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Boost for e-commerce in Kenya

There are usually no assur-ances that a parcel sent by courier will reach its desti-nation in Kenya. Due to the lack of proper addresses for homes and most small businesses, miss-deliveries of parcels in Kenya has an incidence rate of 17 per cent, delayed deliveries 58 per cent and non-deliveries 25 per cent, according to the Courier Industry Association of Kenya (CIAK). “Kenyan citizens are among the invisible 4 billion people world-wide whose packages are lost daily because of unclear mapping sys-tems,” said Mr. Geoffrey Mwove chairman of CIAK.
The lack of a proper addressing system doesn’t just make business hard for couriers, it also introduc-es difficulties for online retailers, majority of who directly depend on couriers to deliver goods. This is affecting the expansion of e-com-merce in Kenya, which depends on timely and efficient delivery of goods to customers who make orders off the internet or via mobile phones.
To resolve the problem and help boost e-commerce, the Communication Authority of Kenya (CA) has started a process to have a nation-wide numbering and addressing system. “Many coun-tries that have successfully deployed national addressing systems posit a strong correlation between physical addressing and growth of e-com-merce,” Francis Wangusi, the CA director- general said.in e-commerce is very deliberate. It is set against the backdrop a grow-ing body of research indicating that 90 per cent of the global economy is being driven by small business-es which increasingly depend on e-commerce. The field of e-commerce therefore has a lot to offer to Kenya economically, partly explaining CA’s move.
In recent years, there has been a torrent of investments coming into Kenya’s fledgling e-commerce sector. Multinational online retailer OLX, which is owned by South Africa based Naspers, is one of the rela-tively recent entrants. The platform provides a market place to connect third party buyers and sellers of any products, predominantly used goods. It is basically a sophisticated online catalogue that offers free advertising.
OLX has gained considerable traction in the Kenyan market, add-ing the country to a long list of geog-raphies that the e-commerce giant already has a presence in. OLX has a presence in over 106 coun-tries including South Africa, Nigeria, Ghana, Egypt and India, among others.
Fortunately for OLX, it connects buyers and sellers and allows them to do business on their own terms. This means that it is itself not involved in any distrubution. The lack of a prop-er physical address therefore doesn’t affect the expansion of its business.
Other online retailers such as Jumia, which sells its own goods via the internet, just like U.S. big-wig Amazon, are not so lucky. The lack of a proper address system is hindering their growth. Almost all courier and emergency response service companies rely on Google maps and phone calls to locate their destinations across Kenya, making deliveries unnecessarily expensive and sometimes even impossible, says Jumia.
“Kenya has never had a prop-er physical address system since
The CA’s initiative to improve the business landscape for players independence and this is a major challenge to e-commerce,” added Jumia, which mainly stocks appar-el, electronics and a select range of household goods.
If the challenge presented by lack of a proper addressing system is acute for online retailers who stock apparel, how much more dif-ficult is it for those eateries which allow customers to order, say a pizza or burger, via the internet or their mobile phones?
Lack of proper addressing means that food ordered online may reach the destination too late. “Food is sensitive, your customer wants it hot and on time, one hour is the delivery time we offer but if our rider gets lost for 30 minutes, chances are the customer could look for another alternative while you bear the cost. It’s necessary to fix this problem,” said Duncan Muchangi, managing director of Hellofood Kenya, an online shop that concentrates on food delivery.
In response to the challenges brought about by poor addressing, online retailers and couriers have been insistent in their push for a government backed overhaul of the Kenyan address system. “The gov-ernment should roll out a national and regional physical addressing system. Streets, roads and blocks need to be named and marked permanently. Property developers and gated estates should also erect signs,” said CIAK’s Geoffrey Mwove.
The CA’s decision to rollout an address system is therefore very timely. It responds to an immediate need and helps set the stage for future expansion in Kenya’s e-com-merce sector.
The national addressing system (NAS), as it is formally called, is a framework that provides for, among others, the naming/numbering of streets and properties and cod-ing to facilitate easy identification and location of such places on the ground.
Due to the NAS’ structure, it requires a collaborative effort to set up. The CA cannot go it alone. It will need to consult with couriers and e-commerce players, and possibly develop a digital adaptation of the entire framework.
Similarly, schedule 4 of Kenya’s Constitution gives the mandate of physical planning to counties. This means that the CA will also have to collaborate with counties, introduc-ing other challenges as far as coordi-nation of tasks is concerned.
No walk in the park
Much as the intention to over-haul the NAS is noble and profitable, it cannot escape the attention of any sharp mind that the process is no walk in the park either. The magSector Review
nitude of the vast collaboration needed for the exercise—from CA, to county government and all stake-holders—is immense.
It is not something that can happen overnight. The timeline for the exercise, which had not been announced at the time of writing, therefore has to be realistic and reflect this fact.
It also doesn’t help that there are other factors that make addressing particularly difficult, especially in some of the new unplanned estates emerging in Nairobi and other urban areas. These unplanned buildings makes it very hard to establish a NAS that will withstand the test of time.
