Radar | Apr 17,2021
After moving to Addis Abeba a year and a half ago, Abiy Selassie was genuinely surprised at the lack of foot traffic while visiting shopping malls in the capital.
He was in Century Mall and saw few consumers purchasing goods, he told Fortune.
The former director of realty strategic analytics and business intelligence at the world's largest retail company, Walmart, Abiy quickly realised the limited level of commercial activity in the capital and saw the potential for a door-to-door delivery service. He immediately began thinking of establishing an e-commerce company.
In July 2019, he embarked on his long-awaited project and established Addis Mercato, an e-commerce and logistics company. It took him only two months to fully launch online shopping and delivery services, giving customers the option of payment using credit cards.
Addis Mercato, which runs its own warehouse in Ayat, works in partnership with close to 30 vendors. It uses a private fleet of eight vans and two drones to deliver orders. The company offers one-day delivery services to customers in the capital, Bishoftu and Adama; and next-day delivery to Hawassa, Bahir Dar, Dire Dawa, Meqelle, Gonder, Jimma, Jigjiga, Dessie, Kombolcha, Axum, Assosa and Shire.
It has also introduced a real-time tracking application that allows customers to check the status of their order from placement to delivery via GPS.
“We've been improving our service quality in terms of technology, innovation and products depending on timeliness and need,” said Abiy, who has over 27 years of experience in the fintech industry.
While working at Walmart in a senior management position between 2013 and 2015, Abiy advocated for the effective utilisation of artificial intelligence.
“At that time Walmart had over 5,000 stores," said Abiy. "We proposed the closure of 212 stores and using innovations in technology to further penetrate the market via online transactions."
While international companies are working to take online sales to a new level on par with technological advancements, the trend has been lagging in Ethiopia. However, over the past couple of months, the government has shown a strong commitment to promoting a digital-led economy by legislating laws that promote e-commerce.
Following this, companies that provide internet-based shopping, digital payment systems and delivery services have mushroomed. Addis Path Trading Plc, a company engaged in the merchandise, importing and wholesale business, is one of the beneficiaries.
The courier service provider transformed itself into an e-commerce company after developing a website named Addisber 15 months ago. It recruited university graduates to develop its online shopping portal.
“We understood that the digital economy is becoming accessible and inevitable,” said Fitsum Hailu, the founder and general manager at Addis Path.
Addisber receives five to 15 orders daily, each worth anywhere between 100 Br to 700,000 Br. It operates a warehouse where it wholesales and retails products. It stockpiles its merchandise through importation, sourcing from local manufacturers, as well as procuring from other importers.
As a marketing strategy, the company sources the goods from manufacturers to compete with physical retailers and sell commodities at affordable prices, according to the general manager.
“This avoids intermediaries in the transaction,” he said.
Useful product descriptions are another method the firm utilises to attract potential consumers, allowing them to compare the prices of products with other retailers before purchasing.
“We need the price to be available to buyers before they order goods,” he said.
The e-commerce company, which has working capital of 15 million Br, offers online and cash-on-delivery payment services. It works with YenePay, a payment gateway provider, and banks such as Commercial Bank of Ethiopia, Awash and Lion. The portal was previously available only in English, but it has recently added Amharic, French and Arabic language options.
"We'll add Afaan Oromo and Tigrinya to the portal soon," Fitsum said.
The major challenge currently facing e-commerce companies is payment. Unavailability of online payment options as recently as a few years ago led some companies to fail. BaleSuq, an online shopping platform of traditional clothes and artefacts, commenced service seven years back but failed and closed within a year.
Due to the absence of online payment services, BaleSuq was limited to a cash-on-delivery service model.
“We were tired of fake orders and inefficient addressing systems,” said Nurhassen Mensur, co-founder and business development & communications director at YenePay Financial Technologies, which replaced BaleSuq. “At that time, there was no Google Maps, and people often didn’t answer their phone after they'd ordered.”
What the e-commerce industry has been sorely missing is real-time online payment systems, according to Samson Tsedeke, managing director and fintech consultant at Multilink Consulting.
