Drones revolutionize e-commerce in Africa?

Amazon Prime Air image prime air 2

I first came across Jumia when I was in Nigeria this summer following conversations with a fellow HBS student who was interning at Jumia. He was there to review their Nigeria operations and then go help the company launch in Kenya.  Jumia wants to be the Amazon of Africa, and it is no surprise that majority of the founders are former Amazonians, who started the company in Nigeria in 2012 with funding from Rocket Internet.  Today Jumia has warehouses in 10 African countries.

The Jumia founders have seen the potential of e-commerce in Africa. With a population of just over 1 billion opportunities in this space are endless.  According to a report by Frost & Sullivan, e-commerce is expected to be worth US$50 billion by 2018 compared to US$8 billion in 2013 in Africa. However, like its inspiration Amazon, Jumia operates at substantial losses and due to substantial infrastructure challenges in Africa, lack of cashless payment systems, low levels of internet penetration and the endemic lack of an actual addressing system in many areas where majority of the population live. Jumia’s staff complement far exceeds that of Amazon in order to make up for the various inefficiencies in the African market.  The Managing Director of Jumia in Cote d’Ivoire, Francis Dufay, purports that only improvements in Africa’s infrastructures like roads will enable Jumia and others be able to meet the ever growing demand of e-commerce sector on the continent.  I actually disagree and I believe that African entrepreneurs need to think creatively about addressing their perceived infrastructure challenges.

For example, how many years did Africans lament the inability of their governments to provide reliable telephone lines and service?  We saw all those complaints nullified with the penetration of the mobile phone, and this revolutionized communication and even facilitated transactions with mobile money in Africa.  I believe the octocopters or drones, which will be launched in the next couple of years will revolutionize e-commerce and delivery systems in Africa.  Amazon is taking the lead in fine-tuning these new drones and once all technical and regulatory barriers are overcome these drones will revolutionize delivery services in the US by making delivery of small packages faster.  A Washington Post report, estimates the sales of drones will be worth US$11 billion in the next decade, but this also includes personal drones. These drones can cost as little at $499 and as much as $6,000. But in Africa, this means that the need for good roads and addressing systems will be circumvented and we will no longer need to wait for government to come mark where I live and tar our roads to make it easier to get my delivery.  If I have a cellphone everything will be done using it.

I imagine a world where I can order a product on my phone and then an e-commerce company can take my order, I pay using my mobile and then when I am ready for delivery I let the company know and the drone is loaded with my package, gets my GPS and takes off and goes to the coordinates where I am located. Then once my package is dropped outside my door, the drone sends notification to my phone and then I come out and pick it up.

Some naysayers worry that is technology will never get off the ground and that it will not work. But in the world there are always naysayers, think of those who laughed at the Wright Brothers when they were adamant to invent a flying vehicle that would be able to carry us across oceans in the air? Every great technology has its fair share of critics. Some of them argue that the technology will not be approved by the FAA in the US because of high crash rates and poor maneuvering.  I have no doubt that the technology will continue to improve and be more superior and address these concerns and others.  Some also argue that the technology will be subject to high-jacking and theft.  I ask myself what makes a delivery guy immune to those? Nothing and in fact it is better a machine is high-jacked than an actual human being.  But what these cynics fail to think of is that the technology can be fitted to the drones to track their movements and even little hidden security cameras.  In fact, one final argument is that people will game the system and pretend they did not get the package.  I have heard of instances where people game the system today with our current postal services.  And so these hidden security cameras can also be installed in the drone to take a picture of who picks up the package before they fly off back to base.

I strongly believe in the future of e-commerce in Africa, but it will not happen with the current inadequate infrastructure we have.  Yes we must continue to work on improving the infrastructure but this may take years, time we do not have. Revolutionary thinking and adoption of out of the box technologies can change the way Africa develops and even leapfrog us into new businesses and industries beyond even our wildest imaginations.

By: Laone Bukamu Hulela


4 Comments

  1. Evan Valentini

    What does/will drone aviation regulation in Africa look like as compared to the United States? I know regulatory hurdles (some of them seemingly quite silly) are a major impediment to drone development in the US. Do you anticipate similar regulatory challenges in the short term in Africa? Also, what infrastructure is required to monitor drones in flight (e.g. air traffic control) and do you anticipate countries will be able to put this in place quickly? On the flipside, what can African governments do to accelerate rapid adoption of delivery drones by retailers like Jumia? I agree the technology is promising and that mass adoption is only a matter of time. I am wondering if there is anything that can be done at the government level to move things along as quickly as possible.

  2. Malena Gonzalez

    Interesting reflection… Coming from a developing country as well, completely agree that technology will circumvent the lack of government's accountability to drive improvements. Globalization has really changed the way on how to do business. At the end, every person in the world has the same set amount of needs: food to purchase, clothes to wear and clean air to breath, and the way that these needs are being delivered will continue to transform. Even though the strategy makes sense on having drones replace the need of roads for distribution, the execution of it will be crucial. If this is not well regulated, it can be the end of drones, the moment when these drones cause human tragedy.

