Future Of. ecommerce. In Kenya White Paper

Transcription

1 Future Of ecommerce In Kenya 2010 White Paper

2 About This White Paper Commissioned by I&M Bank and compiled by Hill & Knowlton, this White Paper examines the global ecommerce landscape, the development of e-commerce in Kenya and its likely impact on overall economic growth in Kenya. The contents of this paper will be of interest to all stakeholders of e-commerce in Kenya. Specifically: A. Business establishments who offer products and services, both domestically in Kenya and to overseas clients, that can potentially be sold on-line through their websites. B. Service providers, including utility companies, who wish to establish an additional convenient, cost effective and quick way of accepting payments from consumers for their services. C. Kenyan consumers who hold credit and debit cards and are desirous of purchasing goods and services online. D. Industry associations, government bodies, financial institutions, payment solution providers, web hosting companies, web developers etc. It is based on aggregation of data from the United Nations Conference on Trade and Development (UNCTAD)- Information Economy Report 2009, Forrester Research Inc., International Telecommunication Union (ITU), Internet World Statistics, Firstdata, and IMR World global business intelligence (Country Report 2009). We have also talked to senior executives from the private sector, government officials and industry experts based in Kenya. Our thanks are due to the interviewees for their time and insight. Our Insights Panel Dr.Ndemo, Permanent Secretary, Ministry of Information and Communication Mr. Sidney Wachira, CEO, VUMA Mr. Harris Macharia, E-Commerce Manager, Serena Group of Hotels Mr. Gerson Misumi, Managing Director, Tamarind Hospitality Group Mr. Louis Otieno, General Manager, Microsoft East & Southern Africa Mr. Mohan Chandra, Commercial Director, Kenya Airways 1

3 Introduction Former United States Vice President, Al Gore, once said: We are on the verge of a revolution that is just as profound as the change in the economy that came with the industrial revolution. Soon electronic networks will allow people to transcend the barriers of time and distance and take advantage of global markets and business opportunities not even imaginable today, opening up a new world of economic possibility and progress. Al Gore s statement has never been more relevant. The billions of mobile and online Internet users worldwide are creating huge opportunities for the development of e-commerce and m-commerce. At a global level, the financial crisis has focused attention on new infrastructure developments and facilitated a unique opportunity to shift the broadband emphasis from a high-speed Internet service to a national infrastructure for the digital economy that now underpins a range of positive social and economic developments. The last two years in Kenya have been critical for the development of e-commerce infrastructure. E-commerce was taken to a new level with the laying of the submarine cable (SEACOM and TEAM). Access issues were addressed as laptops were made more cost effective through telecom pricing initiatives. Furthermore, the government s program that involves rolling out digital villages in rural areas has helped bring the internet to areas where there was previously no coverage, and a bill was passed in 2008 providing a legal framework for online transactions. Internationally, while the economic slowdown is somewhat curbing e-commerce growth in most markets, there is evidence so far that the online retail market has remained steady due mostly to the lower prices and convenience offered via online shopping. Spending on online advertising also continues to grow in the face of economic uncertainty and in 2010 online advertising should account for around 13% of overall ad spend worldwide. Emerging markets developments In emerging markets, payment systems gained much attention in 2009, as consumer demand grew for different payment methods. As online retailers expand globally they are also beginning to discover that cultural differences may impact upon payment method preferences. Locally, online payment solutions have historically been driven by telecoms companies, with offerings such as M-Pesa, which to date have been limited by the size of the transaction amount, making it difficult for consumers to pay for goods and services over a certain threshold. Similarly, PayPal has been available, however, merchants using this offshore option face the challenge of long settlement periods affecting their cash-flow and currency exchange loss, as cash has to be repatriated from an offshore account. A significant gap in the Kenyan market place is being addressed with the launch of a Visa licensed payment gateway. This latest evolution in payment options is now available in Kenya as I&M Bank becomes the first Bank in East and Central Africa to be licensed by Visa International to offer e-commerce Merchant Payment services. It provides local merchants with the benefits of on the ground support services and a cost effective solution to accept payments through Visa debit and credit cards online through their websites for sale of their goods and services. I&M Bank s service operates on a robust and secure payment processing platform provided by Iveri Payment Technologies Ltd, a South African based leading payment solution provider. 2

