Last week, BoF hosted a discussion on the ways in which e-commerce adoption and SME enterprises are transforming Africa’s fashion industry. The BoF LIVE featured Samuel Mensah, CEO of e-commerce platform Ananse Africa; Aparupa Chakravarti, director at advisory Botho Emerging Markets Group; and Mercy Mutua, head of access to finance at the Mastercard Foundation, moderated by BoF’s head of content strategy, Robin Mellery-Pratt.

Today, a number of Africa’s largest economies represent attractive fashion markets for both local designers and international brands. For one, the Nigerian apparel and footwear market was forecast to grow to more than $1.3 billion in 2022, according to Euromonitor International. Similarly, mega-cities in South Africa, Nigeria, Egypt and Kenya have emerged as prominent fashion hubs.

However, the future potential of Africa as both a manufacturing hub and consumer market is still largely untapped.

“Africa has one of the oldest and most varied cultural heritages and its expanding middle class, which is the largest consumer of creative and cultural goods, has the potential to become a major driver of growth for creative and cultural industries in the digital age,” says Samuel Mensah, founder and CEO of Ananse and one of the authors of ‘Unleashing the Commercial Potential of African Creatives Through Digital Technology’, created in partnership with the Mastercard Foundation, Botho Emerging Markets Group and the African Development Bank’s Fashionomics.

With 60 percent of the African population under 25, the over 50 nations (due to the UN refusing to recognise some self-declared states the exact number is disputed) combined have the youngest and second-largest population in the world. Africa is also forecast to surpass half a billion e-commerce users by 2025. As a result, entrepreneurs are increasingly tapping the opportunity by leveraging exponential growth in digital connectivity via social media on the continent — further developing logistics networks.

The report makes three core recommendations to accelerate the African fashion industry’s evolution: firstly, to provide adequate funding to creative entrepreneurs; second, to create opportunities for skill development; and third, to focus on e-commerce to ease trade between countries.

To implement industry-wide reforms, policy and decision-makers “must have an ear to the ground and understand the commercial characteristics of creative businesses in Africa. According to our findings, the vast majority of surveyed creative businesses on the continent are young, with 69 percent of the businesses being five years old or younger, and more than a third being younger than three years,” added Mensah.

In addition to nurturing e-commerce, removing the complexity of intra-African trade will be critical to success. Intra-continental market inaccessibility has long been a barrier to investment as the countries were often previously deemed too distinct, complex and costly to warrant the establishment of separate operations in each one due to differing regulations, customs, languages and incumbents.

Today, Africans still trade more with the rest of the world than with each other. However, the African Continental Free Trade Area (AfCFTA) is a free trade area that was established in 2018 by the African Continental Free Trade Agreement. After the World Trade Organization, it is the largest free trade area by number of member states, and the largest in population and geographic size, spanning 1.3 billion people across the world’s second largest continent. The effectiveness of its continuing roll-out and adoption across the continent will play a critical role in shaping the fashion industry’s evolution.

Below, BoF shares the most impactful insights shared in the conversation on ‘How E-Commerce and SMEs Are Transforming Africa’s Fashion Industries’ on BoF LIVE.

Market activity and entrepreneurial ventures are starting to transform the African market

SM: A number of things are all coming together at the right time: an increase in broadband connectivity rates and higher internet speeds; undersea cables have landed all along the coast in the last 5 to 10 years; and access to connectivity has improved significantly. Prices for smartphones and connected devices are coming down. This has increased the use of digital payments and mobile payments. Cloud services costs are coming down — the likes of Google and Amazon all offer those services.

It is far easier for entrepreneurs to start businesses because the cost of starting a business has come down so significantly in the last 10 years and, as a result, there is growing belief in entrepreneurial activity.

So, now it is far easier for entrepreneurs to start businesses because the cost of starting a business has come down so significantly in the last 10 years and, as a result, there is growing belief in entrepreneurial activity. Entrepreneurs are innovating in order to solve some of the challenges — for example, with the low penetration of credit cards, looking for other ways in which consumers can pay for goods. Innovations around cash on delivery have been very beneficial to e-commerce adoption rates.

AC: Creative and cultural industries within the continent are dominated by micro and medium and small enterprises (MSMEs). About 90 percent of African fashion businesses are MSMEs. If we really want to unlock the full potential of this industry and the sector more broadly — not just for young people but really across the board — we need to create the right conditions to [help] these MSMEs to grow and scale and that really speaks to the heart of what the report is about.

Young entrepreneurs are focused on clothing and apparel — but big business support is limited

AC: The fashion industry is just one industry in the broader creative economy — a $2 trillion-plus market, of which Africa currently only has a 1 percent share. So clearly there is a tonne of room to grow. The importance of the creative economy cannot be understated by any means.

