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Where, how to invest in Uganda’s e-commerce

e-commerce Uganda
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By  Njenga Hakeenah

Information and communication technologies (ICT) play an important role in the daily life of the Ugandan population through internet access and mobile payments.

Thus, E-commerce is not new in Uganda and, innovative local solutions have also emerged in e-commerce delivery logistics.

The ICT market also offers opportunities that increase the attractiveness of the country to ICT supply companies.

There is great potential for further e-commerce growth in Uganda, with many businesses seeing it as a way to attract international customers and to increase their competitiveness.

Yet, more efforts are needed by different stakeholders for e-commerce to reach its full potential in Uganda.

E-commerce readiness assessment and strategy formulation

According to the United Nations Conference on Trade and Development (UNCTAD), E-commerce is a priority in the most recent sectoral strategies and the National Development Plan II of Uganda.

This has allowed the country to become somewhat of a success story in terms of providing access to ICT services to consumers and for encouraging the entry of large foreign e-commerce companies.

The Digital Uganda Vision is expected to be published in the coming months and reflects the importance of the ICT sector for e-government and e-commerce.

“Yet, strengthening domestic productive capacities and the creation of local digital content are not adequately supported or promoted. The overall ICT sector, which is distinct from e-commerce, only represented 2.5 percent of Gross Domestic Product (GDP) and contributed 7.5 percent of the total revenue collection in the fiscal years 2016/2017,” adds UNCTAD.

ICT infrastructure and services

In a report titled Uganda Rapid eTrade Readiness Assessment, the government, with the support of development partners, has invested significant resources in implementing ICT infrastructure throughout the country.

This has resulted in the exponential growth of mobile telecommunications, with about 70 percent of the population having access to a mobile phone.

As of March 2018, there were 9.8 million Internet subscribers in Uganda.

At the same time, large segments of the rural populations remain excluded from not only the Internet but also electricity (a key enabler of ICT services and e-commerce).

Trade logistics and trade facilitation

As a landlocked country, Uganda faces inherent geographical constraints and depends on the efficiency of transport networks in neighboring countries for its access to the major ports in East Africa.

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“To lessen the impact of these constraints, increased focus has been placed on improving the postal network services within the country, reducing clearance time for expedited shipments and improving last-mile delivery for e-commerce parcels,” says the report released during the Africa e-Commerce Week in Nairobi.

In June 2018, Uganda ratified the WTO Trade Facilitation Agreement, which is aimed at simplifying, standardizing and harmonizing trade procedures and documentation related to import, export and transit.

Private transport companies and logistics couriers also provide important e-commerce delivery services.

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Payment solutions

Uganda is among the pioneers of mobile payments in Africa, and many e-commerce transactions are in fact m-commerce transactions.

The populations accustomed to making transactions through Unstructured Supplementary Service Data (USSD) or other mobile solutions.

In June 2017, there were nearly 23 million mobile money accounts in the country.

The total value of mobile money transactions is estimated at Ugandan Shilling 63 trillion (United States $16.3 billion) amounting to half of the national GDP.

To some extent, mobile network operators have supplanted traditional banks as the main payment service providers in Uganda.

However, perceived risks related to the use of electronic payments in general still creates uncertainty and mistrust among the population when it comes to online shopping.

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Legal and regulatory framework

As part of the East African Community (EAC), Uganda has benefited from the EAC regional harmonized frameworks for cyber laws enacted in2011-2013 with the assistance of UNCTAD.

Uganda has exhaustive legal frameworks in place such as the Electronic Transactions Act 2011; the Electronic Signatures Act 2011; and the Consumer Protection and Competition Bill 2015.

The Data Protection and Privacy Bill 2015 is yet to been acted by parliament.

“However, some of these laws need to be reviewed in light of recent technological developments related to e-commerce. Moreover, the lack of awareness about the legal frameworks in place creates a trust deficit with the broader population, particularly in cases of fraudulent online transactions,” the report notes.

Skills development for e-commerce

Despite some advancements, Ugandan firms are not yet fully equipped with the skills necessary to take advantage of e-commerce.

This includes business management skills that are essential to e-commerce, such as online content management and digital marketing, compliance with payment provider and e-commerce platform requirements, and the ability to package and ship large volumes of small parcels.

As a result, the country largely depends on foreign e-commerce firms while local companies struggle to develop their own digital content and online services.

Although the use of computers is still limited at school, the current National ICT Policy has the objective of providing broadband connectivity to 50 per cent of primary schools by 2020.

Efforts at the primary and secondary education levels are considered a priority by the government to boost the ICT and e-commerce literacy of the overall population and provide employment opportunities.

In parallel, at the vocational level, innovation hubs and skills projects are being put in place to boost the skills of IT experts.

Access to financing

Although the banking and non-banking systems are relatively well developed in Uganda, access to financing is one of the main bottlenecks for e-commerce development.

Participating in e-commerce requires access to capital, which is not always available for existing businesses, let alone new business start-ups.

Start-ups and Micro, Small and Medium Enterprises (MSMEs) face financing constraints as formal institutions require conditions that are often difficult to meet.

Although the non-banking financial sector is quite developed, it does not commonly provide credit.

In the absence of borrowing capacity, businesses limit their online expansion and often look for cheaper, yet unsustainable, ways to grow online.

There is significant potential for continued e-commerce growth in Uganda.

UNCTAD says the country should consider e-commerce as a way to trade more and create jobs, giving full support to boosting local productive capacities, increasing exports and integrating into regional and Global Value Chains (GVCs).

“This should be done in an inclusive manner, giving equal opportunities to men and women from both urban and rural areas,” it adds.

The article was originally published on The Exchange under the same headline

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