This post is the first in a series that was inspired by expected growth in Africa’s digital economy due to the coronavirus pandemic.
Let me start by telling you a story, for context
Last December, I went on a family holiday to Durban, South Africa. This beautiful coastal city is one of our family’s favourite summer holiday destinations.
We booked into a hotel that has become our holiday home away from home.
This was our fourth booking at the same hotel in the last few years. And yet not once, throughout this time, have we received a thank-you, or hello-again message from the hotel.
To date, we used 3rd party booking engines for all our bookings.
Now, anyone who knows how 3rd party booking engines such as Expedia and Hotels.com work, will tell you that our database sits with them, and not with our favourite hotel.
Given the reason above, it caught my attention that the hotel itself did not bother to capture our details when we arrived, or when we signed out, as part of its own database management.
This, in mind, explains why we have never heard from this establishment.
Is this a sign that our favourite hotel is concerned only with (short-term) occupancy rates and not with building of (long-term) relationships with the occupants, and especially return occupants like ourselves?
If our favourite hotel had a customer database management system in place, was this going to help in clawing back some lost business given how the coronavirus has decimated the tourism industry?
I’ll let you chew on the questions above, while I get back to the subject of this post.
Tsogo Sun will close up to 36 hotels over the next few weeks after travel bans imposed by various countries to contain the coronavirus caused a “total collapse of demand”
Coronavirus has taken human lives, but it has also breathed life into the digital economy across the globe
The saying goes, that every major crisis has economic benefits.
The 2 world wars provide great examples.
As should be obvious, the military industry benefited immensely from both world wars. However, other industries also grew as a direct result.
Economic benefits of the first world war
The first world war was good for the steel and aircraft industries, two important components of that war.
Economic benefits of the second world war
The second world war, which was preceded by and effectively ended the great depression, transformed the automotive industry in the US.
This war also lead to an explosion in industrial science and new technologies of the time, signifying that war strategies were becoming sophisticated.
What about economic benefits of the current invisible war?
Paraphrasing Donald J Trump, the coronavirus is waging an invisible war on the whole world.
The health industry has been the direct beneficiary of this pandemic, by default.
But in addition, the digital economy has been one of the biggest beneficiaries, on the back of the need for nations across the world to stay home and practise physical distancing so as to slow down the rate of infections of this virus that spreads through close contact with those who have it.
This need resulted in the shift to doing business and shopping online.
In this post, I look specifically at four elements of the digital economy that stand to benefit the most, and these are:
An now for some closer look at the four elements.
Ecommerce
There is no doubt that ecommerce is poised to grow exponentially from lockdowns across the world.
Here is a telling quote from Emarketer, about the changing buying behaviours brought about by the coronavirus:
Whether by desire or by necessity, consumers are moving their spending online. And some of these consumers, who rarely or never bought online, may not go back to shopping like they used to.
Ecommerce's topline global performance stats
According to Shopify, global ecommerce sales grew by 18% in 2019. This growth was driven by the retail sector.
The projected size of global retail ecommerce, currently at 14%, will almost double to 22% in the next three years.
It is my view that retail ecommerce will exceed initial predictions for as long as there is no cure for coronavirus, resulting in the need to stay away from crowded shopping areas that are potential death traps.
Using the US as the world’s proxy, here are the top 10 retail ecommerce categories:
While lockdowns will have sent economies into a tailspin by the end of this year, indications are that online sales for food and beverages will enjoy buoyant growth for the foreseeable future. This is because consumers may not need new cars and may have lesser need to look good while staying at home, but there will most probably be more eating as the number of trips to the fridge increases as part of keeping active.
Ecommerce in Africa
Africa’s ecommerce is estimated at $19 billion (0.6% of total GDP).
Growth was 29% last year, and it is projected to average 17% year-on-year until 2024, by which time it will be $36 billion – almost double its size current size.
The projected ecommerce growth rates are 4 times the overall economic growth rates.
