High delivery costs, logistics woes slow down e-commerce growth

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Online shopping continues to gain traction in Kenya, and across Africa, with the sector being particularly fueled by the measures put in place to curb the spread of Covid.

While there is no doubt that the prospects of e-commerce in Kenyan and the region is bright, a number of challenges need to be navigated before this future of shopping becomes a reality.

One of the setbacks that e-commerce players and customers confront is the cost of delivery. Digital businesses say expenses involved in transporting goods from a store to a buyer are a major stumbling block to the growth of their enterprises.

“The biggest barrier to growth in e-commerce is logistical cost,” says Mesh Alloys, Sendy co-founder and chief executive.

“The cost is still very high and we have a population that doesn’t have enough disposable income.”

The rising fuel costs in Kenya is a major hurdle to e-commerce. Diesel and petrol are, for example, retailing at record prices of Sh115.60 and Sh134.72, respectively, per litre following a Sh5 upward monthly review that took effect on Tuesday.

The latest jump in fuel prices have been caused by economic sanctions imposed on Russia for its invasion on Ukraine. The war has disrupted the global supply chain and triggered a sharp rise in global crude prices.

The costly fuel has only compounded matters for firms operating in the e-commerce realm. Before fuel prices spiked, a buyer ordering a product worth Sh1,000  online was, on average, parting with as much as Sh300, or about 30 percent of the cost of goods, to have it delivered.

“The cost of transporting that item shouldn’t be as expensive as we are seeing,” Mr Alloys says

Because of poor infrastructure design, there is always heavy traffic on major roads in Nairobi, and delivery riders get stuck on the roads due to absence of dedicated lanes for motorcycles. This delays delivery of goods, causes wastage of man hours and pushes up fuel consumption.

Despite such challenges, online trade can only expand as penetration of internet deepens and a rising number of people own smartphones.

 The United Nations Conference on Trade and Development in 2020 placed Kenya in position seven in Africa for creating a conducive environment to spur online trade. This was however a drop from 4th place a year earlier, according to UNCTAD’s Business-to-Consumer (B2C) E-commerce Index 2020.

Mauritius and South Africa retained their respective top two positions in Africa, according to the report, while Nigeria dropped from third in 2019 to eighth last year.

Tunisia, Algeria, Ghana and Libya leapfrogged Kenya to occupy third, fourth, fifth and sixth positons in the index the UNCTAD uses to gauge a country’s readiness to support secure online shopping.

Kenya’s score on secure internet servers, which act as a proxy for e-commerce shops such as Jumia and Safaricom’s Masoko, dropped to 46 from 49 in 2019.

A score closer to 100 signals improvement in policies to support online shopping and vice versa.

Nairobi’s score on reliable postal delivery for goods bought dropped to 46 from 47, while internet penetration remained steady at 82 for the third year.

However, the index on share of Kenyans using internet improved to 23 from 18, but the percentage of internet users shopping online fell to 19 percent from 24 percent in 2019.

“To facilitate more inclusive e‐commerce, African countries would benefit from catching up in all policy areas,” UNCTAD analysts said in the report.

“In the case of internet access, less than a third of the population in Africa uses the internet compared to three quarters in Western Asia.”

Besides internet penetration, the growth in online shopping has benefitted from the ease in mobile money payments on platforms such as Safaricom’s M-Pesa and Airtel Money.

Major sectors of the economy such as financial services, retail and wholesale trade, agriculture and health have integrated mobile payment platforms into their payment systems, largely because of convenience and speed.

“M-Pesa not only allows for P2P transfers and withdrawal, but also payment options and connectivity to formal banking and credit access,” Safaricom says in latest annual report. “It has also facilitated international transactions.”

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