4 This white paper is a discussion document providing valuable insights into developments taking place in the global digital economy in terms of e-commerce. It includes perspectives on the current status of e-commerce in Kenya today, its projected growth trajectory and potential impact on the local economy. Global e-commerce backdrop E-commerce is now an important part of the global economy, particularly in the developed markets. While e-commerce is still in its infancy in many emerging markets, this is set to change in the coming years especially in China. China now has the highest number of Internet users in the world, overtaking the USA. E-commerce growth in the USA remains strong however, with China also offering significant opportunities for those operating in the e-commerce space. According to recent data by Forrester, emarketer, and IDC, e-commerce around the world is set to continue growing rapidly over the next few years. Global e-commerce will reach $711 billion in sales by 2010 and this number is growing at a compound annual growth rate of 19 percent (emarketer). Forrester Research Inc. in its report U.S. E-Commerce Forecast: 2008 to 2012 cites the following figures: online retail sales will reach $204 billion in 2008, $235.4 billion in 2009, $267.8 billion in 2010, $301 billion in 2011, and $334.7 billion in The UK is predicted to reach 32 million United Kingdom consumers shopping online by 2011 and according to IDC $134 billion will be spent online in China by 2012 (IDC). The consulting and research firm Glenbrook Partners is even more bullish on the global e-commerce market, predicting it will grow to $967 billion by 2010, a $140 billion increase year on year. As the figure below shows, Glenbrook also sees an emerging trend in which markets outside of North America represent an increasingly greater share of e-commerce revenue. Source: Glenbrook Partners, LLC 3

5 Africa in the digital age Analysts agree that e-commerce is on an upward swing in Africa. Growth has exploded in the last 3 to 5 years. Gaining grounds across the continent, the positive signs of renaissance include availability of sufficient connectivity and requisite software which were once unavailable in African capitals. Previously, its growth had lagged for a variety of reasons, including low levels of Internet penetration, limited communication infrastructure, limited access to credit cards and flexible payment infrastructure. Many Africans are still unaware of the opportunities offered by e-commerce. The African private sector consists mostly of small, medium, and micro-sized enterprises (SMEs) and the informal sector. These businesses are widely seen as a potential engine of growth in the information economy. Private sector leads the charge E-commerce offers huge potential to SMEs including potential strategic benefits such as possibilities of creating new industries, developing new content and chances of finding or creating employment. Some companies such as VUMA, an online Kenyan based business selling music by local Kenyan artists, are enjoying first mover advantage and are already harnessing this opportunity. Serena Group of Hotels, Nairobi, is similarly visionary, spotting a market opportunity to meet the needs of domestic tourists. Serena s e-commerce manager, Harris Macharia, said, Our sales data shows that online clients are the highest spenders. We are gearing more towards the local tourism market where we have seen significant growth in the last year. Additional benefits to the business, according to Macharia, are the ability to manage their inventory better, in particular no-shows and the ability to provide ancillary services for instance car bookings and massages thereby generating additional revenue. In South Africa, the continent s biggest economy, the outlook for B2C e-commerce is strong as reflected by the online sale of airline tickets whose value grew from ZAR1.8bn ( 150mn) in 2005, to around ZAR3.7bn in 2008 ( 307mn) is the leading e-commerce business. Online retail was estimated around ZAR 1.16 billion in 2008 ( 96MN), up 25% compared to 2007 according to IRM World Global Business Insight- County Report Growth in e-commerce in South Africa is fuelled by the realization that online procurement and supply-chain management can trim costs and improve customer relationships. Moreover, many of the largest companies in South Africa - financial institutions, mining, chemical and manufacturing businesses - conduct business globally and have thus kept pace with the demands of global customers. Procurement marketplaces continue to grow, enabling vendor sourcing, order and transaction processing, and system integration. As more African businessmen and women become informed about the benefits of e-commerce, the potential growth trajectory is unlimited. For example, a survey in Ghana (part of a Ghana SCAN-ICT study, 2006) revealed that about 65 per cent of ICT companies do not have a presence on the Internet and, 84 per cent reported that they were not involved in e-commerce. In Morocco, according to the Ministry of Industry, Trade and Telecommunications, the proportion of businesses that use the Internet grew significantly but only 8 per cent of businesses in all sectors currently use the Internet for placing orders online. These strides will be further accelerated with the continued emergence of a middle class, companies offering a variety of payment systems, and increased access to the internet. 4

