Jumia's warehouse in Nairobi, Kenya. © Jumia
Jumia's warehouse in Nairobi, Kenya. © Jumia

Divided opinion over the ‘Amazon of Africa’

15 August 2019

The e-commerce group Jumia, which in April this year became the first African tech startup to be listed on the New York Stock Exchange, appears to have admirers and detractors in equal measure.

Those who subscribe to the ‘Africa rising’ narrative have hailed Jumia, founded in 2012 and now valued at around $1bn, as the star of the continent’s dynamic e-commerce sector.

It is dubbed the 'Amazon of Africa' yet pessimists have pointed to the fact that the company’s collective losses amount to around $1bn and it suffered negative cash flows last year. 

But the Amazon comparison is not without merit. Jumia has 4.3m active users across Africa and co-founder Sacha Poignonnec makes no bones about the fact that his strategy is similar to that of Amazon chief executive Jeff Bezos. 

In essence, he wants the business to grow now – both in terms of numbers of users and the range of products and services it sells – so it can make bigger profits further down the line.

In one respect the strategy seems to be working: in the first quarter of 2019, the gross merchandise volume on its platform grew by 58% and revenues more than doubled from the same period in 2018.

Jumia lost $195.2m on revenue of $149.6m in 2018. To build scale – and make the business more robust – the company has diversified from traditional e-commerce into travel, events, cinema tickets, food delivery, payments systems and microloans. With business in 14 countries, it is the only pan-African group of its kind.

The roll call of its past and present investors is impressive: Rocket Internet, the German internet start-up company; Mastercard; drinks group Pernod Ricard; insurer AXA; Goldman Sachs; and the British government through CDC, its development finance arm.

There is plenty of scope for Jumia to grow organically. Poignonnec estimates that there are 400m internet users in Africa and he insists that the real challenge is changing consumers’ shopping preferences. “The barriers to the usage of e-commerce are about the knowledge of how to use it, quality of product and being able to check if the products are genuine. It’s not about infrastructure, internet access or logistics, it’s more about getting the habit,” he said.

Jumia faces some particular challenges. Like many e-commerce companies in developing economies, its marketing strategy is based on payment on delivery. Juliet Anammah, CEO of Jumia Nigeria (which accounts for about a quarter of the business) commented: “If you have those kind of mental barriers, one way to break them is to say you’re not sure, fine, use cash on delivery – and when the things come to you, you decide if you want it.”

The ‘Amazon of Africa’ tag has proved controversial in the continent’s business community. Jumia was founded by two French former McKinsey associates, Poignonnec and Jeremy Hodara, and the Quartz website has noted that it is “incorporated in Germany, has its headquarters in Dubai, with its central tech team based in Portugal and its shares listed in New York.”

Nigerian tech investor Victor Asemota said: “My standard for saying a start-up is African is simple: the idea originates from Africa and it was founded by an African.”

Yet cross-border structures are quite common in the African tech sector and Jumia’s leaders argue is that it is African because that is where it does business. As Poignonnec remarked in a recent interview: “The only reason for Jumia to exist is to bring value to African consumers. It’s really very simple.”

The irony about the debate over Jumia’s identity is that its fortunes will, ultimately, depend more on Africa’s economic progress than the intelligence of its strategy, the patience of its investors or the quality of its managers.

In terms of the potential for growth, more than 700m people live in the 14 countries the company operates in – and the population is growing faster than almost anywhere else in the world. Many governments are implementing long overdue economic reforms and China, through its One Belt One Road initiative, is paying much of the bill to modernise the continent’s infrastructure.

However, in Jumia’s core market of Nigeria, 87m people live in extreme poverty, more than any other country in the world. And in Sub-Saharan Africa GDP grew by little more than 3% last year. 

Nonetheless, Jumia predicts that African e-commerce will generate revenues of US$29bn by 2022 and that 1.1bn Africans will be categorised as middle class by 2050.

The multi-billion dollar question is: can it keep growing revenues faster than it grows costs? Only time will tell.

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