“Although there are some payment gateway firms and platforms, there are no online real-time payment systems which are the most vital to the sector," said Samson.
The payment gateways use primitive mobile banking systems rather than credit cards, debit cards or voucher card transactions, according to Samson.
"Interoperability needs regulatory frameworks of cybersecurity and electronic transaction," he says.
Delivery firms still operate on a cash-on-delivery basis due to the absence of well-developed and efficient digital payment solutions, explained Samson.
The expert points to problems such as IT infrastructure insufficiency, an inept legal framework, absence of developed trust between suppliers and buyers, and lack of awareness among the general public.
He argues that there was no enabling legal framework to license and regulate the e-commerce industry. The government has recently crafted laws to deal with the problems though.
"We learned that there needed to be an online payment system for e-commerce to avoid fake orders," said Nurhassen.
A year after the closure of BaleSuq, the six co-founders, including Nurhassen, established YenePay in October 2015. YenePay, which started operations with 30,000 Br in capital and is now worth around 1.2 million Br, currently processes over 20,000 annual online transactions via wallet accounts. It works with banks including Commercial Bank of Ethiopia, Dashen, Anbessa, Wegagen and Awash, as well as with the mobile money service M-Birr.
YenePay provides its service through a wallet account and is waiting for approval from the National Bank of Ethiopia to introduce card and core banking payment systems in which payment is made directly from bank accounts. It accommodates 80 daily transactions on average.
Payment solution providers such as Moneta Technologies have also entered the e-commerce transaction market, allowing consumers and vendors to complete transactions online. The company developed an online payment solution named Amole in July 2018. It enables buyers to open a payment account at a Dashen Bank branch and then purchase goods online using the Amole app and Amole telegram bot.
Amole evolved from Fettan, an electronic payment system functioning via various gift cards, according to Samson Getu, vice president of operations at Moneta.
Over 8,000 merchants and 3.9 million consumers now have an Amole account. Furthermore, people with Amole accounts can send and receive money. Moneta is now working with Ethswitch, an e-payment share company co-owned by all banks in Ethiopia, to enable an integrated payment system.
Flomart Ethiopia, a subsidiary of London-based digital payment service provider Flocash, is the latest firm to join the business of providing online payment and transaction platforms. FloMart operates in over 40 countries and cooperates with 60 banks engaging in online book shopping, music catalogues, airtime, events, gift cards and other services.
Flomart has become involved in the local digital payments and online shopping markets with a mobile app. It operates a supermarket and also partners with 15 restaurants and two logistics companies to supply consumers. Flomart facilitates the online payment system with E-Birr, a mobile financial service provider.
Although there is potential for the e-commerce business in the country, it is still in its infancy stage, according to Samson Tsedeke.
"Only marketplace e-commerce sites characterise the industry," said Samson.
A better day is coming for digital payment solutions and electronic commerce service providers, according to Abiyot Bayou (PhD), director of the digital transformation programme at the Ministry of Innovation & Technology.
He mentions the digital transformation strategy, Digital Ethiopia: 2025, that was recently launched in order to digitise the economy.
"To transform the economy, there are comprehensive reforms including telecom reform, digital literacy programmes, digitisation for employment, and e-commerce," said Abiyot.
Since the adoption of digital transformation policies and strategies, new companies are entering the e-commerce business, according to Abiyot.
The government identifies underdeveloped financial and logistics sectors, weak regulation and coordination systems, low internet adoption, and unreliable service as challenges to the e-commerce industry, according to Abiyot.
"We're working on the three components of e-commerce to help the sector: digital platforms, digital payment systems and delivery,” said Abiyot.
Companies in the e-commerce business also see a better future. Looking forward to exploiting the potential and expand its horizons, Addis Mercato has established warehouses in Bahir Dar and Gonder.
Addis Mercato, in partnership with the Indian tech firm TechEagle, has also launched drone delivery services in an area from Ayat to Legetafo covering approximately 14Km between the warehouse in Ayat and the customers’ location.
The drone delivery service reduces one way delivery time from 40 minutes to only eight minutes. It can decrease delivery costs by half with reduced energy consumption compared with road transportation, according to Abiy.
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