By Baljinder Sharma, Convenor, India Africa Business Network
A sensational claim from South African e-commerce giant Takealot in March 2024 sparked concerns over the future of domestic retail. The Naspers-backed South African e-commerce platform accused social commerce giants Temu and Shein of “exploiting outdated regulations and loopholes…to offer products at exceptionally low prices while avoiding duties, taxes and other government fees imposed on conventional retailers” and for “threatening South Africa’s re-industrialisation and localisation efforts.”
Takealot must be worried. Over the last two years, middle-class South Africans have flocked to Shein and Temu for their exceptionally low prices on fashion and general merchandising products, impacting Takealot’s business negatively.
Fuelled by a young, tech-savvy population, Africa’s e-commerce sector is experiencing an unprecedented boom. The continent’s most populous country, Nigeria, for instance, is expected to see its e-commerce market grow to $75 billion by 2025.
However, a more serious concern is emerging, one that has the South African Revenue Authority worried: the rapid penetration of domestic markets by international e-commerce platforms such as Temu and Shein. Upcoming social commerce platforms have been able to deliver small merchandise to individual customers directly – even items as low value as $10.
According to EBANX’s Beyond Borders 2024 report, the global consumer class will expand by 109 million people in 2024. Roughly 70% of this growth will come from Latin America, Africa, and South Asia. Increasing internet penetration, smartphone usage, and disposable incomes in emerging markets are all key factors contributing to the expansion of e-commerce. In Latin America, Brazil leads the pack with a projected e-commerce market value of $103 billion by 2025. Mexico follows closely, expected to reach $77 billion in the same period.
Opportunity for India
Market access remains the biggest challenge for Indian MSME exports. Despite a significant contribution of 46% to the total exports, less than 1% of Indian MSMEs are registered exporters. This highlights the complexities faced by Indian exporters while navigating international trade.
Imagine if such barriers were lifted: optimised supply chains, streamlined financing, and unfettered access to international markets. This would catapult SME exports.
E-commerce: “THE” gateway to a global market
According to data from the Global Trade Research Initiative (GTRI), cited in a NITI Aayog report “Boosting Exports from MSMEs,” MSMEs in China were exporting goods worth over $200 billion through e-commerce platforms.
India’s e-commerce export in that year was barely $2 billion.“One key reason for this gap is the cumbersome compliance process associated with exports, especially when it comes to payment reconciliation, which is particularly challenging for a new or small exporter,” states the report.
While the report makes several suggestions on how to remove administrative bottlenecks, it also identifies access to finance as a seriously limiting factor.
Times have changed
International e-commerce was once dominated by Amazon and Alibaba in consumer and B2B sales, respectively, with their ability to ship individual items as well as small quantities across borders. But the rise of social media platforms such as Facebook, Instagram and TikTok and their pervasive use has created opportunities for direct consumer sales even in foreign markets.
It is important to emphasise that Temu, Shein, and others use popular social media platforms. These are also available for Indian MSMEs to use to sell overseas.
Project Nexus, recently launched by the Reserve Bank of India (RBI), is an important part of the strategy. It aims to link India’s Unified Payments Interface (UPI) with similar systems in other countries, facilitating seamless cross-border transactions. When fully functional, Project Nexus will dramatically reduce the time and cost associated with international payments by ensuring interoperability between different payment systems while enhancing the security of digital transactions.
What is the future?
Of course, challenges remain. Governments worldwide are scrambling to establish frameworks for consumer protection, fair competition, data privacy, and taxation in the digital age. These regulations, while necessary, can slow down international e-commerce.
Despite these challenges, the future of e-commerce in emerging markets looks extremely promising. Innovations in mobile payments, last-mile delivery, and localised marketing strategies have been helping businesses overcome traditional barriers to entry.
As internet penetration continues to increase and digital literacy improves, we can expect to see even more growth and innovation in these markets, with a complete redefinition of the global retail landscape.
India’s digital infrastructure serves as a powerful example of how emerging markets can advance rapidly by adopting innovative technologies. Cross-border transactions are a vital component of the global economy, particularly in African markets such as South Africa, Kenya and Nigeria. These transactions facilitate the flow of goods and services.
For instance, e-commerce platforms in these countries are enabling local businesses to reach international markets, thereby increasing their revenue streams and enhancing economic stability.
Emerging markets including in Africa could tap into India’s experience and technological advancements such as Project Nexus to accelerate their own digital transformation. This could drive international e-commerce, foster economic growth, facilitate easier access to global markets, enhance financial inclusion, and create jobs.