Describes what a company needs to know to take advantage of e-commerce in the local market and covers prominent B2B websites.
Assessment of Current Buyer Behavior in Market
Concerns and fears surrounding Covid-19 and its effects caused consumer confidence to shrink and triggered lifestyle and daily routine changes among consumers. Covid-19 elicited changes in shopping habits among consumers as uncertainty led to a contraction in discretionary spending while purchases among necessities rose. At the same time, households opted for bulk-buying and stockpiling of essentials.
The use of e-commerce in Kenya which has been growing significantly over the last few years, especially among small and medium enterprises further surged because of increased convenience and efforts to avoid physical interactions considering the pandemic. According to the Kenya Business Guide, a local think tank, the number of Kenyans conducting grocery shopping online remained within the 4% to 6% range even during the peak of the pandemic-driven curfews and lockdowns, highlighting deeper gaps within the supply chain as well as consumer behavior.
More broadly, there are several factors that fuel e-commerce growth in Kenya. Kenya recently adopted a digital economy blueprint meant to further develop the ICT sector and e-commerce activity. UNCTAD estimates the proportion of Kenyans aged 15 and above with a financial, (mobile or bank) account which enables them to transact online was second only to Mauritius, particularly because of the high usage of the mobile money system of M-Pesa.
According to BMI, consumer demand for e-commerce is increasing rapidly and will be accelerated by consumers using the service to limit their exposure to crowded stores, given the COVID-19 pandemic. In 2018, Kenya scored 82 out of 100 on the online payment methods indicator — one of the four measures the UNCTAD uses to measure the readiness of a country to support an e-commerce explosion. The government’s ambition for universal 4G coverage alongside accelerated smartphone ownership further places Kenya as one of the fastest growing e-commerce markets.
Local e-commerce Sales Rules & Regulations:
The Kenya Communications (Amendment) Act of 2008 is Kenya’s adoption of the United Nation’s Model Law on Electronic Commerce of 1996. The highlights of the law include promotion of e-government and e-commerce by increasing public confidence in electronic transactions; legal recognition of electronic records and electronic (digital) signatures; imposition of new offenses with respect to cybercrimes involving electronic records and transactions and the use of computing and telecommunications equipment; and clarification of legal uncertainties about the admissibility of electronic records as evidence in court proceedings. According to the Kenyan Communications Authority, first quarterly report of 2019/2020 financial year, the number of wireless broadband subscriptions grew by 4.1% in 2019 to reach 52.1 million subscriptions, marking a penetration level of 89.7%. Mobile broadband subscriptions account for 94.3% of the total broadband subscriptions. Available data indicates that at least 2G and 3G covers 96% and 93% of the population respectively.
Online trade platforms in Kenya have not traditionally been regulated under the Kenya Information and Communications Act (KICA) as they do not constitute electronic services as envisaged under the act and are therefore not licensable. This means consumers cannot enjoy protection under the Consumer Protection Regulations (2010) which apply in instances where the Authority’s licensees offer services.
This regulatory environment is changing. In June 30, 2020, President Kenyatta assented to the Finance Act 2020, which included the introduction of a Digital Service Tax (DST) at a rate of 1.5% of the gross transaction value which shall be payable by a person whose income from services is derived from or accrues in Kenya through a digital market place. The tax shall be due at the time of the transfer of the payment for the service to the service provider. Residents and non-residents with a permanent establishment will be entitled to offset the digital tax paid against their income tax payable for that year of income (Source – Kenya Revenue Authority). The DST became effective January 1, 2021, with implementing regulations by the KRA now in force.
Despite the robust growth of the digital economy, Kenya’s recently enacted DST poses significant uncertainty and concern. It is unclear on how the tax will affect resident and non-resident firms respectively. The U.S. Commercial Service is tracking this development.
Additional challenges for companies interested in e-commerce include: Logistics and infrastructure, physical addressing, cost of technology, as well as cybersecurity. Currently, many African countries, including Kenya, have very poor fraud detection and prevention mechanisms. In many cases, this makes it difficult to build trust within African online marketplaces, resulting in a delay in e-commerce adoption.
Local e-Commerce Business Service Provider Ecosystem:
Kenya ranked number 88th in fastest growing e-commerce economies worldwide according to the 2020 UNCTAD B2C Commerce Index, and ranked 4th Sub Saharan Africa (behind Mauritius, South Africa, Nigeria). Nine percent of Kenyans are regular users in e-commerce. Pursuant to CAP 411A of the laws of Kenya, the Communications Authority is the primary government agency mandated with e-Commerce industry development in Kenya.
According to Statista at https://www.statista.com/outlook/dmo/ecommerce/kenya Kenya’s e-commerce market is expected to reach $1.7 billion in 2021. According to the World Bank Financial Inclusion Data, 72.9% of Kenyans use a mobile money account and 26.1% make purchases and pay bills online. Some of the big areas of spending are mobility, accommodation and travel, fashion and beauty, electronics and media as well as food and personal care among others.
The growth of e-commerce is highlighted by the number and size of new players in the market. Kenya’s largest Telco, Safaricom launched “Masoko,” an e-commerce platform, joining other dominant players in the market such as NYSE listed Jumia, Jiji, Glovo as well as U.S-affiliated Copia which provides e-commerce solutions for low-income consumers. Growth in hospitality has also led to the entry of platforms such as UBER Eats. The growth in e-commerce has been further fueled by strong growth in social media adoption as well as increased diversification of marketing channels. According to Data Report(2021), “Digital 2021 Global Digital Overview,” at https://datareportal.com/ there were 11 million social media users in Kenya in January 2021. The number of social media users in Kenya increased by 2.2 million (+25%) between 2020 and 2021.
The number of social media users in Kenya was equivalent to 20.2% of the total population in January 2021.