Mpenjati Coffee is South Africa’s largest coffee grower. If you don’t know the name, you may know the taste, as the brand’s coffee is exported all over the world, from North America to New Zealand. And it’s the brand’s willingness to work with a global marketplace that has bolstered its success, because while it has many competitors in the region, few have been able to reach an international audience. It’s an issue that is being experienced by a growing number of startups based in low and middle income countries (LMIC), with an estimated 500 million businesses lacking an online store, the economic potential of developing countries is being limited by the inability to trade digitally.
There’s also a big mismatch between the size of emerging markets and developing economies (EMDEs) and their economic output. While they account for 84% of the global population, they only contribute 37% of the world’s gross domestic product (GDP). This imbalance is caused partly by large e-commerce retailers and the monopoly they have over access to digitised systems, technology and financial support.
Because e-commerce giants such as Amazon hold all the power, they can dictate terms and exploit SMEs to their advantage. This severely restricts both how they transact their goods and their growth potential.
That’s why a new fair and transparent online global trading system is needed that will open up a host of new opportunities for EDME traders and businesses and enable them to compete on an equal footing. With an estimated five billion and more consumers in EMDEs by 2025, such a system has the potential to unlock this growing market.
Most emerging market small businesses can’t access digital commerce
The No1 reason why small firms in emerging markets have so far been unable to access ecommerce in its current form is because the tools that are presently used are prohibitively expensive. On top of the rising costs and small profit margins these companies have to deal with on a daily basis, the sizeable cut that the retail giants take is too much.
The second problem is that many ecommerce providers have put in place strict requirements and policies that mean it’s nigh on impossible for independent traders to access and then continue to operate on these platforms. These include, but are not limited to, high fees, payment processing issues, competition with the platform’s own private labels, and deliberate algorithm bias and manipulation.
The impact on small businesses can be devastating. For example, many have been forced to close due to Amazon’s control of the market and supply chain. Indeed, as Amazon’s profits have continued to rise, so small retailers have declined by 65,000 in number between 2007 and 2017.
These businesses are further limited by the fact that many are often located in places with limited access to or an inherent distrust in traditional banking and finance services. As a result, they have to buy their stock with cash and, therefore, can’t always obtain the needed inventory. Even where they can get access to credit, they pay as much as 10% more in financial services fees than their larger competitors.
How decentralised marketplaces can help
The answer to the problem is to establish a decentralised marketplace. This will afford them access to a broader customer base, give them greater control of their transactions, and, therefore, enable them to be more competitive and profitable, as well as efficient.
Because of their scale, they are also a more cost-effective way of operating. In addition, they allow firms to set their own terms, deliver a better customer experience and continue to build trust and loyalty, as well as providing greater transparency and security.
Advent of third generation internet
Backing all of this is another solution called Web3 – a new iteration of the internet where users are connected via decentralised networks and have access to their own data. Like decentralised marketplaces, it cuts out the middleman and hands back control to the user.
Web3 also gives users complete control of their transactions and freedom of exchange, as well as making buying and selling quicker and more efficient. Additionally, it ensures greater security, traceability and transparency of the movement of products.
Time for fintech to step up
Given that smartphone and internet penetration in emerging markets are at an all-time high, it’s paramount that fintech firms step up now to provide these new services. By enabling both digital payments and affordable credit for B2B merchant transactions, emerging economies could potentially increase their GDP by six percent, create more than 95m jobs and unlock in excess of $3.7 trillion in growth.
Traditional ecommerce needs a complete overhaul. But with the creation of a decentralised marketplace that works for all, that can be achieved in a way that opens up growth opportunities for EMDE traders and businesses.
Juandre de Jong
Senior Vice President – Products, RedCloud
Juandre is an astute business leader with 20+ years’ experience in business strategy, product management and digital execution in emerging markets. He was previously at Vodacom, setting and executing the product vision and strategy for their lending unit, including their BNPL offer in Africa, prior to this he was leading the portfolio growth of African FinTech, Jumo.