Social media put pressure on African e-commerce platforms

Social media companies have had their fair share of critics in Africa: but according to a new report it is helping thousands of small African businesses to thrive.

Conducted by GSMA, a non-profit industry organisation that represents the interests of mobile network operators worldwide, the study reveals that social media is becoming the primary mode of e-commerce for a significant portion of micro, small, and medium-sized enterprises (MSMEs) in six African countries: Nigeria, Kenya, Ethiopia, Ghana, South Africa, and Egypt.

The report, to which African Business has been given exclusive access, found that 60% of micro enterprises, 49% of small enterprises, and 33% of medium-sized enterprises in the sample rely solely on social media for their e-commerce needs.

Meta – the parent company of Facebook, WhatsApp, and Instagram – is the clear leader in social commerce across all the markets, except Ethiopia, where Telegram, a platform registered in the British Virgin Islands and headquartered in Dubai, has a 95% market share.

The popularity of social media platforms such as Facebook and WhatsApp is almost perfectly aligned with that of subscriptions and with internet usage, both of which have doubled on the continent in the past decade.

As technology continues to penetrate the region, it is likely that more and more MSMEs will begin to adopt social media as their primary mode of e-commerce. This could lead to greater pressure on dedicated e-commerce platforms.

“Social media is the most accessible tool to market your goods without needing a high level of digital literacy, training, or registration processes,” says Nigham Shahid, senior insights manager at GSMA. “People were already using social media to communicate with each other, hence they just added it on as a first step to their business sales without further investment.”

By contrast, e-commerce platforms in Africa, such as Jumia, are primarily geared towards an urban, banked user base, which represents only a small portion of the sub-Saharan African population.

“Platforms like Jumia are really scratching the surface, and social-media-based arrangements are filling a gap,” says GSMA head of research Daniele Tricarico. “Informality, social messaging, and cash-on-delivery make social media popular as e-commerce platforms, despite the fact that it is not their primary function.”

The high value put on personal relationships in many countries across the continent is a red flag for Amazon-type business models. Just after the preference for cash, the third most commonly cited reason that customers give for dissatisfaction is that they prefer to interact with the merchant.

Financial inclusion key to e-commerce

South Africa is the only country surveyed in which specific e-commerce marketplaces are more relied upon by MSMEs than e-commerce via social media.

In Egypt, Africa’s third biggest economy, only 6% of MSMEs use e-commerce platforms. Both Egypt and South Africa have similar levels of digital literacy and thriving digital ecosystems, with Egyptian startups even raising more money in 2022 ($823m) than South African startups ($555m).

The difference in their usage of e-commerce platforms lies in payment preference, says Tricarico: “The average consumer in South Africa is much more used to paying online, while in Egypt there is a prevalence of cash payments.”

According to the World Bank, 26% of Egyptians aged over 14 had a bank account in 2021. For South Africa, this number triples to 84%. A population with a high level of financial inclusion, as a result, appears to be a prerequisite for a successful e-commerce platform.

Distrust of e-commerce

Still, there are other major hurdles to increasing online transactions, both through social media and specialist platforms.

Mobile money providers and e-commerce startups are finding it hard to introduce mobile money to e-commerce platforms, as businesses of all sizes, GSMA found, still prefer to use cash on delivery for payments.

This is despite mobile money being widely used throughout sub-Saharan Africa for personal transactions. In East Africa, GSMA counts approximately 300m registered accounts among a population of 477m people.

But customers there are reluctant to transact on e-commerce platforms, with significant distrust around the protection of personal data and customer funds, the report says.

“The way I explain it is by the current ecosystem and the prevalence of social media and the fact that you cannot trust that you are with a genuine seller,” says Tricarico. “It is an issue with the way e-commerce is structured rather than with mobile money itself, which is usually reliable.”

That doesn’t mean that mobile money is not used. People will tend to use social media to find what they want and then pay through their mobile phone live with the re-seller.

In an interview on Belgian radio station RTBF, Senegalese writer Felwine Sarr explained that, in his home country, economic interaction puts emphasis on the relationship, via discussions and negotiations on the price, before the quantitative exchange.

“We are creating trust capital,” he said. “It’s a way of not putting the economic act before the social exchange.”

Sarr’s thinking sheds light on the dynamic of marketplaces in Africa and how newly formed e-commerce startups could make a positive impact.

Can e-commerce platforms keep up?

According to the GSMA survey, access to new customers, increasing revenue, and improving the ease of doing business were all cited consistently as reasons to begin selling online across all businesses.

Here, established platforms may have the upper hand. Facebook, Telegram, or even TikTok were not initially conceived to sell goods and hence have many flaws when it comes to using them for business purposes. 

One way to look at the African e-commerce market, therefore, is to develop models that are more communicative and social media-like and imitate what is already happening for many African costumers in informal markets – a challenge for e-commerce entrepreneurs which is surely not as easy as it sounds.