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SUPPLY CHAIN

Why e-commerce may be usurping the ubiquitous African ‘middlemen’

By our News Team | 2022

The Economist examines the rapid rise of e-commerce ventures that could revolutionise the informal retail sector’s supply chain dynamics.

Is the age of the ‘middleman’ in the African supply chain process slowly coming to an end as a result of e-commerce? An article in the latest issue of the London-based Economist magazine suggests that this may indeed be the case.

On a continent where most retail transactions are still done through the informal sector – many estimates put the figure at around 90 percent – the ubiquitous middlemen have been critical to ensuring that all manner of consumer goods, including fresh produce, get to even the smallest marketplaces in towns and cities.

Supply Chain

Hansueli Krapf via Wikimedia Commons

“Many consumers are too poor to buy more than a few goods at once, or to travel to large shops, so they rely on informal vendors,” the Economist explains to its global base of readers. “But it is too costly for these small-scale sellers to source directly from farmers or manufacturers, so they rely on middlemen, often buying at wholesale markets.”

The article continues: “But research suggests that relying on middlemen means, at best, lots of mark-ups and, at worst, that middlemen act like cartels, keeping prices low for producers and high for consumers.”

App-based technology simplifies the process

But now, e-commerce businesses operating on the continent and using app-based technology to simplify the supply chain from warehouse to market vendors are changing the game. The potential benefits of getting in on the ground floor of what promises to be a sea-change in the supply chain is attracting many international investors and venture capitalists.

Among the businesses benefiting from this are Kenyan-based Twiga and TradeDepot, which operates in Ghana, Nigeria and South Africa.

In an interview with the Economist, Peter Njonjo, Twiga’s chief executive, said Twiga had reduced the share of farmers’ produce that rots from 40% to 5%. That means farmers and retailers both get better margins, which should then result in consumers paying lower prices. 

“The Kenyan e-commerce firm buys fresh produce directly from farmers and takes it to warehouses, where it co-ordinates delivery to informal retailers. The vendors place orders on the Twiga app, which gives the firm lots of data to match supply with demand,” the publication said.

You can read the full article (registration required) here.

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