E-commerce giant Amazon has announced plans to finally launch its online retail operations in South Africa next year, marking the company’s first foray into the sub-Saharan African marketplace.
The announcement comes after years of anticipation and delays surrounding Amazon’s eventual entry into Africa’s most industrialized economy. On Tuesday, Amazon invited South African businesses to begin registering on its website to sell their products locally and internationally via Amazon’s platforms.
“We look forward to launching Amazon.co.za in South Africa,” said Robert Koen, General Manager for Amazon’s Sub-Saharan Africa operations, in a press statement.
Analysts suggest Amazon sees major growth opportunities in the continent’s second largest economy, with its burgeoning middle class, high Internet penetration rates, and rapid urbanization. Although South Africa’s e-commerce sector still only accounts for around 4% of total retail sales, it has been growing at an impressive clip.
According to market research firm World Wide Worx, South African online retail sales increased 30% in 2021 to reach $2.9 billion. With Amazon’s entry, analysts expect the market to accelerate rapidly.
“This is a massive vote of confidence in the country’s e-commerce potential,” said Arthur Goldstuck, head of World Wide Worx. “Amazon brings unmatched scale, resources and logistics capabilities that could help take online shopping mainstream in South Africa.”
Competitive Landscape Heats Up
Amazon’s entry ratchets up competition in South Africa’s e-commerce space, putting incumbents like Takealot, owned by local tech conglomerate Naspers, on the defensive. Takealot has been shoring up its offerings in anticipation of Amazon’s arrival, including one-hour delivery services for small household items.
“Takealot will face its fiercest rival yet in Amazon,” noted independent analyst Trent Jones. “But its local knowledge and extensive logistics network should help it maintain an edge, at least initially.”
Other players like supermarket chains Pick n Pay and Checkers have also been ramping up their online grocery operations, potentially blunting Amazon’s rollout in that category. However, most expect Amazon to make major inroads.
“Amazon simply has no rival when it comes to selection, price and delivery efficiency,” said Jones. “And its Prime program, once introduced locally, could be a game changer.”
Amazon’s launch in South Africa has been expected for several years, but was allegedly delayed by disputes over land for its African headquarters in Cape Town, as well as South Africa’s high crime rates.
However, in recent years the company has been laying the groundwork, including building a major data center region in Cape Town in 2020 to provide cloud services for African clients. It also launched Amazon Web Services (AWS) in South Africa back in 2004.
According to Koen, “South Africa is an innovation hub with many businesses who understand the value of technology and the positive impact it can have on society.”
With e-commerce still in its infancy compared to most developed markets, Amazon likely sees a major growth opportunity to help digitize commerce and retail in the country.
Opportunities and Challenges
South Africa represents an attractive market for Amazon for several reasons, including its relative economic strength, demographics and infrastructure. With a population of 60 million, it has the continent’s third largest middle class at over 6 million households.
Seventy percent of South Africans have Internet access, higher than almost anywhere else in Africa. South Africa also has fairly advanced logistics and payments infrastructure.
“South Africa’s maturity makes it a logical launch pad for Amazon into Africa,” noted Goldstuck. “If Amazon can make it here, it can make it anywhere on the continent.”
However, some challenges remain. South Africa is plagued by frequent power blackouts that could disrupt Amazon’s operations. Internet speeds can still be slow in lower income urban areas. And high rates of crime and fraud will force Amazon to tailor its offerings.
But most analysts remain bullish on Amazon’s prospects. With its brand power and economies of scale, it is expected to quickly seize a substantial share of online spending in categories like electronics, home goods, fashion and more. Its Amazon Prime program, once introduced locally, could also draw loyal subscribers.
According to Koen, “Amazon aims to be Earth’s most customer-centric company, and we look forward to ingraining ourselves in the South African community.”
So for retailers across South Africa, next year will bring a dramatically more competitive environment. Amazon’s arrival will likely accelerate the e-commerce sector as a whole, but smaller players may struggle to keep up. Consumers though will benefit from greater selection, convenience and discounts.