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THE ROLE OF E-COMMERCE IN

SOUTH AFRICA

Team Z: Sintu Mavuya, Nhlakanipo Msweli, Linda Mthembu, Thabiso Mtshali, Tanush
Naiker, Sisipho Ngongoshe.
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Table of Contents
1. Introduction ............................................................................................................ 3
2. What Is E-Commerce?............................................................................................. 3
3. The Impact of E-Commerce on The South African Economy ..................................... 4
3.1. Increased Access to Goods and Services ..................................................................... 4
3.2. Job Creation ................................................................................................................ 4
3.3. Economic Growth ........................................................................................................ 5
3.3.1. The E-Commerce Resources ........................................................................................................ 6
3.3.2 Factors Contributing to the Growth of E-Commerce ...................................................................... 6
4. Support for SMMEs In E-Commerce ......................................................................... 8
4.2. Skills Development, and Infrastructure Investment for SMMEs .................................... 8
4.3. Infrastructure Development for Digital Access in SMMEs ............................................. 8
4.4. Public-Private Partnerships for Digital Access Enhancement ....................................... 9
5. Takealot .................................................................................................................. 9
6. Conclusion ............................................................................................................. 9
7. References............................................................................................................ 10
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1. Introduction
E-commerce has emerged as a transformative force in South Africa, reshaping the
landscape of business operations, consumer behaviour, and economic dynamics. As the
buying and selling of goods and services continue to shift towards digital platforms, the
impact of e-commerce on South Africa's economy is undeniable. This paper explores the
multifaceted role of e-commerce in South Africa, delving into its growth trajectory, impact
on the economy, market dominance of key players like Takealot, and the challenges and
opportunities it presents for businesses, consumers, and policymakers. By examining the
growth drivers, benefits, challenges, and strategies employed within the e-commerce
ecosystem, we aim to provide a comprehensive understanding of its significance in
driving economic growth, job creation, and technological innovation in South Africa.

2. What Is E-Commerce?
E-commerce (electronic commerce) is the exchange of goods and services over the
Internet. It relies on technology and digital platforms, including websites, mobile apps,
and social media to make buying and selling possible (Jolaoso, 2023). It involves various
activities such as online transactions (using bank transfers, cryptocurrencies, etc), and
relies heavily on Internet marketing strategies to attract customers, facilitates efficient and
streamlined supply chain management, and allows businesses to gain insight into
customers' behaviour using the data e-commerce generates. One of the benefits is the
extended market reach and thus increased revenue potential.

E-commerce transactions fall into 6 categories: Business to Consumer, Business to

Business, Consumer to Business, and Consumer to Consumer. Then there are the
categories that involve government transactions. They are B2G And G2C.

E-commerce spans various sectors, including retail, travel, entertainment, and services.
While retail remains the dominant sector, there's growing activity in sectors such as food
delivery, online travel bookings, and digital services. Haji (2021) claims that e-commerce
and digital economy development transforms every part of society. It has changed the
ways in which people interact in various sectors (public governance, business and
education). Because of this, e-commerce has created both opportunities and challenges
for all.
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3. The Impact of E-Commerce on The South African

Economy
The landscape of commerce in South Africa has undergone a profound transformation
with the advent of e-commerce platforms. These digital marketplaces have not only
revolutionised shopping experiences but have also introduced novel avenues for
economic growth and job creation.

3.1. Increased Access to Goods and Services

E-commerce platforms provide access to a wide variety of products, including niche items
and international brands, while empowering consumers with transparent pricing and easy
price comparison. Additionally, detailed product information and customer reviews
enhance confidence in purchasing decisions. This increased access is mostly
experienced in urban areas.

Those in rural and remote regions experience challenges because the infrastructure for
broadband expansion and reliable delivery networks are not fully developed. Logistical
challenges that persist can add up to as much as 90% to the cost of goods (McKinsey et
al, 2021). And disparities in internet access means that not all are able to access the
variety of products available. Therefore, investment in infrastructure would eliminate
these challenges. The promotion of digital literacy programs would bridge the gap and
empower marginalised communities to fully participate and benefit in e-commerce.

3.2. Job Creation

E-commerce has created diverse job opportunities absorbing a large segment of the
workforce, including graduates, technical specialists, and individuals from marginalised
communities (Smith, 2020). These range from logistics and warehousing to customer
service, digital marketing, software development, and data analytics. Online platforms
have also reduced unemployment through lowering barriers to entry and embracing
innovative business models. Moreover, the flexibility and scalability of e-commerce
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ventures have enabled entrepreneurs to create job opportunities even in resource-

constrained environments, thereby contributing to poverty alleviation and socio-economic
development (Jones & Patel, 2018).

The growing demand for professionals proficient in e-commerce technologies, digital

marketing strategies, and data analytics has created a need for skills development and
training. Training not only equips individuals with relevant skills which enhance
employability, it also fosters innovation and competitiveness within the workforce (Taylor
& White, 2021).

