A report by The Economist Intelligence UnitHow technology is driving retail in Africa The world leader in global business intelligenceThe Economist Intelligence Unit (The EIU) is the research and analysis division of The Economist Group, the sister company to The Economist newspaper. Created in 1946, we have 70 years experience in helping businesses, financial firms and governments to understand how the world is changing and how that creates opportunities to be seized and risks to be managed. Given that many of the issues facing the world have an international (if not global) dimension, The EIU is ideally positioned to be commentator, interpreter and forecaster on the phenomenon of globalisation as it gathers pace and impact.EIU subscription servicesThe worlds leading organisations rely on our subscription services for data, analysis and forecasts to keep them informed about what is happening around the world. 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Through a distinctive blend of interactive conferences, specially designed events, C-suite discussions, member briefings, and high-calibre research, The Economist Corporate Network delivers a range of macro (global, regional, national, and territorial) as well as industry-focused analysis on prevailing conditions and forecast trends.How technology is driving retail in Africa© The Economist Intelligence Unit Limited 2017 1Executive Summary 2Smartphones: gateway to the internet 4Mobile apps and the infrastructure shortfall 5Growth of e-tailing 6Plugging the gap with e-commerce 8Bumpy way forward 10Market profile: A tale of two countries 12South Africa 12Nigeria 12ContentsHow technology is driving retail in Africa© The Economist Intelligence Unit Limited 20172Executive SummaryThe African e-commerce sector is growing strongly, largely on the back of increased smartphone take-up among African consumers, who are using mobiles to access a variety of e-commerce shopping platforms. This increasing access to technology, via avenues such as smartphones, is helping consumers in previously hard to reach areas to access all manner of e-commerce opportunities, including emerging African fashion. Estimates as to the potential value of Africas e-commerce vary, but it could be worth as much as US$75bn per year within the next decade. However, several obstacles to e-commerce growth remain, including fear of fraud among African consumers, a logistics network beset by problems, the fragmented nature of African retail markets, a pressing need to improve telecoms network infrastructure and the entrenched problem of illiteracy among a significant proportion of the African population.In this report, we use bespoke EIU Canback data to highlight the countries and metro regions in the African continent with the biggest potential for e-commerce growth, while highlighting the trends and developments in the market. In this report, carried out in collaboration with analysts across our telecoms, retail and African editorial teams, we show how smartphone adoption and usage is helping to shape the African retail sector and bring a broader range of retail options to increasing numbers of consumers in the region. Among the key takeaways in this report:l Nigeria is in pole position to take advantage of e-commerce potential, on the basis of its high business environment opportunity potentiall Estimates suggest that e-commerce sales in Africa could reach somewhere in the region of US$50-75bn per year within the next 5-10 yearsl Smartphones are a gateway tool to the internet for Africans, especially in Nigeria, where the mobile penetration rate is forecast to rise from 103 per 100 in 2016 to 122 per 100 by 2021l Jumia and Konga are two of the biggest e-commerce companies in the continent, and in Nigeria nearly three-quarters of users access the Jumia platform via their mobile phonesl Despite the opportunities, fear of fraud, poor transport and mobile infrastructure, supply-chain barriers and the fragmented nature of retail markets in Africa will hold back e-commerce growth in the continent Understanding these trends, opportunities and obstacles is critical for retail firms already active in the African continent or looking to establish a presence. Significant investment from both the public and private sector is needed to ensure obstacles are overcome and e-commerce can flourish in the region. The retail dominance of physical shopping outlets in Africa is unlikely to be toppled anytime soon. Consumers in African countries prefer to use a network of physical stores, street traders and informal market sources for their purchases, which are predominantly carried out in cash. But for those companies that are willing to adopt a long-term approach in shaping a burgeoning sector, the gains will be numerous.How technology is driving retail in Africa© The Economist Intelligence Unit Limited 2017 3Retail in Africa has largely been shaped over the years by a more informal shopping experience than that of the West. To this day, Africans prefer to use a network of physical stores, street traders and informal market sources for their purchases, which are predominantly carried out in cash. The relative lack of sophistication in the nature of many transactions in Africa reflects a paucity of infrastructure, as well as insufficient familiarity and trust with alternative sources. That is changing, however. A large number of malls have been built in Africa, and consumers flock to these in order to partake in a more engrossing shopping experience, which constitutes a day out for many families. In addition, although smartphone penetration, mobile broadband usage and network coverage and speed remain low, they are growing fast, leading to a “leapfrogging” effect where an increasing number of Africans are embracing the potential of e-commerce by using mobiles, rather than personal computers (PCs), for their online purchases.According to EIU Canback opportunity scores, Nigeria is the most promising country in the region in terms of potential market opportunity. The scores marry the size of an addressable market (in terms of income level by household or individual) to a range of external-environment indicators relating to the overall business environment such as market opportunities, mobile subscriber penetration rates (per 100 people) and PC ownership (per 100 people). The weighted factors provide Nigeria with a business environment opportunity score of 80.4 out of 100. This means that Nigeria offers