Africa’s start-ups stuck in the red as e-commerce thrives globally

More than 70 per cent of e-commerce start-ups in Africa are not breaking even, in a harsh indictment of the sector that is considered the future of retail.

A recent study on e-commerce start-ups on the continent has found that despite the rapid growth in the number of online businesses in the last few years, the vast majority are yet to record a profit.

According to the report by Disrupt Africa, the number of start-ups focused on e-commerce across the continent reached a total of 264, with many of them listing challenges such as lack of funding, shortage of trust and logistical difficulties for the depressed margins.

This has further led to a dampening of investor confidence with funding for e-commerce start-ups inconsistent as investors reportedly shy away from the long wait for returns.

“The opportunities in the online retail space are obviously massive, but these companies face huge challenges,” said Disrupt Africa co-founder Tom Jackson.

“By using data collected over a number of years and speaking to various start-ups, this report provides entrepreneurs and investors alike with the full picture of what is an exciting but challenging part of the African tech scene.”

The report comes three weeks after Kenya’s leading mobile service provider Safaricom officially made its foray into the sector through the launch of Masoko.

The e-commerce platform is modelled along American giant Amazon and China’s Ali Baba, and currently offers more than 20,000 items from 160 vendors.

Safaricom has said that it will begin listing international vendors on Masoko beginning next year.

Masoko is regarded as the most formidable competitor to Jumia that has been the largest e-commerce platform in the country since being launched in Kenya four years ago.

Jumia Kenya is owned by Africa Internet Group headquartered in Nigeria and is part of a larger network of e-commerce, travel and hotel listing websites.

Nigeria has emerged as the leading e-commerce hub in sub-Saharan Africa with 40 per cent of e-commerce startups located in the West African country.

Exciting findings

“The extent of Nigeria’s dominance of the African e-commerce landscape is one of the most exciting findings of this report,” said Gabriella Mulligan, co-founder of Disrupt Africa.

“For the first time, we have clear evidence of the outstanding trajectory of the country’s e-commerce space as being driven by entrepreneurs.”

She said while South Africa and Kenya have typically stolen the limelight in conversations about tech entrepreneurship, the research makes it clear Nigeria is on the brink of huge e-commerce success.

“Nigeria will become the first African country to truly take retail online at a similar scale to Western markets.”