The informal retail sector in Africa, a dynamic sector that plays a crucial role in the continent’s economic development, is experiencing massive growth. It encompasses small, unregistered businesses that operate in the shadows of the formal economy. This sector includes street vendors, market stalls, and small shops, typically owned and operated by individuals or small groups.
Rapid urbanization and technological advancement are a few of the factors that have contributed to this thriving sector of the African economy. While it is difficult to estimate the exact worth of Africa’s informal retail sector because of its unorganized nature, some estimates suggest that it makes up a significant portion of the continent’s overall retail market. It accounts for up to 80% of total retail sales in some countries, contributes $2.6 trillion to the region’s nominal GDP, and drives $1 trillion in annual sales.
Despite this massive worth, the sector faces upheavals, from seamless payment options to logistics problems, making it difficult for informal retailers to grow their businesses sustainably. Here are some markets trend shaping Africa’s informal retail sector.
Mobile money
Making or receiving payments in Africa through mobile phones is becoming as popular as taking pictures. Thanks to the vast increase in the uptake of mobile phones across the continent. Boosted by the pandemic, Africa is currently the global leader in mobile money services, accounting for 70% of the world’s $1 trillion mobile money value.
Most people and small businesses in emerging economies today do not fully participate in the formal financial system. But the proliferation of this innovative finance instrument now opens informal retail players to a cluster of opportunities to boost their businesses. It is no longer mandatory for them to have a bank account to make transactions when ordering or selling their products. As of 2021, registered mobile wallets in Africa topped 621 million, a 17% increase from the 562 million captured in 2020.
Additionally, mobile money enables informal retail players to have access to credit in running their businesses. MTN and Mpesa are big players in the mobile money ecosystem in Africa.
Evolving logistics
Africa’s retail landscape is essential, especially by the virtue of making products available and reaching underserved populations. Players in this space, however, have to scale several hurdles, especially logistics, to get not just the stock of the products they market but also distribution to last-mile customers. Many lose countless hours trying to secure stock or even customers far from easy reach.
But thanks to the evolution of the logistics industry, which has moved from just vehicles to easily accessible last mile logistics options like motorcycles and bicycles. Rather than lose several hours on the road trying to get stock, informal retailers now enjoy the services of a logistics company who delivers based on orders.
The overall growth of the logistics space reduces the chances of stockouts for informal retail players and enables them to meet customers demand in far-flung areas.
Buy Now Pay Later
The “Buy Now Pay Later” (BNPL) model has been on the rise in Africa’s informal retail market in recent years. The model allows consumers to make purchases by paying in instalments over time. This can be appealing to many consumers in Africa, particularly those who are unbanked or have limited access to traditional forms of credit.
By offering BNPL as a payment option, some informal retailers can attract customers who may not have the means to pay for a product upfront and also build customer loyalty, making customers return to their store to make future purchases. As a result, there are increased sales and a wider customer base for the retailer. This short-term financing model also benefits the retailer when getting stock of products from wholesalers who operate with the BNPL payment option.
The African informal retail sector has played a significant role in Africa’s economic growth and development, and it is likely to continue to grow and evolve in the coming years. Based on its population of 1.4 billion people, the continent is considered retail’s next gold mine globally.
