The rise of Africa’s social media business

The urban African economy is largely propelled by the informal sector, accounting for around 80% of jobs. Street vendors and market workers are just two examples of this. With the growth of reliable internet service in Africa, many more Africans find themselves using social media, and the informal sector finds itself slowly shifting to the digital platform. The African e-commerce market is projected to reach almost 2.5 billion USD in 2021. One such example of African social media businesses thriving is in Ivory Coast.

 

According to estimates from France’s state-run agency Business France, informal businesses account for approximately 75% of retail activity in Côte d’ Ivoire. For many small businesses in Ivory Coast unable to compete with large companies, selling over the internet has become the best option to sustain profit, selling products from baby clothes to handmade jewellery. Traditionally, many of these businesses sell their products at local markets, but with the rise of social media the larger online market has also become accessible.

 

Moreover, the general e-commerce market is not only growing in Ivory Coast. Nigerian start-up Jumia has continued to establish itself as Ivory Coast’s leading e-commerce service provider becoming the first African start-up to be listed on the New York Stock Exchange following its initial public offering in April 2019, when the company raised approximately 200 million USD and was valued at 1.1 billion USD. Jumia has since identified Côte d’Ivoire as one of its four largest markets alongside Nigeria, Morocco and Kenya.

 

A certain pull factor of e-commerce for small business lies in the bureaucracy of opening physical stores. Those trying to open their own physical shop in Ivory Coast face many hurdles, such as getting the appropriate paperwork to run the business, as well as high rents and steep advance payments. Running a shop in the economic hub of the country, the de facto capital, Abidjan, requires a rent of between 200 to 2000 USD per month, with a compulsory 12-month deposit, in comparison to the average Ivorian earning just 120 USD a month. This is a significant reason as to why so many have made the switch to digital. The pandemic has also inevitably dissuaded many customers from visiting shops, and as such social media businesses have become a sustainable alternative for small business owners to see profits grow.

 

The number of online shoppers in Africa in 2020 was around 280 million, in comparison to around 140 million in 2017. The popularity of these digital businesses is also having multiplier effects throughout economies by creating informal transport jobs, namely ‘motorcycle boys who deliver parcels across town to buyers. These drivers usually lease motorbikes, paying around 10 USD a day and charging around 2 USD per delivery trip, thus being able to make a profit after exceeding 5 trips. These drivers fill a gap between formal courier services that do not service online sales and licensed online retail companies that have their own delivery services, such as Jumia and Glovo.

 

However, as the Ivorian government does not profit from the growing online informal sector, and due to pressure from tax-paying businesses, the government has begun implementing regulations to make it harder for parcels to be delivered. One such example is that parcel delivery services must acquire a formal license, costing around 10,000 USD in order to deliver goods, pricing the current drivers out of jobs. In order to implement this, however, would require the impractical task of checking every motorbike on the road in case it is illegally delivering parcels, which seems unlikely to happen.

 

The longevity of this e-commerce is also threatened by politics in some African nations. While many countries increase their usage of social media, political instability may restrict the growth of social media businesses. The shutdown of internet is not uncommon in Africa, as shown last summer in Sudan amid a revolution, and most recently in Uganda, which has banned social media in the aftermath of its recent elections. Also, the question of how countries can profit from the online market without implementing regulations that stunt growth is a challenging one and must be answered if the sector is to continue to grow.

 

Whilst the number of Africans using social media increases, from around 110 million in 2016 to 283 million in 2020, informal social media businesses in the region seems likely to continue prospering, and if African governments are able to appropriately tax the sector so as not to hinder growth, many nations could see rapid economic growth if these funds are reinvested into the economy wisely.

 

By Hadi Ahmed

Sector Head: Jared Gibson

 

 

 

 

 

 

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