Research Finds Over Half of Ethiopian E-commerce Platforms Earn Less Than $10k Annually

A recent study reveals that 58% of e-commerce platforms in Ethiopia have annual revenue and transaction volume below $10,000, highlighting the nascent stage of the country's e-commerce sector.

Published last week by iceaddis and Shega, in partnership with the Mastercard Foundation and the Ministry of Innovation & Technology, the research highlights that most e-commerce startups are in their early phases, specifically discovery and validation, with small user bases.

The paper, titled E-commerce Ecosystem Report 2024, identifies around 80 e-commerce platforms in the country that sell products. Many of these platforms function as marketplaces, sourcing products from various suppliers. Notably, food delivery and healthcare platforms have recently incorporated e-commerce features, expanding their services to facilitate online orders and deliveries.

According to Michael Thomas, author of the report, most e-commerce platforms in Ethiopia face challenges selling online due to their small user bases and the early stage of their business development. "Because these platforms often lack external funding or grants, they have difficulty expanding their offerings and retaining customers," he told Shega.

The survey also found that only 2% of e-commerce platforms report annual transaction values exceeding $500,000, while 20.8% have transaction values between $10,000 and $30,000. 

"E-commerce platforms with annual transactions and revenue exceeding $10,000 are typically in the growth stage," states the Report. Interestingly, many of these businesses supplement their operations with traditional brick-and-mortar stores or other digital services. Notably, 70% of the e-commerce platforms launched within the past three years, reflecting their relatively recent entry into the market and contributing to the low transaction volumes observed.

The survey also identifies key trends shaping the sector, including the rise of mobile commerce (m-commerce), the expansion of pan-African platforms, the emergence of specialized e-commerce sites, and the growing importance of social commerce.

The study revealed that access to debt and equity financing is a significant challenge for e-commerce platforms, limiting their ability to invest in key areas necessary for growth, such as non-current assets. High inflation further complicates their ability to source and stock products, while other challenges, including delayed payment settlements, lack of trust, cultural issues, and the absence of electronic receipting systems, also hinder growth.

“A major challenge facing e-commerce platforms in Ethiopia is the lack of clarity around their business models and revenue generation strategies,” the report states. “Without a well-defined business model, platforms struggle to create a coherent strategy for value creation, making it difficult to navigate market complexities and identify potential revenue streams, which ultimately affects their financial sustainability.”

Despite these challenges, the E-commerce Ecosystem Report emphasizes the sector’s potential for growth, driven by Ethiopia’s large and youthful population, urbanization, and expanding internet access.

Michael highlighted the importance of integrating digital payment options into popular social media platforms like Telegram and Facebook Marketplace, noting, "This would make it easier for people to make online purchases, as social commerce is on the rise in Ethiopia."

Moreover, the report states the vital role of micro, small, and medium enterprises (MSMEs) in driving e-commerce growth. With an estimated 2.29 million MSMEs in Ethiopia, many are increasingly using digital channels to extend their market reach, boosting visibility and revenue. Recognizing this, the Ethiopian government has prioritized e-commerce within its "Digital Ethiopia" strategy, aiming to capture a share of retail trade online and create significant job opportunities.

The research outlines five key recommendations, one of which is to implement the Draft National E-commerce Strategy. The draft, currently awaiting approval from the Council of Ministers, proposes a regulatory sandbox to streamline the business process for e-commerce companies.