I suspect that the size of Africa’s ecommerce economy is underestimated, mainly because it is hard to accurately account for the informal market portion that is estimated at a third of Africa’s GDP, and it varies anywhere between 30% in South Africa and upwards of 60% in Nigeria).
Ecommerce in top 5 African countries
Getting stats for all African countries on topics such as the size of the digital economy is always a challenge.
In these cases, I use proxy countries.
Using monthly active Facebook users as a criterion, I selected 5 of the top 10 African countries whose ecommerce stats were available in the Digital 2020 Report, for analysis of the trends related to this post.
Ecommerce Revenues:
Together, the top 5 African countries contribute more than 60% to the continent’s ecommerce that is valued at $19 billion.
Close to $1 in every $4 of the continent’s online purchases comes from Egypt.
Percentage of people who purchased online:
combining the populations of the top 5 African countries, 2 in every 5 citizens purchase online.
Contribution of ecommerce to each of the countries’ retail economy is above the continental average of 0.6%, with South Africa leading the pack.
Of all the ecommerce growths across the 5 countries versus 2019, only Nigeria’s was above the continental average of 29%.
Items purchased online:
The bulk of online purchases are on travel and accommodation across the top 5 African countries.
With the travel and accommodation having been the worst affected by coronavirus, it can be expected that Africa’s ecommerce is going to decline sharply in the foreseeable future.
I shall come back to these contributions in the next post about the role of African governments in unleashing digital economies.
Implications for Africa's businesses?
While there is expectation that digital economies are going to be given a boost by the coronavirus lockdowns, Africa’s ecommerce stats indicate that the impact on the overall economy of the continent is not going to make the desired impact.
However, positive growth from any quarter of the economy – big or small – is going to be welcome, as Africa digs herself out of the coronavirus-induced economic depression, billed as the most severe since the great depression of the 1930’s, which the world took many years to recover from.
Weeks of record job losses have left the United States with an unemployment rate that’s widely estimated to be higher than at any time since the Great Depression. That shocking reality naturally invites analogies and raises what is perhaps the most important economic question of our time: How long will the bad times last? After all, what made the Great Depression so great was not just the severity of the slump but its extraordinary length — beginning in the United States in the second half of 1929 and not really ending until almost 10 years later.
Despite the seemingly low ecommerse size in Africa, the implications for many formal businesses, including those that had ONLY brick-and-mortar operations before the pandemic, are clear – follow the buyer online or go bust. This is considering that this pandemic is going to be with us at least until 2021 while waiting for the vaccine.
What about the continent’s informal market?
According to Techcrunch, the mobile money wave is building swiftly as African governments are racing against time to move informal businesses away from trading in cash, which has apparently been identified by WHO as a possible carrier of the pandemic.
The effort to get the informal sector to move to digital payments is good news, despite the fact that WHO denies having said anything about cash being the potential carrier of the coronavirus.
It is worth noting that there were already varying levels of ecommerce in this unregulated market that continues to be a key employer across Africa, aided by increasing mobile money (M-Pesa) and online payment (eWallet (South Africa) and YOCO) solutions.
Community development
I refer you back to the context I shared right at the beginning of this post, and the Emarketer quote in the previous section.
With the competition for consumers abruptly going digital across many industries, the role of community development is also going to be thrust into the forefront.
Why? Online (a subset of digital) consumption behaviours are somewhat different to offline consumption behaviours.
Here are the two key challenges that the digital frontier will pose for new entrants:
- Online consumers call the shorts.
They will meet you in their preferred environments and on their own terms, not the other way around. - Digital sales processes are typically longer, because consumers have more to do with their limited time (distractions), they are more cynical (because information is easily accessible), and they have access to options that are almost endless (competition).
Given the two challenges above, brands that invest in building online communities tend to do much better than those that don’t.
Words of caution to the new entrants:
There should be no digital game plan that excludes community development.
Community development is a marathon, not a sprint.
While it is understandable that brands have sales targets to meet, I have witnessed brands burning their fingers time and time again, trying to short-circuit the process.
Use the community development model
Below is an online consumer development model, which maps a path for businesses that embark on building online communities.