To sustain this momentum, policymakers must create an enabling environment that

supports the growth of the e-commerce sector, fosters fair competition, and safeguards
workers' rights. Through concerted efforts and collaboration between the public and
private sectors, South Africa can unlock the full potential of e-commerce as a driver of
inclusive growth and prosperity.

3.3. Economic Growth

The Covid-19 pandemic forced businesses to adapt to survive. Global gross domestic
product (GDP) decreased by 2.5% - 3% every month (Anakpo and Mishi, 2021:1). Overall
South African GDP declined by 5.4% and employment decreased by 19% (Anakpo and
Mishi, 2021:1). This is when the world turned to virtual connection and e-commerce
(Anakpo and Mishi, 2021:2). According to the International Trade Administration (ITA)
South African online sales increased by 66% from 2019 to 2020 to more than R30 billion,
even though overall GDP decreased. Online grocery sales increased by 54 percent from
2019, driven by the pandemic and lockdown restrictions.

The benefits of e-commerce are not only for large firms; Small, Medium, and Micro-
enterprises (SMMEs) can also benefit from e-commerce. SMMEs are the backbone of
the South African economy. They contribute over 50% of GDP and 60% of total
employment (Mkhosi, 2017:12). They did not realise the importance of e-commerce, and
some were not agile enough to adapt (Ramsern and Baxodirovna, 2023:1682). They also
had challenges with some of the e-commerce resources that are vital to a successful
implementation. The resources are the usage of reliable broadband, e-business
platforms, digital payments, logistics and the regulatory environment (Ramsern and
Baxodirovna, 2023:1683).
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3.3.1. The E-Commerce Resources

Access to reliable broadband is a challenge for South Africa due to the high cost of
broadband, the inferior quality of infrastructure, and the lack of infrastructure in certain
areas (Ramsern and Baxodirovna, 2023:1684). The high percentage of SMMEs that are
in the informal sector and are over the age of 40, has meant that there is a lack of
knowledge and investment in e-business platforms (Ramsern and Baxodirovna,
2023:1685) (SEDA, 2021). The lack of investment thus leads to inadequate
implementation and bad user experience from these platforms. Digital Payments are an
issue because banking fees create a barrier to entry into e-commerce (Ramsern and
Baxodirovna, 2023:1686). Logistical issues arise because of the high cost of fuel and the
volatility in the logistics industry (Ramsern and Baxodirovna, 2023:1687).

The regulatory environment also presents challenges for e-commerce businesses,

notably concerning taxation, consumer protection, and cross-border transactions.
Moreover, the e-commerce market in South Africa is increasingly competitive, with both
local and international contenders competing for market dominance, posing obstacles for
new entrants seeking to establish themselves.

The challenges of e-commerce adoption during the pandemic can be seen by the change
in the number of SMMEs, from 2.6 million to 2.38 million, and the change in the number
of jobs provided by SMMEs from 10.4 million to 9.1 million (SEDA, 2021). If SMMEs were
able to transition smoothly and effectively to an e-commerce solution, this would have
significantly reduced the damage that the pandemic caused to GDP and employment.

3.3.2 Factors Contributing to the Growth of E-Commerce

The e-commerce industry has been growing at an unprecedented rate in South Africa,
with more and more businesses moving their operations online. The current stats
indicate that the online share, which is the proportion of the retail volume that is
transacted via the Internet, is currently 7.5% in the South African retail market. It is
predicted to increase by an average of 5.1% to 9.2% by 2028. (Ecommerceedb, 2022).
They also indicate that the number of South Africans making purchases online has
increased by over 50% in the past few years. A survey done by Deloitte in 2020
revealed the following as reasons for this:
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Key factors that contribute to economic growth in e-commerce:

• The growth of internet access and smartphone penetration in South Africa, more
people are embracing online shopping and mobile commerce (m-commerce).
• The introduction of secure and convenient digital payment solutions, like mobile
wallets and online banking, has further facilitated online transactions.
• Changing consumer preferences, emphasising convenience and access to a
broader range of products, contribute to the increasing popularity of online
shopping. (Insaka eCommerce Academy, 2023)
• Government initiatives aimed at enhancing internet infrastructure and digital
literacy support the growth of e-commerce in South Africa (Haji, 2021). I
• Investments in logistics and delivery infrastructure are also addressing
challenges related to shipping and fulfilment for e-businesses.(Premkumar,
2019)
• The support for SMMEs is also a key factor, as they are a significant part of our
economy.

E-commerce has provided e-businesses with a wider audience to sell their products to,
beyond the borders of their local market. This has allowed many small businesses to
expand their reach and increase their revenue. In addition, e-commerce has made it
easier for businesses to manage their operations, reducing the need for physical stores
and the associated costs. This has led to lower overheads and increased profitability for
many companies. (Insaka eCommerce Academy, 2023).