In most residential estates in Nairobi, people put up buildings haphazardly, often without any reference to the city’s urban plan. Sometimes the dirt road next to your house can turn into a block of flats overnight, indicating just how hard it is for a proper and permanent addressing system to work.
The emergence of informal set-tlements, which in Nairobi house 60 per cent of all residents, is also a major challenge. In some areas, slums have overlapped with older formal residential areas, rendering addresses in the urban plan void. There is also the present danger of land grabbing, which can purposely lead developers to change addresses in collusion with rogue government insiders in order to avoid detection.
The need for a good urban plan that does not accommodate arbitrary changes in addresses is therefore paramount. Urban plans in most towns and even in Nairobi are out-dated. The last physical planning in some urban settlements took place during the colonial times or the early post-colonial period.
A proper NAS can therefore only be established if a good urban plan is developed simultaneously. This hints at the necessity of involving the Ministry of Lands, under whose domain the task of survey and map-ping rightly falls under.
It is clear to see that the kind of coordination needed for a proper NAS may require extensive planning and consultation. This introduces significant risks, not least of which is possible stagnation of the exer-cise due to bureaucracy and diverse organizational cultures in different government agencies.
Clearly, the prospect of a good addressing system is enticing, but the possibility of this materializing in the near future is remote. This means that players in e-commerce will have to continue plying their trade without a proper addressing system for some time.
To circumvent the challenges presented by the current broken sys-tem, e-commerce players will need to adapt to the peculiar circumstances of the Kenyan market.
Get creative
In many e-commerce markets such as the U.S., retailers such as Amazon use trucks and vans to make deliveries. This strategy can-not work in Kenya given the poor addressing system. Some locations are not easily accessible by car and only motor bike riders, commonly known as boda bodas, will do the trick.
Players such as Jumia are get-ting creative and leveraging on boda boda riders for distrubution. They are specifically choosing riders who understand their specific territories, preferably riders who come from the area they are assigned to. This lim-its the guesswork that often comes with delivering goods in many of the estates in Nairobi that now look like a maze due to unplanned con-struction.
“You are forced to assign riders to deliver in their area of residence since they know the terrain, streets and buildings; delivery is a delicate balance between cost, time and effi-ciency. You have to get it right,” said Parinaz Firozi, managing director of Jumia Kenya.
Using motor bikes for delivery also has another huge advantage—beating traffic jams. Nairobi, where most of the e-commerce business is centered due to higher internet con-nectivity, is also notoriously famous for traffic jams that transform what should ideally be a 15 hour drive into a two hour wait.
Unlike cars, motor bikes can weave their way through traffic jams and deliver products to customers in record time, keeping custom-ers happy while at the same time ensuring that their e-commerce firm registers optimum sales. This not-withstanding, motor bikes are not without their limitations. The range of goods that can be transported by motor bikes are limited, as is the volume. Delicate and fragile goods such as electronics can sometimes only be delivered by trucks. Similarly, large consignments cannot be shipped by motor bikes, unless more than one motor bike is used, which again may be impossible or impractical.
E-commerce players in Kenya therefore have to adapt. The funda-mentals in the market are great—higher income, higher internet con-nectivity—but the challenges are also immense—poor addressing and transport limitations.
Players in other markets such as the U.S., have developed innova-tive ways of overcoming transport bottlenecks. Amazon, for instance, is in the stages of introducing delivery drones or Unmanned Aerial Vehicles (UAVs).
As the name suggests, UAVs or drones are aircraft of varying size—from as small as book to as large as a normal plane—that are controlled remotely and don’t need a pilot in the cockpit. Drones are primarily used by militaries around the world for combat. But they can also be used for photography and delivery of goods. Ecommerce players such as America’s Amazon want to use UAVs to distribute goods, allowing them to save time spent in traffic.
The concept of drones for shop-ping delivery may sound too futuris-tic for Kenya, but one online retailer has been tinkering with the idea for around two years now. Kilimall, an e-commerce platform, flouted the idea of using drones to make fast deliveries in Kenya in 2014.
Kilimall, however, seems to have mothballed the revolutionary idea due to regulatory issues. Even in the U.S., the supposed global bench-mark for all things e-commerce, legal approval for drone delivery is still a touchy subject due to security con-siderations.
Amazon’s delivery drones, for instance, may only be approved after at least two years, according to reports on American media. This gives some sort of cue regarding just how long Kenya may have to wait for friendly regulation in this area, especially after considering that the country is likely to lean on the expe-rience of the U.S. due to bilateral security partnerships that touch on issues such as use of drones.
The difficulties facing e-com-merce firms in Kenya notwithstand-ing, the prospect of sustained growth in the sector remains high. As earlier mentioned, more and more people are going online and seeking con-venience.
Similarly, not all e-commerce firms stock and distribute goods. Others just use the internet to link up buyers and sellers who later do the physical exchange in a restaurant or other area of convenience. Such firms are therefore not in any way affected by lack of proper addressing and poor distrubution.
It is also instructive to note that rents for business premises are increasing astronomically, forcing many to abandon the brick and mortar storefront and instead go digital. The future for e-commerce is therefore bright.