The path starts with the lowest denominator – unaware online consumers who are the target market, and ends with happy consumers who are self-confessed advocates.
Understandably, the consumer development model above is not linear. Brands may jump some steps, while other steps happen at the same. There may also be instances when backs and forths take place between some of the steps as relationships are redefined by the likes of rebranding, product enhancements or cross-selling activities.
In rare cases, overnight successes have been recorded with brands skipping multiple steps from being unknown to gaining advocates.
Can brands that already had strong offline communities build on that base online? If a business’s offline community is already active online, and in many cases they will be, then by all means.
I hope that my favourite hotel in Durban will start building its online community soon.
SEO
For far too long, SEO – short for search engine optimisation – has been thrown around in Africa’s digital marketing circles, but there has been little focus on it in general.
I plan to back up my assertion with a detailed exercise, the results of which will be published in a post that is part of this digital economy series.
As a result, I shall not expand on this subject here.
Suffice to say, the battle for the e-wallet is going to be fierce with increasing number of players in the online space.
Therefore, companies with digital platforms that are not optimised are going to be left behind.
As a teaser, here are three points, all of which are directly related to SEO, and that are worth considering:
- Online sales platforms that are not discoverable or searchable will be lucky if they get online traffic with the desired profile.
- Online sales platforms that are not designed for mobile devices will lose out on a big chunk of the online consumer market.
- Online sales platforms that do not load within 3 seconds or faster on devices will not be able to convert visitors into buyers, because they (visitors) will have left long before they get to the sales screen.
There will be a more detailed look at this element of the digital economy in a dedicated post that is still to be published.
Analytics
I left this digital lement for last, because of two reasons:
1. Coronavirus stats
In my living memory, never before has the world been glued to live stats about anything, as it has been for the coronavirus infection, death and recovery rates, on such a massive scale and all at the same time.
See the images of three tv news channels in the gallery below, displaying coronavirus stats for South Africa (SABC), the UK (Skyy) and the US (CNN). Photos of the three channels were taken around the same time on the evening of 10 May 2020.
You can click on anyone of the images to enlarge it for better legibility.
Governments around the world have been relying on statisticians, actuaries and econometricians for creating models to monitor infection rates and predict trends, identifying epicenters for more efficient allocation of (sometimes limited) resources such as hospital beds, emergency staff, PPE and ventilators, and implementing lockdowns.
African governments have tasted the sweet victory of fact-based and science-lead decision making and action. This has resulted in the praises by the global health community for the proactiveness the continent showed in instituting lockdown measures early to #flattenthecurve, an action that is directly attributed to the resulting low death rates that compare favourably to those of the likes of the US, the UK and other Western European countries.
Thanks to the coronavirus, the case for relying on stats for informed decisions – not hunches and conspiracy theories – has been proven.
It is my hope that this approach marks the new era for the continent in instilling the culture of using stats for all public programs going forward, including the resuscitation of the decimated national economies.
Scientists have truly earned their place at the public office table, in a very big way. May their place be secured as a permanent feature.
2. Competing on analytics
In the case of businesses, the battle for online consumers’ attention, wallets and advocacy is going to be worn by those that pay close attention to the numbers.
One of the biggest benefits of online purchases is the ability to collect traffic, navigation and conversion behaviour stats of your consumers.
In addition, the ability to check out your competitiors is unparelleled.
Insights from the analysed data provide online businesses with distinct differentiation opportunities.
The digital battle front is going to heighten the importance of business intelligence generally, and analytics specifically.
I recommend that all companies that are going digital must first plot their ‘as-is’ and ‘ideal’ positions on the 5 Stages of Analytical Competition triangle by Thomas Davenport and Jeanne G. Harris, and work towards closing the gap accordingly.
The book by Davenport and Harris, titled Competing on Analytics (2007), is a worthwhile investment for companies serious about competing online.
Be sure to buy a copy for your Executive team.
What is the role of African governments in unleashing digital economies in their territories?
The role of African governments in the digital economy will be addressed in the next post.
