Technology

Delivery costs major hindrance in switch to online shopping

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E-commerce and delivery service concept. FILE PHOTO | NMG

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Summary

  • Players in e-commerce say expenses involved in transporting goods from a store to a buyer are a major damper to the growth of the sector.
  • The rising fuel costs in Nairobi with a poorly planned transport infrastructure — characterised with traffic snarl-ups on key roads with no separate lanes for cycling — has not helped matters.
  • The United Nations Conference on Trade and Development in 2020 ranked Kenya seventh in Africa in creating a conducive environment to facilitate online trade.

Kenyans who prefer to order goods online are grappling with elevated logistical costs which are slowing down the growth of e-commerce in retail space in an economy where homes are struggling with reducing disposable income.

Players in e-commerce say expenses involved in transporting goods from a store to a buyer are a major damper to the growth of the sector.

“The biggest barrier to growth in e-commerce is logistical cost. The cost is still very high and we have a population that doesn’t have enough disposable income,” Sendy co-founder and chief executive Mesh Alloys says.

The rising fuel costs in Nairobi with a poorly planned transport infrastructure — characterised with traffic snarl-ups on key roads with no separate lanes for cycling — has not helped matters.

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 review is on the back of economic sanctions on Russia for its brutal war in Ukraine which has created demand-supply mismatches, pushing up global crude prices to levels that state-run fuel subsidy cannot fully absorb.

Even before the latest rise in fuel prices, 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. We are focused on making it really affordable going forward,” Mr Alloys.

“We are very bullish … and we are going to help grow that industry. The technology is there, there’s social media and lots of trade that’s happening there.”

The United Nations Conference on Trade and Development in 2020 ranked Kenya seventh in Africa in creating a conducive environment to facilitate online trade.

This was a drop from position four on the continent 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 positions 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, but better than 37 a year earlier.

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 thinned 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 wrote 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 #ticker:SCOM 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 the latest annual report. “It has also facilitated international transactions.”

The growing deals in the digital market place has caught the eye of the taxman which has set sights on businesses using the internet to sell products.

Kenya Revenue Authority has enhanced its focus on digital marketplace after statistics in the Economic Survey 2020 showed value of mobile commerce transactions jumped three-fold to Sh6.96 trillion in 2019 from Sh1.75 trillion in 2016.

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