Ecommerce businesses in Uganda are falling at a very fast rate. Many online businesses launched in Uganda today do not live to see their second anniversary.
While the ecommerce model of business may have flourished everywhere else in the world, it seems to be failing on the Ugandan market despite the huge sums of capital pumped into the industry by private investors.
In fact, ecommerce is not a digital business in Uganda. Yes, it is technically a traditional business because the highest element of its marginal cost is actually offline. Having a website should not confuse you on that reality.
Until the government of Uganda comes up with solutions to problems affecting the ecommerce industry such a postal system that works, running an ecommerce business in Uganda will still remain a big challenge to online entrepreneurs.
The now collapsed and defunct ecommerce platforms in Uganda
- Kaymu (acquired by Jumia)
- OLX Uganda (acquired by Nigeria’s Jiji)
- Hellofood (acquired by Jumia Food)
The now thriving but struggling ecommerce platforms in Uganda
- Jumia (rumored to be closing in Uganda soon)
- Paple Rayn
Why online businesses in Uganda are struggling or collapsing too fast?
Let’s face the fact, we humans love shopping. Everyone loves buying new stuff – from trendy shoes to latest powerful gadgets. I mean who wouldn’t for example want to upgrade to the latest phone on market? Or who wouldn’t want to wear the latest trendy fashion everyone is talking about in town?
Originally, shopping is done physically at brick and motor shops. One has to walk to a shopping mall or market like Owino, boutique or supermarket to buy what they need. You will also have to do the walking, sweating and sometimes swearing in your mother language over the price of the items.
The internet technologies have however changed things, today with just a click of a button on your smartphone or computer, you can order anything you can ever imagine of and its delivered to your doorstep.
In developed countries like Canada, UK, USA, Australia etc, the ecommerce business is booming, meeting people’s needs effectively and efficiently. However this isn’t the case in Uganda where ecommerce businesses are struggling to thrive. This is attributed to thee following reasons:
- No real investment
- A bad website
- No website traffic
- The Cash On Delivery (COD) mode of payment
- Trust issues
- Poor customer service
- Poor quality products
- Unfavorable Business Climate and Government Regulations
- Low internet penetration and network unavailability
- Low purchasing power
- Poor infrastructure
- Population size versus ability to use e-commerce
- Irrelevant Advertising and Marketing Channels
- High product price
- Irrelevant Advertising and Marketing Channels
- Too much competition
- Buying culture
- Literacy rates
- No patience
1. No Real Investment
It possible to open an online store in Uganda in just less than UGX 1M, but that does not in any way mean 1M is all you need to invest.
Just like any other new business, running a full-fledged online store will require several infusions of capital and labour.
Brick and mortar or traditional store owners are usually the worst when it comes to investing in an online store. If you already have a physical shop and you are venturing into an online shop, you must think about the online shop as your new location and you will need similar investment. Unfortunately many people don’t consider this which cripples their online business to the extent of giving up.
Someone can invest UGX 50M in a physical store but cannot invest just 5M in an online store which could actually have a greater sales potential.
Some business start operating on inadequate capital hoping the business would soon generate an income enough to sustain the business which most times never works. The lack of enough capital or funding is one of the reason internet startups in Uganda are collapsing.
2. A bad website
Many Ugandans wrongly believe having a Facebook page and spamming their page links in Facebook groups qualifies one to having an ecommerce business. Every ecommerce website must have a website.
A website is core of any ecommerce business and must be given the most priority. Unfortunately, most Ugandan ecommerce websites have horrible websites which don’t work at all.
The websites are poorly designed based on premade templates, have poor graphics, not optimized for search engines, not cross-device responsive and suck to navigate.
If your customer cannot easily navigate your website, they will leave for good. In addition, if customers can’t organically find your business/website, you will make no sales…and if you are making no sales essentially means end of your business.
Not wanting to invest in a good website is a big mistake startup owners make which eventually costs them their business.
Even if you have the best business plan, if you have a website that sucks, you are simply wasting your time online.
3. No Website Traffic
Lack of shoppers is one thing that can kill a retail or wholesale business as quickly as possible. In the context of ecommerce, website traffic is the flow of buyers in and out of your online store. If you want to make sales, you must have traffic. The best way to get valuable traffic is through search engine optimization and PPC advertising which can be too expensive for startups.
Also read; Top 200 online shopping websites in Uganda
4. The Cash On Delivery (COD) mode of payment
The Cash On Delivery mode of payment has been taken of advantage by most online buyers which has resulted into major losses by ecommerce companies. A customer can order an item and later decides to cancel the order while the item is on its way for delivery. In this case, the cost of logistics like transportation falls on the ecommerce company.
5. Trust issues
Ugandans have skepticism against technology and things that are new to them in general. They do not want to use their credit/debit cards because of a popular notion of online fraud and poor product qualities.
In fact, just one bad experience from one online shop could change how customers see other ecommerce businesses and as such it makes them want to see the products before paying for them.
A lot of Ugandans believe that when they pay online, they will end up getting scammed and their items would not be delivered, which makes it hard for them to pay for goods online.
In addition, Ugandans don’t trust that ecommerce website will deliver exact items as displayed on their website. Some go ahead to order multiple items just to compare and choose “the best”.
I one time ordered a pair of shoes from Kikuu Uganda, it took them 3 months to deliver and when I got it, it wasn’t exactly as it appeared in the photo on their website and moreover it was a wrong size.
With several factors affecting the lack of trust on consumer end for local online businesses, almost all online shops continue to record negative cash flow.
