Herman Singh says there's a lot to be learnt from how the online marketplace conquered Africa.
Most of you will, by now, be aware of the fact that Jumia, the Nigerian online marketplace for fashion and electronics, previously known as Africa Internet Group, is heading for a listing in New York in the next month, reportedly at a valuation of $1.5b billion and aiming to raise over $250 million.
For most South Africans this news would be like a shot out of the blue. Very few of you would have heard of this company. Many of you would have been surprised that an African firm was orders of magnitude larger than any South African e-commerce player and indeed has expanded in markets like Egypt and Nigeria from which the South African e-commerce giants have exited.
I was, until very recently, a member of Jumia’s advisory board, a member of its risk and audit committee as well as its deputy chairman for four years. This firm is unique in many ways in its path to this pinnacle but very importantly its unique journey has demonstrated a few key truths about doing e-commerce in Africa. Here are some lessons that I gleaned on what it takes to win in this industry, in this market:
Those who say it can’t be done must get out of the way of those who are doing it
Africa is already an attractive market. Many companies are waiting for Africa to be ready for e-commerce. What is clear from this case is that market development in Africa is the best way to grow rather than passively waiting to dive in “when the market is ready”. This means getting in early to build the e-highways yourself in order to enable market growth.
Africa will leapfrog to online commerce over physical trade. As Wayne Gretzky said, “Get to the where the puck is going to be”. With few malls in Africa, it’s clear that online solutions have a particular advantage. The logistics, cost, choice and service at physical stores in Africa is significantly lacking. So online is a no-brainer.
Africa wants solutions in Africa, for Africa, by Africans
Be prepared to design African solutions for African problems Don’t expect to build an African Amazon based on credit cards in order to win. From click and collect to cash on delivery you had better be prepared to build solutions to remove friction from online trade.
Be prepared to be an end-to-end value chain player. If the infrastructure does not exist then be prepared to build it, from warehouses to transport firms. And if you are competing on service quality then be prepared to manage it too.
Enable local players; don’t compete with them. Most firms entering Africa end up competing with local business owners and eventually driving them out of business. That’s been a disaster in South Africa for example where big business has killed small business. Jumia does the opposite. Ninety percent of its business is enabling small businesses to go online thus helping them grow exponentially.
Africa is not looking for second-class solutions
Africa will be a mobile-first market. In many ways Africa is ahead of South Africa where much commerce is still on PC. Desktop devices don’t exist to the same extent in Africa so by necessity the market moved to mobile first. Jumia is a firm that was born digital and mobile.
Africa is in many ways more sophisticated than most other regions. Consumers are hyper-discerning because of their low disposable income and risk aversion. So the digital marketing, assortment and fulfilment has to be significantly better in order to counter that.
Fortune favours the brave
Africa is not for sissies. Risk has to be taken on but mitigated. In 2016 the currencies of Egypt and Nigeria halved in value. Instead of withdrawing like their South African competitors, Jumia hung in there and found super-smart ways of surviving and thriving. For example, they found local products to sell and changed their assortments and price points.
Forex fluctuations and access are huge issues to be managed. Enough said.
Africa is not a single country but it can be run as one
You need to achieve scale to get unit economics that work. So either be pan-African or be eaten. Jumia is in a third of African countries but in over 100 cities and addresses close to 90 percent of disposable income. That’s just smart.
Retail is detail and assortment and service dictate success so you’d better excel where it matters.
South Africa is not the real Africa
We are two countries mashed into one. I’ve always argued that South Africa was not representative of the rest of Africa, we were more like Switzerland and Bangladesh squeezed into one nation. We have a GDP per capita of $7,000 versus only $1,000 for the rest of Africa so there was always going to be a different path to success on the rest of the continent
It’s also instructive that almost no South Africans took an interest in the firm in the last few years as it enjoyed exponential growth against massive odds and they were therefore blindsided by the IPO announcement.
It’s hard to look through the windscreen when you are fixated on the brakes. When you are totally focused on Eskom and state capture (looking at the “now”), you will miss the opportunities that present in Africa (the future). So let’s move from risk minimisation to opportunity maximisation.
Being African is not a Racial thing!
I’ve seen many criticisms that Jumia is not African because its two CEOs are French, its shareholders are not African, its IT centre is in Porto, Portugal and its head office was registered in Germany. This misses the point completely. This is the first firm that was grown organically in Africa, services its key African segments interested in online shopping on mobile extremely well, and presents a pure-play investment in Africa into its future e-commerce industry. That’s African for most investors in the world and that’s what matters.
Watching Jumia’s future
The feverish interest in the firm is best illustrated by the last-minute rush by firms like Mastercard to secure a stake in the firm in advance of the IPO itself. I personally believe that this firm has the potential to be the AliBaba of Africa and wish them well on this journey.
Meanwhile we can learn a lot from their astonishing path to this truly spectacular milestone.
*Author’s disclaimer: Please note that this article is based on information that is already in the Public Domain from its SEC Filings or Public Prospectus documents.