Need for more disruption in Africa’s tech scene
Olukayode Kolawole
For most people living outside Africa, they imagine the continent as the home of poverty, corruption, internet fraud, infrastructure deficit, and everything that describes under-development, marginalization, oppression, bad leadership, insecurity, diseases, and many more. Although the continent is truly beset with some perennial development issues, some of these notions are preposterous and not entirely peculiar to Africa. No doubt, for a continent that is richly blessed with numerous natural resources, the economies of the countries within it should be enviable and have the capacity to truly compete with the First World countries.
Home to 54 countries, with Nigeria and South Africa having the biggest economies, the continent has a population of 1.2 billion people, projected to rise to 2.5 billion by 2050. It is the second most populated after Asia and second growing economy in the world after East Asia, with a 3.5% annual growth rate. Average age is about 20 years, and 30% of its population make up the middle class which is expected to grow by 80% between 2020 & 2030. An estimated 473 million people are connected to the internet in Africa, which represents 36% of its population, while 1 billion people who have access to mobile phones, represents 80% of its population.
There are a number of laudable achievements the continent has earned for itself. These achievements, although rarely spoken of, have positioned the continent on a global map, earned it positive recognition from First World countries, changed its narrative to something better and more appealing, and made it a sought-after destination for business investment, leisure and entertainment. This article will dwell on the business investment opportunities that have changed the fortunes of the continent, and how these businesses are impacting and transforming the quality of lives in Africa.
E-commerce is one of the business sectors powering the engines of commerce and trade in the continent. It has brought many untold opportunities for both the consumers and the micro, small, medium enterprises. In Nigeria for instance, Jumia paved the way for e-commerce in 2012, provided consumers access to hundreds of thousands of products, and expanded access for discerning entrepreneurs who quickly took advantage of the many unique opportunities presented by these platforms, to reach more consumers and sell more products. The convenience of e-commerce made a compelling case for early adoption of online shopping by customers who until then only shopped from brick and mortar stores.
The bold move by Jumia and other ecommerce players paved the way for many e-commerce startups in the country today. Although many of these platforms have been phased out due to a number of challenges, the truth still remains that the story of how Jumia led the way for e-commerce in the country continues to reverberate the entire sector, and has today, yielded many positive results. It was not too long after Jumia launched in Nigeria that it expanded its operations to 14 other African countries, in which it has operations today, covering 75% of the entire continent’s GDP, and about 75% of internet users.
The Case of e-commerce and Jumia
Yet, the continent is still perceived to be growing slowly compared to other developed continents such as Europe, Asia, South & North America when it comes to online commerce. For instance, online retail penetration accounts for less than 1% of all the transactions in Africa, compared to 12% in the US and 20% in China. There is a ratio of 1 shop to 67,000 Africans versus 1 shop to 1,000 Americans. The shift from physical stores to online stores is happening gradually as a result of ecommerce platforms becoming increasingly relevant to both the consumers and sellers in Africa. Let’s use Jumia, a Pan African e-commerce platform as a yardstick to illustrate this gradual but steady growth.
On the Jumia platform as at March 31st 2019, there were over 81,000 active sellers across Africa selling over 30 million products to about 4.3 million active customers, according to the company’s prospectus on the New York Stock Exchange. Who are these sellers, and where did the consumers come from? Sellers, who until 2012, were primarily selling offline and reaching very few consumers within their geographical proximity, same consumers who grew up going to physical stores to make a purchase, wasting time and effort, and in some cases money. These same traditional offline shoppers and sellers embraced a convenient method of shopping, started to spend money and time saved from walking a distance to physical shops on other priorities, whereas the sellers started reaching more buyers, even those outside of their geographical reach.
Where are the products they sell sourced from? The sellers and consumers are not the only beneficiaries of e-commerce. The economy of the various countries with ecommerce presence benefits the most through the promotion of locally made products, that is Made in Nigeria. Majority of the sellers on the Jumia marketplace sell locally made products, especially fashion items. These local producers enjoy unprecedented exposure and access to millions of customers across Africa. This therefore makes for a strong case because 75% of most African economies derive their revenue from micro, small and medium enterprises. It thus means that the more exposure these local businesses enjoy on the Jumia platform, the more revenue will be generated for the countries.
As a result of the precedence set by the pan African ecommerce platform Jumia, investment opportunities started knocking on the continent. Established ecommerce platforms in other regions, such as Amazon, started eyeing the many opportunities to establish its presence in Africa. For instance, Souq, a Middle East player was bought by Amazon in 2017 to establish a presence in Egypt; Naspers owns Takealot in South Africa, competing with Jumia’s fashion retail platform, Zando. Others are local competitors such as Mall for Africa, Afrimarket in West Africa, and KiliMall in Kenya. From time immemorial, Nigerians, and maybe some Africans, prefer to physically see and inspect a product they are buying before making a purchase; it was more cultural and behavioural than instinctive. As a result, many thought the idea of e-commerce might not hold waters in the continent because unlike the physical stores, it doesn’t provide an opportunity to feel and touch a product before it is purchased. Yet, over 4 million Africans today enjoy the convenience of ecommerce, especially due to the provision of Cash on Delivery as a mode of payment, and return policies put in place by most platforms including Jumia.
But, the pie needs to grow. Less than 1% of all retail transactions in the entire continent is still a very small pie. In the words of Jumia co-CEOs Sacha Poignonnec and Jeremy Hodara, the company will continue to remain focused on its core operations in driving consumer adoption and engagement on its marketplace, will continue to invest in infrastructure such as warehousing & logistics. It will also continue to increase the penetration of JumiaPay, its proprietary payment solution which is a one-stop solution for any customer that buys on Jumia and enables him to pay with any of the available payment methods in the respective markets.
Jumia’s operations in Africa have proved sceptics wrong that there’s a viable opportunity for ecommerce to help sellers grow their businesses exponentially by giving them access to millions of consumers; to help consumers find any product they desire from a large pool of product assortment, which the company continues to expand to accommodate new consumer demand; and to help individual and large logistics companies who are part of the Jumia logistics network grow their businesses and make more deliveries. In fact, in 2018 alone, through these logistic partners, Jumia made 14.6 million deliveries across Africa.
According to the African Tech Startup Report published by Disrupt Africa, 210 African tech startups raised a total of US$334.52 million in funding in 2018 from foreign investors. The number of startups that raised funds grew by 32.1 per cent, and total funding jumped by an impressive 71.5 per cent. In terms of sectors, the fintech space continued to dominate, remaining a clear favourite among investors and, at US$132.75 million, accounting for 39.7 per cent of total funds raised. This was an increase on previous years, but nonetheless, there are strong signs of progress in other sectors, with multiple ed-tech, e-commerce, e-health, transport, logistics and agri-tech startups raising funding as investors saw opportunities in a large number of areas (Source: CNBC Africa).
Gabriella Mulligan, co-founder of Disrupt Africa, said: “2018 was an incredible year for tech startups in Africa. The continent’s entrepreneurs have grabbed the attention of investors, accelerators, and media both locally and globally this year with their innovative solutions and business models, and it’s great to be able to report on such strong results across our ecosystem.”
To conclude, Africa has more to offer than the stereotype image that has been created over the years. It is our responsibility first as Africans, as stakeholders and even governments to believe and build on the achievements the continent has made and to focus on the innumerable opportunities it possesses. This way, Africa will not only continue to attract both domestic and foreign investments, but will also further encourage budding entrepreneurs to trust in a system that aims to stimulate economic and job growth.
