Digital Marketplaces: The next frontier that will unlock the digital revolution in Africa

Africa is known as the last frontier with a population of 1.3 billion, it has a tremendous untapped potential for digital business.

I became a pioneer in Angola’s non-existing tech startup ecosystem in 2012, as I created the first digital marketplaces in Angola to bridge the gap between offline and online automotive and real estate businesses. I wanted to create an easier and more secure way for buyers to connect with trusted sellers.

The digital marketplace business model is highly scalable and furthermore can create a positive impact in Africa. Digital marketplace platforms that match buyers and providers of goods and services can raise incomes and boost inclusive economic growth with minimal disruption to existing businesses and workforce norms.

A 2019 BCG report indicates that online marketplaces will create around 3 million new jobs in Africa by 2025—roughly one for every 150 unemployed Africans or one for every 15 unemployed workers aged 15 to 24. (See Exhibit 4.) The estimate is based on current direct, indirect, and induced employment in online marketplaces in the region as well as the current and projected revenue of these marketplaces. It is also based on BCG’s own bottom-up estimate of online marketplace revenue and assumes 25% to 30% annual revenue growth through 2025, which is in line with historic trends and growth rates recorded in other regions.

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 are unemployed. 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.

The Economic and Social Benefits of Digital Marketplaces

Building trust and confidence is the cornerstone to our success. Gaining the trust of both B2B and B2C consumers is crucial when building a business on the African continent, and is the driving force behind our growth. Building a marketplace’s trust mechanism is a process of evolution. The mechanism that is needed in the early days is different from the one needed when you achieve significant market penetration and scale.

Online marketplaces are a good illustration of how the digital revolution can create economic opportunity and improve social welfare in Africa. As the majority of the continent currently lacks an efficient distribution infrastructure, digital marketplaces could create millions of jobs.

According to the BCG report (https://www.bcg.com/en-ao/publications/2019/how-online-marketplaces-can-power-employment-africa), concerns that growth in online marketplaces will merely cannibalize the sales of brick-and-mortar retailers are misplaced in the case of Africa. 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.

The road ahead to ensure digital marketplace inclusion in Africa

For online marketplaces to reach their full potential, however, the public and private sectors must work together to build the right digital environment. 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.

The public sector and online marketplace communities should engage in discussions to achieve a common understanding of the opportunities for job creation, skill development, and inclusive growth. Both sides also must clearly understand each other’s concerns and needs—as well as the impact that can be achieved by addressing them.

The sharing of certain data, actions, and benefits is essential to establishing a spirit of trust and collaboration. Online marketplaces could share aggregated, anonymous data that is beneficial for urban development, for example. Shared actions could include a system for certifying that merchants are complying with the right standards, laws, and regulations. Online marketplaces and the public sector could also take collaborative actions to ensure that opportunities are shared with all segments of the population, including people who are sometimes excluded in the offline world.

Online marketplaces and government organizations can then work together to build a healthy digital environment by taking actions that remove the hurdles ­facing online marketplaces and alleviate the concerns of the public sector. For ­example, they can collaborate on skill-training programs and on developing tech­nological infrastructure, such as digital identity systems, that ensure transparency on marketplace platforms.

The public and private sectors can also build a co-regulation framework that balances social and political risks with the promise of the value that online marketplaces can create.

Overall, the low level of online marketplace usage across Africa means that considerable work must be done at many levels to ensure that these platforms fulfil their potential to become an important source of new jobs. This promise relies on the ability of the private and public sectors to come together and collaborate to create the right digital environment. Instead of being seen as forces of chaotic disruption, online marketplaces should be allowed to develop in an environment that is designed from the outset to bring economic and social benefits to all.

Source: Boston Consulting Group

BCP report: https://www.bcg.com/en-ao/publications/2019/how-online-marketplaces-can-power-employment-africa