6 Internet growth across the continent The Internet is the driving force for the growth of e-commerce. This means that Africa s growth potential is linked to the development of infrastructure (connectivity), consumer education and equipment. The last ten years has shown explosive growth of 1,393%. An added advantage is that there is a growing convergence of Internet and mobile communication and handsets have acquired functionalities that only a few years ago could only be found on personal computers. (See Appendix page 9) The case for Kenya Kenya has just begun to feel the pulse of e-commerce. The CEO of Vuma, Sidney Wachira contends that the country will need close to 10 years to create an impact in the global e-commerce stage similar to her developed counterparts. But the government is taking crucial steps to support the development of e-commerce in the country. It is a relatively new concept and is expected to grow rapidly once the masses identify its benefits. The Permanent Secretary in the Ministry of Information and Communication, Dr. Bitange Ndemo says the Kenyan government has established a five year programme for the introduction of e-commerce in the public sector. The programme s main project is the establishment of an electronic marketplace for public procurement in a bid to promote e-commerce in Kenya. In addition, the Kenyan government has put in a framework that will guide/govern e-commerce as contained in the Kenya Communications (Amendment) Bill 2008 also known as the ICT Bill. The law seeks to promote e-trade within Kenya and between Kenya and other trading partners and also provides a conclusive legal environment for all players to do business and transact. The Bill will definitely encourage e-commerce services and protect the privacy of the public, interests of consumers and clients from potential misuse, says Dr. Ndemo. The government is currently working on policies to develop those electronic aspects of trade that would make Kenya s economy more market-orientated. During the last couple of years, several policies were set out that aimed to push e-commerce forward, and now the process of implementing them has begun. Statistics from the last few years show that phone line penetration density is very low, with about 4 and 1.6 lines in every one hundred people in urban and rural areas respectively. Among some one hundred ISPs only very few were operational, limiting internet access at around 200,000 people by the year However, in the last 9 years internet usage has grown to more than 3 million users in

7 The launch of the undersea fibre optic cables mid last year (SEACOM) has signified a new day for the Kenyan cyberspace as this is expected to enable faster internet connectivity at cheaper rates. This move is seen as the catalyst that will spur the country into the forays of e-commerce and e-government as more and more people will find it cheaper to interact and do business over the internet. The government has realized the need to take the age of ICT to the masses and especially those in the rural areas and villages through the establishment of ICT Villages across the country. To this end, the government came up with the Pasha centres built on the platform and premise where the government supports techpreneurs to set up internet business. They are providing basic training in the area of business management and skills and how to operate an internet/ict business, a revolving fund for the Pasha techpreneurs that will enable them start/improve these centres; as well as provision of ICT extension services. This may include offering support when faced with virus threat or spammers. This ensures the entrepreneurs are comfortable in running these centre with the little concerns or problems-technical or otherwise. In addition, Dr Ndemo explained that the government is contributing towards bringing about a behavioral shift amongst Kenya consumers by making more digital content available on line for its ministries such as the Land Ministry and The Judiciary. They will offer a wider variety of services online such as company registration and tax payment. Social changes are also evident as signs of consumers spending more time on the internet are emerging. For instance, according to Dr. Ndemo there are 700,000 Kenyan based Facebook users, representing a threefold growth in the last three years. Potential for future growth According to local industry experts, critical sectors like tourism and travel, manufacturing, utility businesses, auto industry, are likely to benefit the most from e-commerce. With the cable providing increased broadband and greater online access at a reduced cost, it is predicted that marketing and e-commerce transactions will grow dramatically. This presents tremendous opportunities for these sectors. E-tourism likely to explode On the demand side, consumer preferences for flexible travel and leisure services provide a strong impetus for e-tourism in Kenya. On the supply side, technology plays an important complementary role in the business of e-tourism. The application of technology to the travel and tourism industry now allows players in the sector to offer new and flexible services that are cost-competitive. As a player in the tourism and hotel industry, technology has given us the flexibility to effectively react to market demands and to provide new combinations of services and improve cost effectiveness. As a country we must go the e-commerce way to avoid losing opportunities and benefits that are already available to other countries, says Gerson Musimi, Managing Director, Tamarind Group. 6

