Online marketplaces such as Jumia, Souq, Uber, and Travelstart could create around 3 million new jobs by 2025 across Africa. This is according to findings of a new report released today by Boston Consulting Group (BCG).
Titled ‘’How Online Marketplaces Can Power Employment in Africa’’ the report notes that these digital platforms, which match buyers and providers of goods and services, could also raise incomes and boost inclusive economic growth with minimal disruption to existing businesses and workforce norms.
Speaking during the launch of the report, Patrick Dupoux, a senior BCG partner who leads the firm’s Africa business said “Online marketplaces are a good illustration of how the digital revolution can create economic opportunity and improve social welfare in Africa,”
“Because Africa currently lacks an efficient distribution infrastructure, online marketplaces could create millions of jobs,” he added.
Concerns that growth in online marketplaces will merely cannibalize the sales of brick-and-mortar retailers are misplaced in the case of Africa, according to the report. There were only 15 stores per one million inhabitants in Africa in 2018, compared with 568 per million in Europe and 930 in the US. This extremely low penetration suggests that there’s minimal risk that e-commerce will displace existing retailers and that much of the population is underserved.
Nor are online marketplaces likely to disrupt labor-market norms by blurring the lines between employees and freelances. Unlike in developed economies, the vast majority of African workers are in the largely undocumented and unregulated informal sector. In Nigeria, for example, 71% of workers are self-employed and another 9% contribute labor as family members.
The report also details the ways in which economic activity generated by online marketplaces boosts employment and incomes. These businesses create demand for personnel in new fields, such as platform development, as well as for merchants, marketers, craftspeople, drivers, logistics clerks, and hospitality staff. Some also offer skills-development programs and help small enterprises raise capital to expand their businesses. Online marketplaces also boost demand for goods and services in areas currently beyond the reach of conventional retail networks and bring new people—such as women and youth who may be currently excluded from labor markets—into the workforce.
“While online marketplaces are often seen as disruptive forces in advanced economies, in Africa’s less-structured economics they can be tremendous catalysts of economic development,” said Lisa Livers a BCG partner and co-author of the report.
“We meet Kenyan SMEs on a daily basis with great products, but who struggle to scale their businesses for lack of capital. Growing in the offline world means more shops & more stock – which takes working capital’,” said Jumia Kenya Managing Director Sam Chappatte, adding that “Online marketplaces allow these entrepreneurs to both reach new customers without additional investment & build up a digital sales history that can be used to unlock finance at a future point”.
The report recommends that the online marketplace community and African governments collaborate to address the challenges that hinder the online marketplaces’ ability to grow. Both industry and government should take actions that foster a mutual understanding of both opportunities and concerns, strengthen trust through the sharing of resources, and build the right technological infrastructure and governance systems.
“Fulfilling the tremendous promise of online marketplaces relies on the ability of the private and public sectors to come together to create the right digital environment that is designed from the outset to bring economic and social benefits for all,” said Amane Dannouni, a BCG principal and co-author of the report.
Generating employment is an urgent priority across the continent. The African Development Bank estimates that one-third of the 420 million Africans age 15 through 35 were unemployed as of 2015. Around 58% of the new jobs—created directly, indirectly, and through the additional economic activity generated by online marketplaces—will be in the consumer goods sector, 18% will be in mobility services, and 9% in the travel and hospitality sector, according to the report.
For online marketplaces to reach their full potential, however, the public and private sectors must work together to build the right digital environment from the outset, the report notes. Obstacles to industry expansion include underdeveloped infrastructure, a lack of regulatory clarity, and limited market access. For their part, African policymakers are concerned about issues such as data security and potential disruption to traditional business sectors.
Challenges Online Marketplaces Pose for African Governments
The expansion of online marketplaces also poses difficult challenges for governments in Africa. These concerns include the risk of losing regulatory control, protection of personal data, the potential disruption of employment norms, and the threat to traditional business subsectors.
Loss of Regulatory Control. Many nations lack clear frameworks to govern e-commerce. Policymakers in these countries worry that online marketplaces could pose challenges to their financial oversight, taxation, and regulatory systems. Many African policymakers are unsure of how to handle income generated by online merchants and marketplaces. Should they tax merchants or the platforms, for example, and how can they ensure that marketplaces are treated fairly compared with brick-and-mortar businesses? Should taxes be assessed on the basis of the final price of a good or service or on the value added by each individual party? Or should policymakers apply a flat tax or a rate that depends on the maturity of the online business so as not to inhibit the growth of new sectors? It is also unclear which parties are liable in disputes, how to protect consumers from fraud, and how to check whether merchants and marketplaces are complying with established norms and standards.
Personal Data Protection. Gathering and using customer data is at the core of online marketplaces’ business models. Many policymakers are concerned about how confidential data on their citizens and businesses is handled. Is data processed inside the country, for example? Is it stored abroad and processed by subcontractors? Crucial financial data, for example, may be beyond the control of or inaccessible to central banks. A number of high-profile cyberattacks have also heightened concern over data safety.
Disruption of Employment Norms. Governments are concerned about how online marketplaces may transform their nations’ workforces. Online marketplaces are altering traditional employment structures and redefining roles and responsibilities, which raises the question of whether these businesses provide sustainable flows of work, as well as whether their workers receive the training or career opportunities they need for the long term. Another concern is that online marketplaces that rely on computer algorithms rather than human interactions to determine pricing, work assignments, and evaluations may deprive merchants of the power to make or challenge decisions that affect their businesses.
Impact on Selected Traditional Business Subsectors. In many African economies, certain traditional business subsectors are protected from competition, receive government incentives, or are tightly regulated. Policymakers are concerned that online marketplaces could disrupt these domestic equilibriums. The taxi industry is highly regulated in many African nations, for example. Online mobility marketplaces, policymakers worry, could avoid these regulations. There is also concern that these new businesses could cannibalize the taxi industry. Ride-sharing platforms could lure away drivers and, fueled by cheap venture capital money in the customer acquisition phase, offer unfairly low prices, distorting the traditional balance between supply and demand. Governments even worry that such disruption might lead to social unrest among displaced businesses and workers.
The “USB” Approach to Win-Win Online Marketplaces
To resolve the obstacles and concerns that constrain online marketplaces, both the private and public sectors will have to work together to develop an environment in which e-commerce can become a win-win proposition for the online marketplace community and the region’s governments. The place to start is by building mutual trust. We recommend a three-pronged approach that we have dubbed “USB,” which stands for understand, share, and build. (See Exhibit 5.)
A copy of the report can be downloaded here.