Gazing at the billion dollars e-sized opportunity in Tanzania

The increasing penetration of mobile technology and mobile money has been fuelling the growth of e-commerce in Africa. According to UNCTAD, across the continent, year on year e-commerce growth has been close to 20 percent.

That being the case, e-commerce in the sub-Saharan region is mainly being dominated by three nations: South Africa, Nigeria, and Kenya. These nations contribute over 50 percent of online-shoppers and transactions in the whole of Africa.

Nigeria – which is Africa’s biggest e-commerce market – has witnessed an outstanding growth in the past decade, with the current online revenues exceeding $13 billion and projected to reach $75 billion by 2025.

That has led to the development of thriving e-commerce platforms such as Jumia and Konga, with the former becoming the first African start-up to reach a valuation of $1 billion in 2016.

In Tanzania, though, the nation with the fourth largest number of online shoppers in sub-Saharan Africa but only ranked number 16 in Africa for e-readiness, the story is a bit different.

While the factors that drive e-commerce growth in other places apply here too – with both internet penetration and mobile money adoption increasing every year, a closer examination of the statistics is a bit revealing.

For example, while mobile money accounts, transactions, and value has continued to increase, that is mostly reflected in peer-to-peer transactions rather than business-to-consumer transactions.

In other words, Tanzanians use mobile money to transfer money rather than for merchant activities.

Similarly, while internet penetration continues to inch forward, the speed of internet available to most people and price thereof is still not good enough for a rapid development of mobile apps ecosystems.

Partly, those are some of the reasons which led to Jumia’s exit of Tanzania’s market in 2019. Since then Tanzania has lacked a recognised leader in the e-commerce landscape leaving the economy with billions-of-dollars sized gap staring at us. Both the players and the regulatory environment appear to be not up to the challenge required to make e-commerce truly appealing for Tanzanians.

The challenge is less of technology and more of the business models. Tanzanians are simply not responding to online offerings which do not provide attractive value propositions to them. Several innovations are required to address their concerns in increasing cost competitiveness, ensuring reliable packages delivery, providing of variety of options, and finally, decreasing mistrust.

Firstly, cost competitiveness. In Tanzania, most e-commerce outlets are in effect extensions of brick-and-mortar stores, with websites and social media accounts simply alternative displays to clients. This is not a business model which provides real incentives for people to purchase online.

Ideally, the absence of physical stores ought to lead to a dramatic decrease of unit costs of goods, which is the value that can be passed on to customers. The low-cost business model was successfully pursued by Walmart, but the point was to pass the benefits to consumers. We need a similar kind of thinking in this space too.

Secondly, delivery of goods reliably and in the shortest time possible. One of the challenges here is the fact that many houses don’t have physical addresses. Years ago, TCRA had started a brilliant zip coding project which would have solved this problem but, unfortunately, less progressive ideas became of greater priority.

However, if the status quo remains, technology provides multiple solutions to the problem, albeit in a more challenging way.

But, even if businesses continue to use boda-boda riders to snake their way into people’s homes, this is only possible for deliveries within the same city.

It still takes days to deliver to other regions, and the increased cost is usually passed on to customers. There are simple solutions to these problems – starting with the restructuring of one’s operations and business models.

In the US, for example, Fedex’s attempt at addressing the logistics challenge by using overnight package deliveries was received with great cynicism at the beginning – Fred Smith, the founder, was given a C in university for proposing that idea. But, he pursued it, leading to Fedex achieving a great competitive advantage over its rivals.

Thirdly, consumers want options – both in goods and prices. This is simply the genius of Amazon and Alibaba.

But in Tanzania, e-commerce is mainly restricted to sales of clothes, electronics, and home appliances – with no way of determining whether the prices offered are competitive or not.

Technology has a solution, in fact, price-compare applications have existed for over a decade now.

Finally, many customers demand cash on delivery because of lack of trust. Mistrust has a significant cost in business – the price we all pay for choosing to live like cave men. When what is displayed is not what is delivered, for example, a price will be paid.

In other nations, you have companies such as Zappos and Argos which have conceived of creative business models to gain maximum trust from their customers, with Zappos going as far as sending multiple items for people to try at their homes at no cost. Something worth looking into.

E-commerce promises to provide enormous opportunities – but Tanzanians will have to learn to innovate.

Jumia came and – instead of innovating, it attempted to provide more of the same. It failed. The stakes are still quite high for those who will pull it off.