8 Kenya has traditionally been one of the most popular destinations in Africa, drawing 2 million international arrivals in 2007, according to TradeInvestAfrica. Kenya s Tourism Strategic Plan includes raising tourism earning to Ksh.200 billion by E-tourism can help significantly to reach this target. Prior to the post election violence, tourism accounted for 10% of GDP in 2007 making it the third largest contributor to GDP after tea and manufacturing, and third largest foreign exchange earner after tea and horticulture. Mr Damian Cook, the CEO of E Tourism Africa explains, Online sales have been one of the few sectors to experience growth despite the global recession. Travel is now the number one selling commodity online and is generating over US $110 billion annually in sales. We must get more African tourism products available to the online travel shopper, especially with the World Cup looming and interest in Africa growing, said Cook. A bright future E-commerce is having profound effects on the auto industry globally. Car companies are moving their purchasing and other commerce activities online, taking advantage of new technology to cut costs. Online sites like Autobytel steer millions of car buyers toward specific dealers while the same sites deliver competing bids for cars and financing in a manner that lowers costs and improves satisfaction among consumers. A similar trend is evident is the Kenya auto industry which largely comprise of imported used cars. Much of these transactions, running into billions of shillings annually, are conducted through the internet. The car industry in Kenya is huge, running into billions and the market for used cars is growing. Since most dealers are based abroad, the auto industry remains a vital sector to focus on by providers of e-payment solutions, said says Dr. Ndemo. Kenya is a major importer of Japanese used cars in Africa. In 2008, Kenya imported close to 30,000 used car units from Japan in the first nine months to September, according to the Kenya Bureau of Statistics. It might be premature to categorize e-commerce in the manufacturing and export sectors in Kenya as revolutionary ; however, it is evident that corporates in these sectors are impacted by enormous changes in their business processes. E-commerce related developments have reduced the importance of physical branches and moved it toward more sophisticated and e-commerce enabled supply chains for products and services. The list of other services that are potentially cyber-deliverable is an open one, limited in a sense only by the imagination. Already, offshore data processing centres in Kenya like KenCall provide data transcription and back-office functions for various oversee companies in the insurance, airlines, credit card, banks and various other service sectors. Telemarketing firms can afford to hire remotely located sales persons to pitch their products. The Diaspora represents a significant market opportunity for Kenyan e-commerce entrepreneurs. Many possess purchasing power, many have access to credit cards and many are willing to use the internet for purchases. Opportunities exist in the business-to-business, business-to-consumer, and consumer-tobusiness domains. The challenge is to raise awareness both amongst the diaspora and e-commerce entrepreneurs in Kenya to the important opportunities. We also need to make an effort to overcome any psychological barriers that may exist, says Dr. Ndemo. 7

9 Challenges to e-commerce in Kenya Just like in other developing economies, lack of true online payment options has limited e-commerce growth in Kenya. The inability to accept payments for products and services on equal footing with the rest of the world means that many viable business options have not been available for merchants in Kenya. However, with the arrival of an encrypted, secure technology, merchants and consumers can have greater confidence about making payments online. There s a really interesting conversation brewing over at Google s Africa Community that s all about the state of e-commerce (or lack thereof) in Africa. Here s one of the highlights from the thread: One main challenge for online business I ve found in sub-saharan Africa, for at least those who have access to the internet, is that they cannot buy goods online because banks there do not issue credit cards. Even the few banks that do, their credit cards are not accepted by foreign merchants. There are students who want to buy books online but cannot because they don t have credit cards. -Google s Africa Community. Middle class Kenyans have been crying out for the ability to pay for transactions online with cards. E-commerce in Kenya is at a tipping point, as a wider variety of convenient and cost effective goods and services are offered by merchants, more Kenyans will want access to cards to enable them make online payments and more banks will issue cards; creating a virtuous circle. Already, there has been a big push for Kenyan banks to open up their debit cards for internet transactions. Banks are now issuing, in addition to credit cards, debit cards that can be used for online purchases. As of the third quarter of 2009, there were 2.2 milllion Visa debit cards and 111,000 Visa credit cards issued in Kenya. Conclusion The rapid expansion of the Internet is fueling the growth of e-business. E-commerce is on the verge of exploding as more companies rush to reduce costs, improve productivity, and provide greater customer access. Although most small businesses feel the Internet has not had an impact on their business, many are optimistic and have plans to expand into e-commerce. The best thing that can happen to e-commerce in Kenya is for more businesses to realise the potential of increased sales and setting themselves up to accept online payments through their websites and for consumers to adopt online shopping as a convenient, safe and cost-effective means of shopping. That will hasten the maturing of this industry, and everyone will benefit. 8