From a public policy standpoint, there is a need to establish the social conditions that
allow e-commerce to reach its full economic potential and to ensure that its benefits are
realised by society. The necessary element is affordable access to the physical network
which will affects the adoption of e- commerce particularly among consumers and
SMMEs. Hence it is important to accelerate and enhance the development of the
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infrastructure necessary to extend the benefits of e-commerce to all South Africans. (A

Green Paper for E-Commerce in South Africa, 2000)

4. Support for SMMEs In E-Commerce

4.1 Financial Incentives and Support Programs

Support for Small, Medium, and Micro Enterprises (SMMEs) in E-Commerce addresses
their challenges in digital technology adoption. Governments globally have introduced
various policies and initiatives to assist SMMEs in their digital transformation. This
includes financial incentives like tax breaks and subsidies for digital investments, as
mentioned by Mitchell (2002), and support programs such as the Ecommerce Forum
South Africa (EFSA) and the South African Chamber of Commerce and Industry (SACCI),
which aid in establishing online businesses. The South Africa Connect policy (2013)
focuses on inclusive growth and broadband deployment, including in remote areas (Haji,
2021).

4.2. Skills Development, and Infrastructure Investment for SMMEs

Training and skills development are vital, offering subsidized or free training in digital
marketing, cybersecurity, and other areas to improve digital literacy (Mitchell, M. 2002).
Infrastructure development initiatives, as highlighted by Chetty (2023), invest in
broadband expansion and the development of digital hubs to ensure high-speed internet
access for all SMMEs, regardless of location.

4.3. Infrastructure Development for Digital Access in SMMEs

Some policies directly address the physical infrastructure needed for digital access. This
can involve government investment in broadband expansion to underserved areas, the
development of digital hubs or co-working spaces with high-speed internet access, and
support for the deployment of 5G networks (Chetty, 2023). These initiatives ensure that
SMMEs, regardless of their location, have the high-speed internet access required for
modern business practice (Chetty, 2023).
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4.4. Public-Private Partnerships for Digital Access Enhancement

Public-Private Partnerships (PPPs), as discussed by Marques (2013), represent a
collaborative effort between government and the private sector to enhance digital access
through broadband network expansions and the creation of digital platforms and
innovation hubs. These strategies are designed to lower the barriers for SMMEs entering
the digital space, promoting innovation, competitiveness, and economic growth by
equipping them with essential resources and skills, while maintaining the integrity of in-
text references.

5. Takealot
The biggest player in the South African ecommerce market is takealot.com. The store had a
revenue of $556.6 million in 2022. Let us explore Takealot's strategic manoeuvres that have
propelled it to market dominance within South Africa's e-commerce landscape.

Takealot leverages technological innovations such as its 'Buy Box' feature to prioritize its own
retail offerings, strategically controlling pricing and marketplace dynamics. This approach,
coupled with strict price parity enforcement and brand restrictions, solidifies Takealot's
market position (Competition Commission Online Intermediation Platforms Market Inquiry
[OIPM Inquiry], 2023:4).

Takealot's acquisition of Mr. Delivery Food exemplifies vertical integration by consolidating

its logistics and delivery operations. By owning various stages of its supply chain, Takealot
minimizes reliance on external entities, reduces costs, and gains competitive advantages, such
as early access to product lines (Goga, Nyamwena, Paelo, 2019; Keyon, 2023).

Takealot has strategically identified opportunities for growth through exclusive partnerships
and acquisitions. The acquisition of Mr. D Food and merger with Kalahari.com allowed
Takealot to expand its service offerings and achieve economies of scale, reinforcing its market
dominance (Geustyn, 2023; McKane, 2020). Throughout these endeavours, adherence to legal
frameworks and regulatory compliance played a pivotal role, ensuring smooth transitions and
safeguarding against antitrust concerns (McKane, 2020).

6. Conclusion
In conclusion, e-commerce has emerged as a potent catalyst for economic growth, job
creation, and technological innovation in South Africa. The exponential growth of online
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transactions, coupled with increasing internet penetration and smartphone usage,

underscores the transformative power of digital platforms in expanding access to goods
and services, fostering entrepreneurship, and enhancing consumer convenience.
However, amidst the remarkable growth and opportunities presented by e-commerce,
challenges such as the digital divide, logistical constraints, and regulatory complexities
persist, posing hurdles for businesses, particularly SMMEs. Addressing these challenges
requires concerted efforts from policymakers, businesses, and other stakeholders to
foster an enabling environment that promotes digital inclusion, innovation, and fair
competition. By leveraging the potential of e-commerce and embracing collaborative
approaches, South Africa can unlock new pathways for inclusive economic growth, job
creation, and sustainable development in the digital age.

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Our use of AI (ChatGPT): We prompted it to give us an outline of the various sections of

this topic we should cover from the onset. After meeting with Adheesh we changed things
slightly. We concentrated on the impact e-commerce has on SMME’s. Our word count
exceeded the recommended allowance, so we also used AI to help summarise some
sections for us.