Smart use of e-commerce now is likely to have long-term benefits

SA can find balance between support for small businesses, need for jobs and risks posed by different models

There is much concern over trade & industry minister Ebrahim Patel’s argument that unfettered e-commerce would be seen as “unfair competition” and put pressure on the government to open other stores, which would increase activity and risk. However, the focus on unfair competition between e-commerce and brick-and-mortar stores is misplaced. The department should rather take the opportunity to support e-commerce in a risk-adjusted strategy to open up the economy, which has the potential for long-run benefits.

E-commerce in SA has historically lagged that of developed economies at about 1.5% of retail spend, compared with nearly 20% in the UK. Reasons include high data costs, low credit-card penetration and relatively high delivery charges, as well as the popularity of shopping malls as a leisure activity.

Covid-19 has changed this dynamic by halting leisure retail. It is likely to continue to be dampened significantly in coming months, even as businesses slowly open.

The lockdown has encouraged many people to try e-commerce for the first time, and it is likely that even once the lockdown is lifted, delivery may be preferred to in-store experiences by those at risk and those who want to continue with social distancing.

Before the pandemic, e-commerce in SA was growing off a small base. The sector is varied, comprising various business models: a range of established retailers spanning most listed clothing, grocery and general merchandise companies with both a physical and online presence; online-only retailers such as Takealot; marketplaces; and a range of small and micro enterprises.

E-commerce development has many potential benefits for SA. The country is at the stage where it is still possible to develop local e-commerce giants with local warehousing, employment and taxation, as opposed to having the market dominated by international players.

There is also export and employment potential in e-commerce in the short run through delivery and warehousing hires and, in the long run, through the creation of a regional hub for Africa.

In addition, e-commerce allows for transparency and traceability, which is a benefit for taxation. There are also advantages for local manufacturers. The use of data analytics enables the prediction of trends based on search and purchase patterns, which can optimise manufacturing. This enables customers to compare products across a range of providers with ease and reduced transaction costs, and allows for a greater variety of products to be stocked. And it creates scope for small and medium enterprises (SMEs) to expand into broader markets than would ordinarily be available, which is important in the SA context, where there are relatively high barriers to entry to traditional retail.

COMPLEMENTARY ROLE

There are various issues of concern, including that e-commerce will displace brick-and-mortar companies, with negative effects on shopping malls and employment, though in most instances it has played a complementary role. There is also competition concern where large platforms tip to dominance and engage in anticompetitive behaviour, necessitating regulatory scrutiny.

However, for the most part there has been strong industrial policy support for e-commerce in various countries due to the potential economic benefits of using it as a tool to enhance exports.

China has support measures for e-commerce both at a national and regional level. Guangdong province developed various interventions focused on local business adoption of e-commerce, including the creation of an online shopping marketplace for smaller local businesses, stimulating trial through the provision of vouchers to be redeemed through local e-commerce outlets, and subsidies such as assistance with rentals and research & development.

In the context of Covid-19, the main benefit of e-commerce is that it substantially reduces contact that would be experienced in physical stores. This has led to Senegal fast-tracking measures to support e-commerce by creating an e-commerce platform that provides access to the websites of SMEs that stock essential goods.

In SA, e-commerce for essential goods is already allowed, and the question is whether this should be extended to other products. We argue that the risk of opening up e-commerce businesses should be evaluated by business model. For all categories the risk of contact is reduced as a result of delivery. However, the level of control over staff and potential contact varies considerably across categories. For example, allowing retail stores or e-commerce companies that warehouse their own products and are already engaged in home deliveries of some products to deliver a wider range of products would entail less risk than marketplaces where individuals engage in bilateral e-commerce (such as classifieds), which would require a range of sellers to engage with couriers or customers.

This is particularly relevant if there are health and safety conditions placed on the firm as a condition of sales. Criteria could be used to develop a risk-based approach that could draw from global experience, including considerations such as the ability to create a secure work environment in terms of distancing, ability to facilitate contactless payment and delivery, and whether it could be done with a skeleton staff.

One of the potential concerns given the dominance of market platforms internationally is that allowing e-commerce would advantage larger and established platforms. One of the ways to mitigate this is to create mechanisms for SMEs to access e-commerce channels. This can be supported by the government through simple mechanisms such as providing small businesses with information packs on how to engage in online commerce, including lists of providers for various components of the value chain (such as website hosting, warehousing, payment integration and delivery).

There could be a requirement for platforms to carry the products of certain third-party local providers. Stimulus to small businesses could include subsidisation of online stores, potentially the development of a marketplace on which they could list, and creating funding solutions to support innovative platforms and the scaling up of SMEs’ capacity to sell online, as well as creating capacity for existing platforms to support SMEs.

Consideration should therefore be given to ways in which e-commerce can be supported while aligning with public health and public interest goals.

In the long run, benefits of this approach could include a vibrant local e-commerce sector that builds employment and skills locally, futureproofing the sector from international dominance.

Goga is senior research fellow at the Centre for Competition, Regulation and Economic Development, and director at Acacia Economics. This article draws from research conducted for the Industrial Development Think Tank housed at the Centre for Competition, Regulation and Economic Development, which is supported by the department of trade & industry.