As for the opportunity for young people, if you look at our report and the core survey that underpins our report, the demographic makeup of our respondents speaks to this in and of itself. We surveyed 329 people across 46 African countries, 53 percent were under the age of 35. Even though a lot of their businesses are selling various different types of products, whether it’s accessories, home decor, art and what have you, the majority — over 60 percent — were selling clothing and apparel, either exclusively or in conjunction with other products.

The fashion industry is just one industry in the broader creative economy — a $2 trillion-plus market, of which Africa currently only has a 1 percent share. So clearly there is a tonne of room to grow.

So, for bigger businesses looking to grow and transact and sell, according to our survey we found that a lot of these platforms, a lot of what is available is not tailored to African MSMEs. This is not including social media platforms like Whatsapp and Instagram where you can now transact commerce. Because we’re looking at this from a perspective of scale and growth, while it is suited to small and medium and micro enterprises, it is not conducive to getting

those guys to the next level in terms of growth. The price points are perhaps prohibitive. Some found them not to be particularly intuitive — some of these platforms require more specialised skills and capabilities that these young entrepreneurs may not have.

Outdated perceptions of fashion as a risky sector skews access to financing and interests rates

MM: The lending rates in Africa are high — especially when you look at the digital financial providers that are charging a rate per day — these rates are really high and not tenable and not sustainable for any business model. So, how do you start to bring down these rates?

[...] You find a lot of these MSMEs are really closer to the fintechs. The MFIs (Monetary Financial Institutions) really do not have much access to cheap capital — they tend to borrow from the banks, so they become the bank’s customers. So they load on this capital, and it becomes very expensive. Interest rates are about risk, whether perceived or real.

Our avenue is not just to pilot interventions but to tackle the systemic issues — [...] the perceptions, the mindsets, the practices that need to change to have longevity and sustainability.

A lot of the financial institutions and the more established and traditional ones, like the banks and the MFIs, will always ask for the collateral. Now, when you look at this sector, what is the main collateral really? It’s intellectual property. It becomes a very vicious cycle — this is the only asset that entrepreneurs have that they can offer to the financial institutions, but the financial institutions do not know how to manage it as a collateral, hence they really do not accept it as a collateral.

If a sector is perceived as risky, then of course that will increase the costs of lending to this sector. The creative sector is perceived to be risky from a lot of angles: IP etc.; the value chain is very fragmented; a lot of the entrepreneurs in this sector are informal; [their businesses] are small; they are unstructured; they are not consolidated. So we have these interventions that are deployed through our partners, but our avenue is not just to pilot interventions but to tackle the systemic issues — what are their underlying issues? The perceptions, the mindsets, the practices that need to change to have longevity and sustainability.

Last mile logistics has proven high-growth potential in urban regions

SM: There has been significant improvement [in last mile logistics], but it depends where you’re looking. Primarily in urban areas, there is increased interest in apps required for local delivery. In many major African cities, you can buy your groceries online, you can order a rideshare, you can shop from a number of brands whether fashion or other products. As a result, there has been significant investment in the last three years or so, and especially since Covid, in addressing this issue of last mile logistics in urban centres.

We have seen consumers demanding services, consumers using apps, so entrepreneurs have built the last mile infrastructure and are making these deliveries. In much of Africa, we have the culture of motorbike taxis — and it’s evolved and being used for all number of small deliveries — and then you have bigger deliveries, and bigger vans and bigger logistics companies, investing in taking the last mile opportunity, so we have seen significant growth in this area but primarily in big cities in the major economies.

Tech-enabled businesses still attract the majority of international investment

SM: $6.5 billion in venture capital was invested into Africa last year — almost 80 percent of which was invested in tech or tech-enabled businesses. Almost 80 percent is foreign capital, which means that the kind of businesses that attract this capital have to be in tech or tech-enabled businesses. Because the funds invested are primarily in dollars, VCs are looking for dollar returns and, as a result, there’s a bias towards companies that are earning in foreign currency.

Inflation has been quite high recently across all emerging markets and around the world and as a result, of that, a lot of emerging market currencies have devalued against the dollar. So, if you are a young entrepreneur and your investor has invested in dollars, expecting a return in dollars and your local currency is devaluing, then you have to sell a lot more in your local currency.

That all leads to a level of exclusion for businesses that are more local-focused, that are generating revenues in local currency and that are not primarily driven by tech, which is what a lot of creative companies fall under. But there is certainly, as a general trend, an increased drive in the launch of entrepreneurial ventures and particularly around B2C technology on the continent.

This is a sponsored feature paid for by Ananse as part of a BoF partnership.