Amazon is changing how we buy food, and Africa stands to profit

Sunday June 25 2017

By BITANGE NDEMO
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Amazon is disrupting again. 

This time, it is shaking up grocery shopping.   

Its purchase of Whole Foods in the United States of America may seem far away from Africa but it has great implications for us.  

Amazon is likely building a mega supply chain platform that will disrupt other sectors further and before long, its variants will be all over the world.

Amazon, like every giant technology company, is taking advantage of three technologies: Big Data, Internet of Things (IoT) and Artificial Intelligence (AI) to solve big problems. 

The food products supply chain has been problematic in Africa, where there is often a mismatch between supply and demand.

Producers are slow in adopting technology to become competitive and so these inefficiencies mean profits for those who can master Big Data from the farm to the plate.

I predict Amazon will become a conveyor belt for many other goods, and it won’t matter whether it is books or groceries going through the conveyor belt.

They will most likely build strong data analytics capabilities, to know exactly what the customer wants and have it produced and delivered at the right time, within the right price and the form it is needed in. 

CREDIT WITHOUT COLLATERAL

Like Uber, which doesn’t own any cars, Amazon will not own farms.  That means many new enterprises will be developed along the conveyor belt but will have to conform to set standards.

The model will disrupt small traders and informal markets that often sell what they have in stock and not what the customer wants. 

The value proposition from Amazon will be that in addition to giving the customer what they want, they can also supply the customer with information on what they are buying and stand by their word. 

If, for example, a customer wanted organic produce, they would be capable of supplying it and providing accompanying data, since suppliers will be directly linked to the supply chain with data being collected passively.

This will have indirect benefit to suppliers. First, they will have a chance to scale their enterprises as Amazon grows. Secondly, they, like in Uber, could leverage Amazon’s size to access credit without collateral, or access new forms of financing that are likely to emerge. 

The worst thing we can do is have regulators block Amazon or its variants from introducing these new concepts.  They come with a real value proposition and could very easily create several new enterprises. 

TRAPS OF POVERTY

Today, there is greater need than ever before for developing countries to formalise the informal enterprises that undermine the growth trajectories of many economies. 

More and more research shows these enterprises are simply traps of poverty.  In their place, we need data-driven enterprises that can effectively respond to customer needs.

For example, the concept of home delivery is not new in Kenya. Several companies provide home delivery of groceries and other products. 

The more successful areTwiga Foods, a mobile-based supply platform for Africa’s retail outlets, kiosks, and market stalls andKalimoni Greens, an organic home delivery store. 

Such enterprises have comprehensive data – from the source of produce to the end user – that is essential for planning and competitiveness, but lack the resources to scale like Amazon.

To avoid being overrun by multinational Over the Top content producers (OTTs) as happened in in the past with OTTs like Facebook, local start-ups should seek to partner with larger enterprises and establish themselves firmly, just as Didi and Alibaba did in China.

Already, Twiga Foods is transforming informal enterprises by enabling them to access cheaper, better quality supplies, conveniently. 

FOUR-YEAR THRESHOLD

For a growing economy like Kenya, the new platforms will bring greater productivity, enable greater realisation of tax revenue, reduce current food waste and enable farmers realise greater value for their produce. 

Most importantly, more enterprises will survive beyond the four-year threshold when more than 80 per cent of the them fail, while  those that survive may never scale up to become more useful in poverty reduction and employment creation. 

The change will not just help the economy grow but propel Kenya to a higher level of e-commerce, which is often hindered by lack of infrastructure. 

Fortunately, the government is finalising the National Spatial Data Infrastructure (NSDI), a critical cog to the success of e-commerce.

According to the United Nations Conference on Trade and Development (UNCTAD), adopting e-commerce offers:

“a great opportunity to entrepreneurs to gain greater market access and reduced transaction costs, provides substantial benefits via improved efficiencies and raised revenues; facilitates access to potential customers and suppliers, productivity improvements, customisation of products and services and information exchange and management.”  

While the argument stands that ICTs remain an important component of development, we should consider how they can be applied effectively.

FOOD INSECURE

The role of ICT is spreading across sectors but in my view, it will play a much bigger role in agricultural-based entrepreneurship, not just in Kenya, but also throughout Africa.

Agriculture employs more than 77 per cent of self employed people in Sub Saharan Africa. Critical as it is to Kenya’s economic growth and development, it faces many challenges on the continent, including losing 40 per cent of its grains and 50 per cent of its fruits, yet the continent is food insecure.

Agriculture remains the largest platform from which growth could be stimulated. This close relationship between the performance of agriculture and that of the economy obviously implies agriculture is a key ingredient in spurring economic growth.

Disruptions in the marketing of groceries come at the right time to realise the power of ICTs in transforming entrepreneurial opportunities in the food sector.

POWERFUL MONOPOLIES

However, it will not be an easy sail-through if regulators smell the possibility of building powerful monopolies, since the changes are bound to trigger a regulatory quagmire in the days to come.

There is no country with regulations for an unknown future. Often, many of these regulators are either left behind or simply become a hindrance to these emerging concepts, which if applied well, create huge productivity gains across industries.

The best way forward is to mandate regulators to become more innovative and allow new combinations of entrepreneurship to take effect, then see how to regulate them.

ICTs, through these emerging platforms, will bring positive benefits through new forms of enterprise, and taking advantage of such disruptions will require much learning 

Becoming digitally literate is one of the prerequisites. Luckily, with mobile money, we have been at it and many Kenyans today use different platforms with ease.

The writer is an associate professor at University of Nairobi’s School of Business. Twitter: @bantigito