the greatest potential opportunity within the wider African e-commerce market.This is backed up by the plethora of activity in the market, with Nigeria the focal point for a significant amount of e-commerce growth in the region. The countrys three main online retailersJumia, Jiji and Kongaserve a mass-market clientele. Jumia celebrated its fifth anniversary in June, having become the first company to surpass US$1bn in market value on the continent in February 2016. Dubbed the “Amazon of Africa”, the Jumia shopping site operates in 11 African countries, and the parent company manages African equivalents of various Western consumer-goods sites, including Hotels and Uber. Business Environment Opportunity Rankings, 2016Opportunity External environment indicatorsGeography Rank ScoreOverall business environment ratingMarket opportunities ratingMobile subscribers (per 100 population)Personal computers (per 100 population)Nigeria 1st 80.4 4.5 5.0 82.5 12.8South Africa 2nd 63.0 6.0 5.4 171.4 23.8Congo (Democratic Republic) 3rd 58.0 3.9 5.0 79.0 38.8Ethiopia 4th 50.8 4.3 4.5 32.7 3.2Ghana 5th 46.4 5.3 5.3 115.2 22.7Kenya 6th 41.9 5.0 4.1 74.1 12.6Mali 7th 40.2 5.1 5.3 149.9 7.9Tanzania 8th 40.0 5.0 4.3 63.1 3.6Gabon 9th 38.4 5.2 5.2 171.7 9.9Source: EIU CanbackHow technology is driving retail in Africa© The Economist Intelligence Unit Limited 20174Smartphones: gateway to the internetSmartphone adoption in Nigeria has been growing strongly. According to the Nigerian Communications Commission, mobile subscriptions accounted for 99.9% of all phone subscriptions as at end-2016, while the number of active mobile internet subscriptions (at 91.9m, or 59.6% of total subscriptions) represents one of the highest rates of mobile internet usage in the world. According to Statcounter, a web-traffic analysis tool, as at January 2017 Nigeria topped the list of countries with the highest percentage of online sites viewed on mobile phones, at 81%, compared with the global average of 50%.But it is not just Nigeria that is seeing growth in both internet use and the adoption of smartphones as the main device for accessing internet content. According to Economist Intelligence Unit data, the mobile subscriber penetration rate across Sub-Saharan Africa stood at an estimated 103 per 100 people in 2016, and is forecast to rise to 122 by 2021. Meanwhile, the Digital in 2017 report commissioned by a media company, We Are Social, and a social media management platform, Hootsuite, found that seven of the ten fastest-growing internet populations in the world are in continental Africa. This is despite the continent having one of the lowest levels of mobile connectivity in the world (measured as the number of mobile connections compared with the population), at just 81%, compared with 139% for eastern Europe.Much of the growing rate of smartphone adoption among Africans is the result of a concerted effort from operators to roll out networks and develop strategies that enable Africans to consume mobile data. The rollout of 4G is progressing apace: by mid-2016 there were 72 live long-term evolution (LTE, a 4G communications standard) networks in 32 countries across the continent, according to the GSMA, a trade body that represents the interests of mobile operators. Many of these networks had been launched within the preceding two years. This trend is driven by both a steady decline in the cost of smartphones, as well as growing take-up of mobile broadband packages among many African users. The GSMA estimates that mobile broadband connections accounted for a quarter of total mobile connections at the end of 2015, but this is set to rise to almost two-thirds by 2020. Although falling commodity prices have hit economic growth in some countries in the region, which has also had an adverse impact on operator revenue, capital expenditure in the telecommunications sector is likely to remain strong. This is largely because the African market remains relatively underdeveloped, despite fairly high levels of penetration, and because mobile applications and technologies have the potential to address a wide variety of structural shortcomings on the continent.How technology is driving retail in Africa© The Economist Intelligence Unit Limited 2017 5Mobile apps and the infrastructure shortfallAfrica has to counter many challenges in order to broaden internet access and deliver robust and reliable connectivity to the millions of consumers eager to take advantage of mobile access. But as has been seen in Kenya, mobile connectivity has the potential to bridge significant gaps in services. M-Pesa, a mobile payment service, has made up for the shortfall in traditional banking services in Kenya since it was introduced in the country in 2007. Its growth has been held up as a model for how to deliver services to a relatively impoverished and unbanked population, having been credited by the Massachusetts Institute of Technology for lifting around 2% of Kenyans out of poverty. The service is used for around 79% of mobile banking transactions and processed around US$8.2bn-worth of payments in the third quarter of 2016. It has around 18m active users in Kenya and some 30m users spread across ten countries, mostly in Sub-Saharan Africa. Uses of mobile technology are not limited to personal finance, however. Other applications include healthcare (by spreading awareness of diseases and assisting in diagnostics services), supporting humanitarian efforts, informing decision-making for farmers in the agricultural field, enabling female empowerment (through income management apps, information on pregnancies and promotion of financial inclusion with mobile money services), water sanitation, energy and transport. Mobile services and innovation therefore have a critical role to play in educating and informing Africans for a variety of needs. How technology is driving retail in Africa© The Economist Intelligence Unit Limited 20176Growth of e-tailingAfricans are also increasingly using mobile services to meet the consumer-oriented demands of a more connected African society. Enthusiasm towards e-commerce among Africans is growing, for a variety of reasons. The number of retail stores in Nigeria, for example, is low, with formal retailing accounting for just 1% of total retail sales. In mid-June 2017 the Nigerian capital, Lagos, had two major shopping malls catering to a population of around 25m people. In part, this was because of a fall in the oil price in 2015, with the subsequ