Ideas & Debate

It is time for in-depth policy on digital trade

ecommerce

Customers are seeking alternatives to purchasing commodities remotely, through e-commerce. FILE PHOTO | NMG

In the wake of Covid-19, enterprises and consumers find themselves seeking alternatives to purchasing commodities remotely, through e-commerce. The first of the three common ecommerce approaches utilised in Kenya, is the third-party aggregated applications, e-stores or e-marketplaces, that provide a trading platform on the web for sellers; either consumer to consumer (C2C), business to consumer (B2C) or business to business (B2B).

The second one is independent companies that use applications to trade their products using B2C model. The third option leverages on the presence of courier companies where a buyer, using their mobile phone, places an order with the seller, makes payments often using mobile money then engages a courier service for delivery.

As established in the 2016 National ICT Survey, 39 percent of private enterprises in Kenya are engaged in e-commerce and 71 percent buy or sell goods and services via mobile phones. Therefore, majority of Medium, Small and Micro Enterprises (MSMEs) may be utilising the latter approach.

Courier services are, therefore, essential components of e-commerce in Kenya. Kenya’s Communications Authority quarterly statistical reports establish that Kenya currently has 178 registered courier providers, a 44percent increase in ten years. These registered courier providers moved 2.8 million parcels last year. A great leap compared to 10 years ago when the number of parcels couriered in a year is equivalent to a single quarter in 2019. These statistics do not, however, include courier services rendered by informal and unregistered motorcycle operators, including boda bodas.

The growth in e-commerce has further been precipitated by ICT investments and reforms, such as fibre optic cables, which have contributed to improvements to the internet penetration rate from 25percent, 10 years ago to over 80percent today.

Other recent initiatives include reforming the legal framework, including Companies Act, Law of Contract Act, Stamp Duty Act, Kenya Information and Communications Act to facilitate digital economy. Many of these additional amendments were undertaken recently, with the enactment of the Business Laws (Amendment) Act, 2020. Other reforms include enhanced consumer protection provisions following the enactment of Consumer Protection Law in 2012.

Kenya’s Competition Act no. 12 of 2010 further protects consumers from unfair and misleading market conduct. Data Protection Act of 2019 may further enhance consumers’ confidence in transacting electronically. Consumer and data protection are critical given e-commerce is data-driven. In fact, companies use data to identify customers and market products. With the Covid-19 pandemic for instance, companies must adjust to the new demand patterns, which can be observed with correct consumer data.

The fourth possible enabler of e-commerce is mobile money solutions. The 2019 Kenya Digital Economy Blueprint report shows that 70percent of all e-commerce payments are through mobile money platforms. Further, as established in the 2016 enterprise survey, half (45percent) of MSMEs in Kenya transact using mobile money. Over a ten-year period, there has been a 600percent increase in the number and value of transactions undertaken using mobile money. As at end of 2019 for instance, there were 154.9 million transactions valued at Sh382 billion compared to 21.6 million transactions worth Sh52 billion as at end of 2009.

These statistics reveal that Kenya’s e-commerce is deepening.

Despite the growth, Kenya still has a digital divide, policy interventions should therefore be focused on promoting inclusion. Businesses participating in e-commerce, like traditional brick and mortar businesses, need to comply to licensing standards, intellectual property protection and consumer protection requirements as well as other regulatory aspects that are critical for digital trade including data protection, cyber security interventions and compliance to packaging standards and requirements, especially as relates to storage and transportation of food. This requires capacity and awareness.

Kenya’s industrial base however presents a challenge as relates to application of these laws given majority of Kenya enterprises operate informally (78.9 percent operate without a licence and 74.6percent have no business registration). A further 14percent of those that are unlicensed and have no fixed location and 19 percent are home-based.

E-commerce requires a well-developed logistics sector, warehousing facilities, good road and air transportation infrastructure as well as reliable and secure digital infrastructure.

Kenya has five advantages which are opportunities to be exploited: First, the Posta infrastructure throughout the country, which can form delivery points; second, the establishment of a National Addressing System that which would improve identification of locations through naming and numbering of streets; third is the National Optic Fibre Backbone (NOFBI). The recently launched manufacturing directory (by the Kenya Association of Manufacturers) and legal provision for an innovation database to be maintained by Kenya Innovation Agency are the last two.

Despite the existence of the regulatory and policy gaps, ecommerce is growing rapidly, especially in the wake of Covid 19. It is also apparent that further investments are required to bridge the digital divide. MSMEs participating in ecommerce need to build awareness on the relevant trade policies and regulations, especially in data and consumer protection to prevent unfair commercial practices and illicit trade such as trade of counterfeit goods.

The writer is Policy Analyst, Kenya Institute for Public Policy Research and Analysis.