Can Ethiopia’s E-Commerce Startups Survive a Telecom Giant’s Entry?

Two weeks ago, a major development occurred in Ethiopia’s nascent e-commerce sector. Ethiopia’s majority state-owned enterprise, ethio telecom, debuted an online marketplace dubbed Zemen Gebeya integrated into the operator’s super app. With a subscriber base of a little over 80 million, of which nearly 10% are super app users, ethio telecom’s new portal is poised to become a major player. Within 24 hours of its debut, Zemen Gebeya had registered more than 300,000 visits, an early signal of its disruptive potential. Incumbent e-commerce operators are divided in their expectations, with some foreseeing utter domination by the telecom behemoth while others find potential opportunity.

Among the latter is Store 251, a three-year-old platform that primarily offers locally made goods both online and through brick-and-mortar locations. Its founder and CEO, Madot Assefa, believes the sector has struggled largely due to persistent logistical and marketing hurdles.

“There has never been a single platform that has been able to become dominant,” she told Shega.

Madot characterizes the e-commerce sector in Ethiopia as more of a price reference point for buyers on their way to making an actual purchase. She has observed an uptake in the proportion of Ethiopians who visit e-commerce sites, particularly among the younger generation, despite inadequate reflection in sales figures.

“The purchase either happens on social media platforms or through in-person dealings,” Madot says.

The available data complements her intuition. An E-commerce ecosystem report published last year, which mapped 80 operators, indicates that 58% of them have annual revenues below $10,000. A figure likely to have dropped after Ethiopia floated its currency. Zemen Gebeya’s first day sales of around 331,000 Birr would amount to about a third of the annual revenue for a little over half of Ethiopian e-commerce startups.

The same report found that two-thirds of platforms had fewer than 10,000 users, a modest reach when measured against the 300,000 visits Zemen Gebeya recorded on its first day.

Many startups have attempted to enter the e-commerce space over the past two decades, only to scale back or shut down entirely. However, the sector has never been short of ambitious up-and-coming firms.

Recent entrants like Tina Mart look to compete by offering a specific set of products focused on apparel and fashion. Founder Ezedin Kamil hopes to find ways of collaborating with ethio telecom’s platform to access their vast reach and formidable resources.

“No one else can promote e-commerce the way Zemen Gebeya might be able to,” he told Shega.

He says Ethiopian e-commerce platforms are caught in a race towards the same goal of ecosystem growth rather than in competition for a single small market 

The entrepreneur who raised $150,000 to launch the e-commerce platform is particularly enticed by the logistics capabilities that might be unlocked by the telecom operator.

Logistics remains an enduring hurdle for Ethiopian e-commerce platforms, with even Zemen Gebeya launching its services circumscribed to the capital. While ethio telecom CEO Frehiwot Tamiru indicated plans for a national logistics capacity, the Company will still have to contend with a network that ranked among the worst in the last World Bank logistics index. However, businesspeople who have already registered as merchants on Zemen Gebeya trust in the company’s corporate acumen to navigate the logistics hurdle.

Eba Nizamu, the owner of an eponymous retail store, has pinned the short-term expansion of his business on markets unfurled by Zemen Gebeya. He says other e-commerce platforms never grew to a scale that would have allowed to accommodate needs from both merchants and consumers.

“You are dealing with the largest telecom operator on the continent, not some obscure online website,” Eba told Shega.

He considers ethio telecom’s foray into e-commerce to be perfectly aligned with the company’s national reach and customer base. Eba points to the ease of the telebirr mobile money service already integrated into the super app, the introduction of escrow accounts and the vast subscriber base as powerful competitive advantages.

Merchants who enter a contract with Zemen Gebeya can create a store, list categorized products, manage price discounts (including coupons), assign a logistics company, and supervise product returns. The introduction of an Escrow service where the money remains in ethio telecom’s temporary account until the customer confirms product delivery is perhaps the most impactful of the services offered by the new e-commerce service. An express delivery option of six hours and standard delivery of two days, starting at 150 Birr, also distinguishes Zemen Gebeya from other operators in the sector.

Nonetheless, not everyone is happy with the telecom operators' decision to launch another service on its road to 260 new products and services for the year. A point which raised backlash from consultants on social media who asked if the telecom operator was slowly suffocating the startup ecosystem.

One seasoned e-commerce operator said he was shocked that ethio telecom is taking on nearly every aspect of its new business on its own.

“This is monopoly on full display,” he told Shega. ” They would have benefited the sector by outsourcing.”

The industry insider expects several emerging startups to fold under the weight of ethio telecom’s competition.

Tech entrepreneurs like Ezedin Assefa have also taken to social media to voice their concerns. He brought up the regulatory advantages that ethio telecom could muster to create a deeply uneven playing field for independent platforms.

"Ethiopia’s e-commerce landscape is already challenging for startups," Ezedin said.

He also expressed a new wave of challenges for e-commerce platforms ushered in by the rise of informal channels on Telegram and Facebook.

Still, with Ethiopia only recently making significant headway in terms of digitization of payments, internet penetration and energy access, the potential for e-commerce remains large. Chinese e-commerce giant Aliexpress has recently laid out plans to begin operations cognizant of the budding potential. Veterans of Ethiopia’s startup ecosystem, like Abenazzer B. Tadesse, believe that only corporate behemoths can truly take up the challenges of operating a comprehensive e-commerce business in Ethiopia.

“No one else can make an impact like ethio telcom,” he told Shega.

The Kessem Creatives founder says most e-commerce startups are struggling to maintain operations, let alone scale and grow nationally. He emphasized the trust factor that comes with a name like ethiotelecom to highlight prevalent gaps in the sector.

“Not one startup has been able to cater to the vast demand,” says Abenazzer.

He referred to the vast reach already attained by the telebirr mobile money service to showcase how quickly e-commerce adoption might be fostered by Zemen Gebeya. Abenazzer put concerns about market dominance secondary to advancing digitization and markets for small businesses.

“We (Ethiopians) are not experts in digitization,” he says.” We are a work in progress that should try out different approaches”.