eCommerce in Africa: how Berlin incubators spotted the perfect climate for growth2013-02-20 17
Here, Jay Patani examines why Africa is at just the right temperature for the eCommerce model that has served Germany so well in the past couple of years, and why Berlin incubators have been quick to capitalise on this emerging market…
While much of Europe adapts to the annual cycle of bitter winters and better summers, the climatic conditions of West Africa remain much the same: tropical and wet. To most West Africans, sunglasses would be a functional necessity to protect against the sun’s persistent glare, but the recent launch of the prosaically named Nigerian eCommerce company Sunglasses, along with a host of other online retailers, is putting the spotlight on a new type of African consumer.
This consumer is a member of Africa’s growing middle class. Its appetite for high-quality consumer products is expanding. Now, the arms of the World Wide Web are spreading rapidly across African soil, enabling consumers to have greater access to new kinds of luxuries.
According to Internet World Stats, Africa was home to 167 million internet users in June last year, representing a 15.6 per cent penetration of the continent’s total population, An average world penetration rate of around 34 per cent means that Africa internet usage has far from reached its zenith.
Just the right temperature for incubation
The African heat is now also providing an attractive environment for incubators. Kenya is one of the African leaders in this field with incubators and seed funds salivating at the country’s high mobile penetration rate (around 74 for every 100 people). In addition, mobile subscriptions in Kenya grew 16 per cent between 2011 and 2012, with 99 per cent of internet subscriptions being on the mobile.
The four players to watch are Nailab, Savanna Fund, Growth Hub and 88mph – all of which have sprung up within the last few years. NaiLab offers an accelerator for early-stage startups, which lasts from three to 12 months. The aim is to nurture innovation within the tech industry by offering bespoke business coaching and support for successful applicants. The template for the entrepreneurship programme seems not unlike schemes currently running closer to home, such as Berlin’s Startup Academy.
South Africa, the continent’s largest economy, has distinguished itself as an innovation leader. It has even attracted the eyes of technology giant Google, which has teamed up with African tech accelerator program 88mph Through a Google for Entrepreneurs partnership, 88mph and Google provide startups enrolled in the 12-week programme with investment, access to a vast network of mentors and local businesses, space at their tech hubs, and a featured spot during Demo Day, a platform to pitch to investors.
First we take Berlin, then we take Africa
Berlin-based incubators have also been eyeing the continent up and down for market opportunities. The usual suspect Rocket Internet has been one of the first German incubators to venture to Africa. With a commercial presence in Egypt, Morocco, the Ivory Coast, Ghana, Nigeria, Kenya and South Africa, Rocket has shown no timidity in its expansionist ambitions.
Jeremy Hodara, a CEO for Rocket Internet Africa and France, sums up the positive macroeconomic and microeconomic picture emerging:
It is the first time in the recent history of Africa that growth is not due to raw materials. It is really the middle class that is emerging. The other thing that is important for us when we look at Africa is that there are few strong competitors in the market.
The Startup Partners Africa story
Even the smaller fishes of the technological ocean have shown interest. Startup Partners Africa, a new Berlin-based incubator, has set its business sonar solely to Africa. The incubator’s CEO Leonard Stiegeler, a Rocket alumnus, was a former co-founder of the online fashion retail store Sabunta before it merged with Kasuwa and rebranded itself as Rocket Internet’s Jumia in Nigeria.
Stiegeler and his new incubating outfit Startup Partners Africa are the brains behind the new retailer Sunglasses, which launched in Nigeria less than three months before the incubator got off the ground. “We tested and concept-proofed two models in the African market, the first of which was fashion and beauty and the second was sunglasses,” Stiegler says, with impressively precocial drive. “We are now looking at other models and other markets, specifically Kenya now.”
But with his feet firmly on the ground, Stiegeler wisely decided to root his venture’s headquarters on European soil:
Having Berlin as the base for the incubator gives the advantage of working with high-level talent, which gives the necessary confidence and the legal setup to run these kind of businesses.
From zero to eCommerce
“There is very much a demand from the growing middle class to have quality products both in beauty and in fashion that is currently not met in the Nigerian market or in many other African countries,” Stiegeler mentions. “That means that either they buy things abroad or have other people ship the product in, which is obviously very time-consuming, expensive and tedious.”
Whereas in most other markets eCommerce is replacing a pre-existing sophisticated network of physical retailers, an underdeveloped logistical framework has prevented physical retail stores from prospering in many African countries.
“Players are not coming into this market fast enough based on various reasons, one of which is that real estate is very expensive. Secondly, to have the same kind of reach that an online company can have in terms of potential customers, it would be very expensive for offline retailers.”
Rocket’s Hodara adds: “There are a few malls [in Nigeria], but even to get there the traffic is often so bad that it puts people off shopping in offline stores.” eCommerce is therefore now filling a hole in the African retail ecosystem. Stiegeler calls this “a leapfrogging from no commerce among the middle class directly to e-commerce”.
Obstacles or opportunity?
Setting up businesses on relatively uncharted territory is not without difficulties. A common problem is sourcing top-notch talent with the right skills. “It is no surprise that employees on the ground in Africa might not be as technically skilled as equivalents in America simply because so far the online market is still very nascent,” acknowledges Stiegeler. “But we train local employees on the ground with the help of experienced professionals who have been in the business for years.”
While some skills may be absent in the local workforce, entrepreneurial spirit is certainly not in short supply. Hodara, a seasoned explorer of tech opportunities in Africa says:
Everywhere we go we see unbelievable talent who are just waiting for an opportunity to become entrepreneurs with young companies in the online world and not just in the big banks or the government.
Emerging businesses also need to direct a lot of attention to the logistical side of operations. “There is not a well-established delivery setup as in Europe – addresses are not always well defined”, states Stiegeler, referring to his incubator’s foray into the online optical industry. “Door-to door delivery is more challenging here than it is in Europe. So we create our own expertise and build our own fleet.”
Even before a product is delivered, there are additional complexities in payment during the online ordering process. Credit card and bank penetration is lower in many African countries compared to Europe or the US; many people prefer to or can only pay with cash. Startup Partners Africa as well as Rocket Internet Africa have avoided this problem by offering the option of cash-on-delivery.
Rocket Internet’s Hodara also mentions an “issue of trust” surrounding online payments in many African countries. “Even if there is a credit card, there is often little trust,” he mentions. “People don’t trust what they cannot see because there are so many scams or businesses that aren’t legitimate. It really takes time to educate the market, but having cash-on-delivery is one of the biggest elements to reassure people.”
Life in an emerging market
Monetary reward is never the sole motive for entrepreneurs in emerging economies. The excitement about the general growth prospects are palpable, creeping into every aspect of every day life.
“It’s very exciting to be here,” Stiegeler says. “There are a lot of things happening on the ground in terms of the developing eCommerce environment. You feel that kind of excitement. You feel it in everyday interactions. I encounter people from all walks of life, whether it is somebody from Rocket Internet setting up a food delivery business, to a plumber who is building a business here welcoming the many international companies coming into the country.”
And then there’s the weather. “I don’t have a feeling for temperature anymore,” says Stiegeler jovially, after having spent months in Lagos. “I’m definitely not used to cold anymore.” Now that is something that would definitely invoke the envy of entrepreneurs in Europe waiting for winter to loosen its glacial grip.