(Ecofin Agency) - Despite many African e-commerce platforms struggling to attain profitability, the sector's outlook remains promising, driven by the digitalization of payments, the implementation of the African Continental Free Trade Area, and the advancement of deferred payment systems.

The overall revenue of active e-commerce platforms in Africa is expected to reach $59.18 billion in 2027, up from $32.49 billion in 2022 and $13.58 billion in 2018, as estimated by the digital economy consultancy firm TechCabal Insights in a report released on October 12.

Entitled "Future of Commerce: Outlook for 2024," the report forecasts an average annual growth of 10.4% in this revenue between 2023 and 2027, thanks to the increased number of online buyers, a surge in e-commerce platforms, and the continent's rising population. Over the period, the number of African online buyers is also projected to increase by an average of 17.9% annually, reaching 609.3 million buyers in 2027 compared to 387.5 million in 2022.

Consequently, the e-commerce adoption rate across the continent is projected to rise from 32% in 2022 to 44% by 2027, marking a notable increase of 12 percentage points over five years. The primary contributing factors to this upsurge include the growing number of mobile internet users and the expanding embrace of digital financial services such as mobile money and internet banking. With sales forecasted to climb from $13.93 billion in 2023 to $20.08 billion in 2025, the electronics segment will steer the overall e-commerce revenue growth in the coming years on the continent. Following closely are the segments of fashion items, with sales anticipated to reach $11.44 billion in 2025 compared to $8.46 billion in 2023, as well as toys & leisure, personal care, and furniture.

Promising Outlook

The report further unveils that 129 African startups specializing in online commerce raised a combined total of $948.5 million between January 1, 2019, and June 30, 2023. The most substantial funding was secured by the Kenyan online platform Wasoko, focusing on food products, amounting to $125 million.

Despite these funding rounds, a significant number of these budding companies are facing huge operational challenges and are struggling to achieve profitability. Consequently, Zumi, Wabi, and Sendy have ceased operations, while Copia Global, Twiga Foods, and Marketforce have respectively laid off 700, 494, and 54 employees since the beginning of 2022.

Meanwhile, Jumia, despite implementing an aggressive cost reduction program, is still grappling with reaching profitability, mainly due to the escalating inflation across the various markets it serves.

Losses in the initial years of e-commerce platforms are not exclusive to African startups. An example is the American giant Amazon, which took eight years to become a profitable enterprise.

The report suggests a promising outlook for African startups operating in the e-commerce sector over the coming years. The outlook is positive, especially as the companies are expected to capitalize on the growth of electronic payments in the continent, improved infrastructural and logistical capabilities following the implementation of the African Continental Free Trade Area (AfCFTA), and the ongoing development of Buy-Now-Pay-Later (BNPL) services. This advancement aims to alleviate the adverse effects of limited access to credit.