Middlemen are crucial to shopping across Africa. But their inefficiencies have created opportunities for e-commerce startups, which are disrupting traditional ways of doing business
Save time by listening to our audio articles as you multitaskJames is one of many middlemen keeping Kenyans fed. He buys produce from brokers, who have bought from farmers. Transporters take the goods to Wakulima, where James sells to informal retailers, who take the food to street stalls or kiosks, where they sell small amounts to customers. “This is a good business,” he says. Does he not worry about competitors? He shakes his head. “Of course, we agree on prices.
These supply chains ensure goods get to every nook and cranny. But research suggests that relying on middlemen means, at best, lots of mark-ups and, at worst, that middlemen act like cartels, keeping prices low for producers and high for consumers. More promisingly, these inefficiencies have created opportunities for e-commerce startups, which are disrupting traditional ways of doing business.
An earlier paper by David Atkin and Dave Donaldson, today both at the Massachusetts Institute of Technology, looked at the cost of getting goods fromin Ethiopia and Nigeria. They found that it was four to five times more expensive than equivalent journeys from wholesaler to retailer in America, a difference that largely remained after controlling for the quality of the roads. One reason for the gap was the role of intermediaries.
Twiga is one of several African e-commerce firms attracting tens of millions of dollars in venture capital. TradeDepot, which operates in Ghana, Nigeria and South Africa, has a similar model, focused on packaged goods. As Onyekachi Izukanne, its chief executive, explains, for clients such as Unilever, a consumer-goods conglomerate, “the economics of getting into millions of small stores doesn’t make sense.” Large suppliers have historically relied on middlemen to reach informal retailers.
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