6. Poor customer service
It is a well-known fact that Ugandan businesses often have subpar customer service. Many ecommerce businesses in the country tend to overlook the needs and concerns of their potential customers, and either do not provide any support channels or take a long time to respond to customer complaints. In some cases, they may even respond in a rude or unprofessional manner, or simply not respond at all.
As an example, I recently reached out to Jumia Uganda to inquire about their affiliate program for website owners. It took them two weeks to get back to me, and when they did, the response was a brief, unfriendly message that did not address my question.
This type of unprofessional behavior by ecommerce businesses has led to a lack of trust and confidence among customers. It is important for every business, whether online or offline, to prioritize excellent customer service and show a commitment to addressing their customers’ needs and concerns.
7. Poor quality products
Many buyers have ordered products from ecommerce stores and marketplaces only for them to receive low quality products which do not resemble or have no features that were advertised online. This has frustrated many customers who have refused returning to online stores for fear of receiving low standard items.
8. Unfavorable Business Climate and Government Regulations
Setting up a business in Uganda can be a very daunting task. Ugandan laws are too strict for businesses to run smoothly.
You have to go through an enormous amount of trouble and bureaucracies while trying to register a business in Uganda, and once a business is setup, there awaits you a huge amount of tax.
Besides that, the cost of running a business in Uganda is high. The high cost of power and transport also have a negative impact on businesses which makes business hard.
9. Low internet penetration and network unavailability
This is not only a major problem in Uganda but almost everywhere in Africa. Uganda’s internet penetration is not yet at a stage which favours ecommerce businesses.
Additionally, internet connection is not only expensive but it is also slow and unreliable due to various reasons.
If one does not have a stable and reliable internet connection, placing an order online will be a very challenging task.
10. Low Purchasing Power
The truth is the purchasing power of a Ugandan is at its lowest compared to that of UK or USA. Uganda has from time to time been rocked by a wave of economic crisis which has plunged most citizens below the poverty line and as such, an average Ugandan cannot allocate any budget for shopping, either online or physical shops. For many Ugandans, their priorities shifted to finding what to eat while online shopping comes further down the list.
11. Poor Infrastructure
Uganda’s infrastructure is not yet sophisticated enough to enable speedy delivery of goods. Usually goods that are ordered online take ages to reach the consumer. Presently, delivery of goods is only efficient in some places of Kampala.
12. Population size versus ability to use e-commerce
Uganda has a population of 45million people, and presumably there should be a large population of people who use online stores. However, apart from this assumption, there’s harsh truth about the ability to use ecommerce platforms that is beyond the population numbers.
According to the information available on Uganda’s Ministry of ICT websitee, Uganda has 20 million internet users. But these figures only represent potentiality, because only about 7% of Ugandans (3 million people) use social media.
It should also be noted that not everyone that uses social media does online shopping, which further limits the pool of potential customers for ecommerce.
In 2018, a Swedish company, Kinnevik, reported that Jumia Uganda had only 5000 monthly active customers which is less than 0.011% of Uganda’s total population.
13. High product price
When you consider the cost of importing good from abroad to Uganda, the end result is retail prices will always go high. Additionally, most small ecommerce business owners cannot afford buying goods in bulk, thereby missing out on opportunities of economies of scale.
If goods are cheaper in the local market, consumers won’t definitely buy online. The best way ecommerce business in Uganda can mitigate high product cost is buying and selling goods manufactured in Uganda.
14. Irrelevant Advertising and Marketing Channels
Many starting businesses usually make a mistake of advertising through traditional channels like billboards, radio, TV etc which runs into millions of wasted shillings.
This type of aggressive prmotion is not bad at all but not good for businesses that are just starting and are having little working capital. Wasting money on such marketing channels renders businesses cashless and soon are pushed out of business.
For a starting ecommerce business, running a targeted social media ad campaigns is recommended. For example if you are into a fashion niche, target a working class of people aged 24-45 living in cities that are known to have high conversion rates like Kampala, Mbale, Jinja, Wakiso, Mbarara, Gulu and Entebbe.
15. Too Much Competition
The Internet is a pool of opportunity for even the smallest business. Startup ecommerce businesses struggle to survive in the face of popular and established foreign companies like eBay and Amazon.
These foreign ecommerce platforms sell goods at the lowest prices as compared to prices by local ecommerce stores which are usually higher due to importation costs involved. This is a very is big problem to local stores that seek to sell the same products that are sold on established global stores.
For instance it can be very difficult for a local store to sell Sony’s PlayStation which is already available on hundreds of big names stores including Amazon, Gamestop, eBay, Best Buy etc. It can be really difficult for a startup to sell mass-market products than it is with unique products.
16. Buying culture
Truth be told, the ecommerce kind of business is a new thing in Uganda and people are still ignorant about it thus have no online buying culture. I means finds no reason to buy online when shopping malls and local marketplaces are allover Uganda moreover with products that are fairly priced as compared to those sold online.
17. Literacy rates
Even if all other issues are fixed, an illiterate citizen may not be able to take part in ecommerce websites that requires one to have reading and writing skills. Uganda has one of the highest illiteracy levels in the world. Without investing in the education of citizens, especially computer education, the pool of potential customers for internet entrepreneurs will remain greatly reduced.
18. No Patience
Many people always get excited about starting an ecommerce business expecting to make immediate profits overnight, forgetting that any business needs time to grow. When things don’t work out as expected, they give up. This is why many local online businesses here collapse just after one year of operation.
In conclusion, the ecommerce industry in Uganda is faced with several challenges, but these challenges can be solved with the right approach. Ecommerce in Uganda has the potential to become just as profitable as it is elsewhere in the world.