Having personally experienced how the mobile telephone has transformed communications and enabled business in Africa, I wonder if the combination of poor existing infrastructure and technological advancement could transform the retail sector in emerging markets. Just as Kenya-based Safaricom has led the world in mobile money transfers, I wonder if there is an opportunity for Africa to pioneer retail delivery via drone.
Casting back thirty years to the early 1990’s when I was managing our farm in Zimbabwe, I can distinctly remember the frustrations of trying to order fertilizer by landline telephone. It took me a week to get through to the fertilizer company and when I finally succeeded, they couldn’t hear me! Devastating when your crops are wilting in the field, not to mention the disastrous financial impact personally and for the wider economy of what was then the breadbasket of Africa. Fast forward to 2010 when mobile phones were commonplace and provided a reliable service. I wasn’t farming any more, but I can imagine that I would have been able to swiftly place an order by call or text. Moving forward another 10 years to today, I am confident that I could place an order via an app on my smart phone. Isn’t technology wonderful for business?
We are all very aware of the transformation of the developed markets’ retail sector from high street and malls to online and, as an investor in African real estate, we wonder how this trend will manifest itself where we operate in Africa ex South Africa. Retail penetration in this geography is currently far less than in developed markets and although there is arguably an opportunity for expansion, we approach investments in new shopping mall developments with some caution. Whilst the threat from online retailing is present and growing (for example, it is possible to have goods delivered within a week to Lagos or Nairobi from China via Ali Baba), it is not nearly as evolved as it is in developed markets. Barriers to entry are high because locally-based online retailers in Africa would face the same challenges as in store retailers: (1) low GDP/capita and therefore limited buying power, (2) procurement challenges – periodic unavailability of hard currency to purchase supplies, (3) competition from local markets – informal street-side markets are still commonplace and culturally popular, (4) transport infrastructure challenges – slow ports, severely potholed roads, continual congestion and lack of street signs (e.g. Accra has no physical street name signs – if you don’t have Google Maps, directions are given by landmarks!) and (5) an unreliable/non-existent postal system.
Kenya is a world leader in the mobile money transfer business. Back in 2007, the in-country challenges with existing over the counter banking and poor landline telephone infrastructure gave Safaricom the opportunity to launch M-PESA, the mobile phone-based money transfer system. I wonder if the significant infrastructure and postal system challenges mentioned above could pave the way for tech-savvy online retailers in Africa to leapfrog ahead and lead the world in drone delivery.