    Great reflection, but execution eats strategy for lunch.

  3. Anthony Arendt

    The inherent challenge for any U.S. firm lies in the Federal Aviation Administration’s (FAA) myopic policies in an extremely congested and dense National Airspace System (NAA). It is for this reason that budding Unmanned Aerial System (UAS) companies must continue to look outside the U.S., to places such as Africa, which are substantially ahead in their efforts to incorporate UAS aircraft into society. The FAA has continued to improve their efforts in taking a more risk-based approach to domestic regulatory changes, but still wants to control the overall flow of commercial usage. They have quickened the approval process for less risky commercial uses in accordance with Section 333 of the FAA Modernization and Reform Act (FMRA) and Part 11.81 of the Federal Aviation Regulations, however many industry experts say this isn’t enough. They believe the FAA could quickly approve rules that allow blanket UAS activity in remote areas supporting North American agriculture, oil and gas, or construction without the need of exemptions because these uses have great public interest with an increased level of safety. To their credit, the FAA has responded with streamlined exemption approval processes based on looking at these two main factors in applications; (1) significant public interest, and (2) no adverse impact to safety or privacy.
    There are many opportunities for technology start-ups to develop potential UAS applications, however there also exists many commercial distractions. The biggest opportunity for improvement that would drive real cost savings, and perhaps the most often overlooked, is the ability for the UAS to fly and operate autonomously (see Exhibit 1). It may seem obvious, however both hobbyist remote-controlled (RC) aircraft and military drones alike still require substantial user-machine interface for both mission system and flight-related functions. Any company whose focus is on driving the UAS to conduct these functions autonomously, with little or no human oversight and intervention, will create the most value in the coming years. While the technology already exists to accomplish these advancements in autonomy, most commercial UAS manufacturers are focused on smaller-sized products (<55 lbs.). Meanwhile, the larger-sized UAS manufacturers are entrenched Dept. of Defense corporations, which have no incentive to further streamline autonomous functions.

    Exhibit 1:
    A successful UAS start-up can drive autonomy and acceptance through advances in either (1) mission system (purpose) or (2) flight-related (safe navigation) functions. Specifically, they should work to solve the following component challenges:
    •Collision Avoidance / Self Separation
    •Ground-based and Air-based Sense & Avoid (SAA)
    •Autonomous Detection
    •Control and Communications (C2)
    •Airworthiness & Endurance
    •Signal Encryption
    •Privacy & Tracking
    •Data Storage
    In order to accomplish this, they must struggle to develop their capabilities within any one of six dedicated FAA test sites, or more than likely venture outside of North America to access more permissible testing environments.

  4. Ashish Bakshi

    Interesting topic – I think the experiences of many other developing markets have borne out the idea that with enough private entrepreneurial effort and funding, one can often skip stages of commerce and communications development. See the mobile revolution in India and China (cell service also of course requires infrastructure build-out, but less in the last-mile than wired connectivity), for instance.

    Regulation does restrict much of this work – for example, real moves to mobile banking (i.e. not just as a front-end to a traditional bank, but, e.g., cell carriers and their retail touchpoints delivering consumer financial services) are being experimented with much more so in certain African markets than in the US/Europe or large Asian markets, due to regulatory impediments.

    In the area of unmanned aerial vehicles, as Anthony mentions above, the FAA has essentially decided it wants to somehow control this space in the U.S., so we see things like the newly-announced registration system for hobbyist drone users and the like. The line-of-sight restriction alone means Amazon’s drones won’t be flying usefully anytime soon in the U.S.

    As to delivery drones in developing markets, they’re a cool idea, but at this point I’m really not sure they’d be solving a real problem. The cost drivers that might make delivery drones useful in developed markets are not present – it costs nothing to have a delivery guy hop on a moped and make the drop. Flying time, and thus range, are a significant limitation, so these devices only make sense in urban or near-urban environments, which are also the places most likely to be the easiest for traditional delivery and the most difficult to handle logistically via drone (e.g. how does one create drop zones where real estate is scarce and expensive, unless it’s more like dropping into an Amazon Locker?).

    The cost of the drones themselves is high enough so as to negate any possible benefit vis-à-vis theft reduction (i.e. the usual issue that a delivery person who earns much less than the value of what he’s delivering is incentivized to steal the product and run). The other issue is point-of-sale payment – in India, for instance, e-commerce largely happens on a Cash on Delivery model, which can’t happen practically with drones. From a cursory scan of Jumia’s site, CoD seems to be the predominant offering there too.

    Delivery is definitely an interesting application for drones – as seen in science fiction, if nothing else – but the use case needs to be defined clearly before meaningful applications can be seen, especially in capital- and infrastructure-constrained settings like developing markets.