Speculation has swirled this year that e-commerce company Jumia, dubbed “Africa’s Amazon,” might go public. Germany’s biggest start-up incubator Rocket Internet, which helped set the firm up in 2012 and still owns a 28-percent stake, has a history of floating promising, fast-growing units like Delivery Hero, Hello Fresh and furniture retailer Home24, and may be tempted to do the same with Jumia.
But Jumia’s co-founder and co-CEO Sacha Poignonnec played down the prospects of an IPO. “An IPO is only one option we’re looking at — we’re also considering financing or new shareholders,” he said.
Lucas Boventer, an analyst at Warburg Research, doesn’t expect an IPO imminently. “It’s much more likely that Jumia will open up a new financing round — the prospects of success would be good because the numbers are convincing,” he said.
Jumia, which started out as Africa Internet Group, has some 5 million customers. The continent, still a blank spot on the map for many online giants, offers huge growth opportunities but sizeable challenges as well.
In addition to being a marketplace, the platform also offers hotel bookings, comparison sites, and its own payment service. Investors include Axa and Orange, and the company has raised a total of $400 million in capital so far.
In the first quarter of 2018, Jumia generated revenue of €151 million ($177 million) , a 70.9 percent increase year-on-year, and analysts expect it to keep on expanding.
Africa has a growing middle class which already numbers some 360 million people and the market for e-commerce is virtually untapped, said Christoph Kannengiesser, managing director of the German-African Business Association. Young people make up an extremely large share of the population, and they’re the ones who embrace new technologies. “It will be the young generation that gives e-commerce a boom — smartphone ownership is expanding massively,” he said.
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Analysts estimate that Africa’s market for online retailing will reach $75 billion by 2025.
Choosing Jumia
Jumia and its rival are the biggest online retailers in Africa right now. Jumia is active in 14 countries and in its home base of Nigeria, which is Africa’s biggest economy, three quarters of smartphone owners use the platform.
“In Europe, e-commerce is about convenience, about a new form of shopping,” said Mr. Poignonnec. “In Africa, e-commerce is a solution.” In the past, shoppers in Africa haven’t had any choice. There were just a handful of retailers, some of whom were very expensive. “We have created a new way,” he said.
There’s no shortage of market potential and entrepreneurial enthusiasm. But online retailers face hurdles in many African countries. The road network is underdeveloped, which makes delivery cumbersome and expensive. In major cities, the streets are often so congested that couriers have to use motorcycles, which reduces efficiency.
Another problem is that parcels get stolen en route. Theft became such a problem in South Africa that Amazon temporarily halted deliveries there a few years ago.
But her infrastructure
Optimists point to success stories like Mauritius and Botswana which are achieving economic growth because they have made successful free trade arrangements and are using their raw materials revenues effectively. But they only account for 0.3 percent of Africa’s 1.25 billion population.
An estimated three quarters of Africans aren’t online yet, there’s still no continuous tarmacked road or railway line linking the north to the south, the power supply is fragile in many places and if you walk short distances out of the city centres with their new office buildings, you will enter districts that haven’t changed in the past 10 or 20 years.
And even though the proportion of Africans who earn more than $10 a day rose tenfold between 2005 and 2015, the middle classes still make up less than 3 percent of the overall population.
More than three quarters still have to survive on less than $2 a day, wrote Simon Freemantle, Africa analyst at Standard Bank.
Jumia is catering for the market by not requiring customers to have a bank account and allowing them to pay on delivery, said Mr. Poignonnec. It has its own payment service, has set up a delivery service and cooperates with hundreds of partners to overcome problems that include many roads and villages not having names.
Despite the challenges, Jumia is on a growth track, and it doesn’t fear competition from the likes of Amazon in the future.
“You have to understand a region and create a functioning infrastructure to be successful,” said Mr. Poignonnec. Amazon would find it difficult to build up the know-how and the experience that Jumia has gained, he said.
But there’s another option. A giant like Amazon may simply wait for e-commerce platforms to thrive and then buy them up.
Mr. Boventer, the Warburg research analyst, said: “Jumia could be an interesting candidate not just for Amazon but also for Alibaba, who could snap up the entire expertise and the infrastructure that way.”
Alibaba and Rocket Internet have done deals before. In 2017 the German company sold its remaining shares in southeast Asian e-commerce firm Lazada to the Chinese Internet giant for $276 million. And in early May, it sold Pakistani platform Daraz to Alibaba.
Rocket Internet’s strategy of getting into underdeveloped markets at an early stage has paid off, said Mr. Boventer. “Jumia could be an exciting takeover candidate. Albeit quite an expensive one.”
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