’s ability to work together to create the right digital environment. Instead of being considered as forces of chaotic disorder, the development of online markets in an environment that is designed from the very beginning to bring economic and social benefits to everyone.

References: Boston Consulting Group (BCG)