10 Appendix INTERNET USAGE STATISTICS FOR AFRICA AFRICA Population Internet Users Internet Users Penetration User Growth % Users (2009 Est.) Dec/2000 Latest Data (% Population) ( ) in Africa Algeria 34,178,188 50,000 4,100, % 8,100 % 6.1 % Angola 12,799,293 30, , % 1,733.3 % 0.8 % Benin 8,791,832 15, , % % 0.2 % Botswana 1,990,876 15, , % % 0.2 % Burkina Faso 15,746,232 10, , % 1,300.0 % 0.2 % Burundi 9,511,330 3,000 65, % 2,066.7 % 0.1 % Cameroon 18,879,301 20, , % 3,525.0 % 1.1 % Cape Verde 429,474 8, , % 1,185.0 % 0.2 % Central African Rep. 4,511,488 1,500 19, % 1,166.7 % 0.0 % Chad 10,329,208 1, , % 12,900.0 % 0.2 % Comoros 752,438 1,500 23, % 1,433.3 % 0.0 % Congo 4,012, , % 30,900.0 % 0.2 % Congo, Dem. Rep. 68,692, , % 57,900.0 % 0.4 % Cote d Ivoire 20,617,068 40, , % 1,550.0 % 1.0 % Djibouti 724,622 1,400 13, % % 0.0 % Egypt 78,866, ,000 12,568, % 2,693.1 % 18.7 % Equatorial Guinea 633, , % 2,300.0 % 0.0 % Eritrea 5,647,168 5, , % 3,900.0 % 0.3 % Ethiopia 85,237,338 10, , % 3,500.0 % 0.5 % Gabon 1,514,993 15,000 90, % % 0.1 % Gambia 1,778,081 4, , % 2,755.0 % 0.2 % Ghana 23,887,812 30, , % 3,223.3 % 1.5 % Guinea 10,057,975 8,000 90, % 1,025.0 % 0.1 % Guinea-Bissau 1,533,964 1,500 37, % 2,373.3 % 0.1 % Kenya 39,002, ,000 3,359, % 1,579.8 % 5.0 % Lesotho 2,130,819 4,000 73, % 1,732.5 % 0.1 % Liberia 3,441, , % 3,900.0 % 0.0 % Libya 6,324,357 10, , % 3,130.0 % 0.5 % Madagascar 20,653,556 30, , % % 0.5 % Malawi 15,028,757 15, , % % 0.2 % Mali 13,443,225 18, , % % 0.3 % Mauritania 3,129,486 5,000 60, % 1,100.0 % 0.1 % Mauritius 1,284,264 87, , % % 0.6 % Mayotte (FR) 223, % Morocco 31,285, ,000 10,300, % 10,200.0 % 15.3 % Mozambique 21,669,278 30, , % 1,066.7 % 0.5 % 9

11 INTERNET USAGE STATISTICS FOR AFRICA AFRICA Population Internet Users Internet Users Penetration User Growth % Users (2009 Est.) Dec/2000 Latest Data (% Population) ( ) in Africa Namibia 2,108,665 30, , % % 0.2 % Niger 15,306,252 5,000 80, % 1,500.0 % 0.1 % Nigeria 149,229, ,000 11,000, % 5,400.0 % 16.3 % Reunion (FR) 812, , , % % 0.4 % Rwanda 10,746,311 5, , % 5,900.0 % 0.4 % Saint Helena (UK) 7,637 n/a 1, % n/a 0.0 % Sao Tome & Principe 212,679 6,500 24, % % 0.0 % Senegal 13,711,597 40,000 1,020, % 2,450.0 % 1.5 % Seychelles 87,476 6,000 32, % % 0.0 % Sierra Leone 5,132,138 5,000 13, % % 0.0 % Somalia 9,832, , % 50,900.0 % 0.2 % South Africa 49,052,489 2,400,000 4,590, % 91.3 % 6.8 % Sudan 41,087,825 30,000 4,200, % 13,900.0 % 6.2 % Swaziland 1,337,186 10,000 80, % % 0.1 % Tanzania 41,048, , , % % 0.8 % Togo 6,031, , , % % 0.5 % Tunisia 10,486, ,000 2,800, % 2,700.0 % 4.2 % Uganda 32,369,558 40,000 2,500, % 6,150.0 % 3.7 % Western Sahara 405, % Zambia 11,862,740 20, , % 3,400.0 % 1.0 % Zimbabwe 11,392,629 50,000 1,421, % 2,742.0 % 2.1 % TOTAL AFRICA 991,002,342 4,514,400 67,371, % 1,392.4 % % NOTES: (1) Africa Internet Statistics were updated for September 30, (2) Population numbers are based on data from the U.S. Census Bureau. (3) The most recent usage information comes mainly from data published by Nielsen Online, ITU, WWW. (4) For growth comparison purposes, usage data for the year 2000 is displayed. (5) Data from this table may be cited, giving the due credit and establishing an active link back to internetworldstats.com Copyright 2009, Miniwatts Marketing Group. All rights reserved worldwide. 10

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