That’s the value of South Africa’s internet economy in 2010, according to a report recently published by Boston Consulting Group (BCG). Their forecast is that the internet portion of South African economy will grow to R103 billion over the next four years, to represent about 2.5% of the gross domestic product, from the 1.9% level recorded in 2010.
This compares poorly not only to the developed world, but also to the emerging markets. The BCG report states that the size of the internet economy in G20 countries stood at 4,1% of GDP in 2010 and is set to grow 5,3% by 2016. The average in emerging markets is 3.6%.
Even more worryingly, the BCG report puts South Africa’s internet economy growth rate at 12,6%, while the average in the other developing economies is 17,8%. Developed markets, which are starting from a higher threshold, are expected to grow at an average of 8.1%.
Consumption is the principal driver of internet GDP in most countries, including South Africa. Typically, it accounts for more that a half of internet economy, with government spending and investment, mainly in infrastructure, being the other important constituent elements. Consumption is expected to remain the largest single driver of internet economy through 2016.
How does South Africa fare in this respect?
BCG reports that the share of online in the country’s total retail was 1.2% in 2010, and is expected to grow to 1.5% by 2016.
It should be noted that some other sources assign a much lower portion of South African retail to online, probably due to a different methodology.
The figures released by Stats SA show that physical retail in South Africa reached almost R565.6 billion in 2010. A separate research by World Wide Worx, published at the end of 2011, states that the total spend on online retail goods in South Africa rose to R2.028-billion in 2010, surpassing the R2-billion mark for the first time.
When the two figures are put together, it transpires that in 2010 online retail was less than half a percent of total retail: a little under 0.36%, to be exact.
In mature economies, online shopping usually accounts for about five percent of total retail. BCG expects that by 2016 direct online purchases will account for more than 20% of retailing in the U.K. and between 8 and 12% percent in other leading economies.
Reasons for lagging behind
Although ecommerce sites, like the bidorbuy online marketplace, report annual increases of around 30%, all online retailers agree that, in order for internet economy and online retail to grow, the country needs higher internet penetration, better and cheaper internet connectivity, efficient delivery infrastructure, and higher credit-card usage.
South Africa’s internet connectivity got a big boost from the new undersea cables, but real benefits will probably be seen towards the end of 2012. In the meantime, the majority of internet-connected South Africans are still unable to enjoy a stable internet connection, not to mention a fast one.
According to Ookla Net Index, South Africa’s average consumer download speed stood at 2.95 megabits per second in March 2012. Out of 174 countries that Ookla tracks, South Africa is currently number 105.
The South African government has promised to deliver 100% broadband penetration by 2020, but man think that it is not moving fast enough. It is estimated that currently about 8.5 million South Africans have access to internet, out of a population of about 50 million.
Internet economy has been identified as a major driving force in growth and job creation. The BCG report states that, around the world, small and medium enterprises that embrace the internet are growing faster and adding more jobs than those that do not. That means that by encouraging businesses to turn to the internet, countries can improve their competitiveness and growth prospects.
From that point of view, small and medium businesses in South Africa are placed at a disadvantage by being forced to use inadequate and often dysfunctional internet connections. They are missing on an important growth opportunity, something that South Africa, with its official unemployment rate of about 25%, desperately needs.