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Home » Africa's Amazon Is Growing Fast as Online Retail Takes Off

Africa's Amazon Is Growing Fast as Online Retail Takes Off

Africa's Online Retail Takes Off
April 11, 2019
Bloomberg

When Christophe Fofana, a 29-year-old taxi driver and student in Ivory Coast, needed a birthday present for his daughter last year, he did something he hadn’t done before. He went shopping online.

“It was a specific toy, an electric car, that I either couldn’t find in stores or was very expensive,” he said in Abidjan, the commercial capital. He found a gift for the big day on Jumia, the online retailer active in 14 African countries.

Fofana is one of more than 4 million customers Jumia Technologies AG has amassed in the seven years since the company was founded, a number that jumped 48 percent last year. The accelerating growth rate has convinced the company’s co-founders, former McKinsey & Co. colleagues Sacha Poignonnec and Jeremy Hodara, to pursue an initial public offering in New York this week.

Jumia is planning to sell 13.5 million American Depository Shares at $13 to $16, raising as much as $216m. The listing is meant to give the company financial flexibility and increase awareness of the brand among investors, the firm said in a regulatory filing last month.

Often tagged as Africa’s Amazon.com Inc., Jumia has been able to grow in markets largely untapped by the U.S. heavyweight, which is hampered by a lack of distribution infrastructure on the continent. To tackle the issue of vague addresses in many African cities, Jumia has built a network of leased warehouses, pick up and drop off locations and brought in a string of delivery partners to ensure reliable service.

Less than 1 percent of retail sales in Jumia’s African footprint are conducted online compared with nearly 24 percent in China, the company said in the filing, citing Euromonitor International data. That makes the continent ripe for internet sellers as more Africans adopt smartphones and get access to mobile broadband. Jumia’s revenue jumped by almost 40 percent last year to 130.6m euros ($147.3m).

De-risking Africa

The company, which has headquarters in Berlin and got early funding from German startup incubator Rocket Internet SE, isn’t profitable. Jumia reported a loss for 2018 of about 170m euros and has warned prospective IPO investors that it has accumulated losses of 862m euros since its inception and relies on external financing to compensate for negative cash flow.

Still, investors tend to give e-commerce companies leeway because customer growth and market share are seen as more important, according to Seema Shah, a consumer analyst at Bloomberg Intelligence in New York. While the company competes with the likes of Amazon’s Souq.com and Naspers Ltd. in individual markets, Jumia has said it believes it’s the only pan-African e-commerce site.

“If an online retailer develops a name and offers a good consumer experience, people feel safer to use it,” Shah said. For the IPO to be successful, investors will have to see Jumia as “a chance to play in Africa with less risk.”

French drinks firm Pernod Ricard SA, the maker of Absolut vodka, invested 75m euros in December, giving the firm a 5.1 percent stake and vaulting Jumia into unicorn territory with a 1.4bn euro valuation. Mastercard Inc. followed with an agreement to buy 50-million euros in stock in a private placement alongside the IPO. Prior to the offering, Jumia’s biggest shareholder is South African wireless carrier MTN Group Ltd. with a 30 percent stake, followed by Rocket.

Buenos Aires-based e-commerce firm MercadoLibre Inc. has a similar profile, Shah said. The company also largely beat Amazon to the punch in emerging markets, using a New York share sale in 2007 to expand in Latin America, offering shares at $18 each. The stock now trades above $500 and the group raised $1.85bn in a fresh share sale last month.

JumiaPay

Jumia is also expanding its more nascent payment service, JumiaPay. The app, first introduced in 2016, allows shoppers to settle bills over their computer or phone, even if they are more used to cash payments. It’s now used to pay for most of the orders on Jumia’s platform in Nigeria and Egypt, the company said.

“There are other online shopping services, but Jumia is definitely No. 1,” said Fofana in Abidjan. “In Ivory Coast, we’re sometimes skeptical about online businesses. Jumia is fast, reliable and all you need to register is a phone number and an email address.”

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