Africa’s nascent e-commerce sector has reached an important milestone. Earlier this month, Jumia, the dominant player in the sector, launched its IPO on the New York Stock Exchange. The public offering will allow Jumia, a rare African tech unicorn, to raise its valuation to $1.5 billion and add to its war chest as it races to acquire Africa’s online consumers. Trading has already attracted strong investor interest. In its first day of trading, its stock, which was priced at $14.50 per share, surged by 75% to $25.40 at close. Trading has peaked at $43 per share, up 197% from its original price.
Just like ride hailing companies Uber and Lyft, which are betting on a future without cars, Jumia is also making a bold bet: Africans will shop online and much more rapidly than skeptics believe. Rising per capita incomes, an increasingly young and urban population, falling internet and data costs, surging mobile phone penetration — these favorable long-term trends underpin the rise of the African online consumer. Jumia’s IPO points to the inevitability of African e-commerce which could grow up to $75 billion by 2025.
A first mover, Jumia has gone on to cement its status as Africa’s leading e-commerce company. In 2012, Rocket Internet, a German start-up incubator, founded Jumia and started operations in Nigeria before quickly expanding across the continent. Today, it serves over four million customers in 14 African countries, a nearly 50% increase over the previous year. Over the years, strategic investors, including MTN, Orange and Goldman Sachs, have bought stakes in Jumia, attracted by its rapid growth and long-term vision. But, Jumia’s ascent was not without its difficulties. From broken payments systems and poor last-mile logistics, Jumia has faced many challenges. For example, as many Africans do not own credit cards and are mistrustful of pre-paying for goods, Jumia started accepting cash on delivery payment. This led to high losses from fraud; in Kenya, Jumia still had outstanding $800,000 in cash payments for sales made two years earlier. Being a first mover in an emerging industry can get expensive.
But, Jumia is not playing a short-term game; it is focusing on the long-term enabling conditions that make Africa ripe for e-commerce. Positive demographic changes, rapid urbanization, and rising incomes across Africa will drive the growth of Jumia and other e-commerce platforms. Africa’s middle class is expected to reach half a billion by 2030, while the number of Africans living in urban areas will double over the next 25 years. Per-capita consumption spending in cities can be as high as twice their respective country averages. Moreover, Africa’s “youth bulge” will only amplify e-commerce opportunities. The number of Africans aged 15–24 is expected to grow over 50% to nearly one billion by 2050. This demographic will represent the key consumer class for e-commerce companies, buying goods online from electronics to apparel. Young Africans depend increasingly on their mobile devices for almost all aspects of their lives, representing the continent’s largest group using mobile technology. Taken together, these trends will create a wealthier, easy-to-reach, and tech savvy consumer base for e-commerce companies.
While challenges relating to infrastructure will persist, rising smartphone penetration and decreasing mobile data costs will further contribute to e-commerce’s rise on the continent. Given the increasing availability of affordable devices, the number of smartphone users reached 250 million in 2017 and is expected to nearly triple by 2025. This, coupled with the falling costs of data and expansion of broadband coverage, will boost the size of the consumer base for African e-commerce. Moreover, the rapid growth of mobile money across the continent and the rising popularity of “all in one” money management apps such as MTN’s mobile money, which allows customers to receive and transfer funds, buy airtime, and pay for everything from school fees to bills to online purchases, will further facilitate e-commerce growth. Established, mobile friendly companies such as Jumia stand poised to reap the benefits.
The takeoff of China and India’s e-commerce sectors, which were buoyed by drastic demographic changes in both countries, point to the positive trajectory of African e-commerce.
Over the last 15 years, both China and India have maintained some of the highest urbanization rates in the world. China’s middle class has exploded, growing five fold since 2006, while India’s has more than doubled during the same period. Capitalizing on this immense potential, Alibaba, China’s leading online marketplace, has ascended the ranks of global tech companies and grown to nearly 100 million daily users, while Flipkart’s status as an e-commerce giant in India was cemented by a $16 billion investment from Walmart last year. These companies’ successes demonstrate the exciting possibilities of an African market undergoing demographic transformation for e-commerce companies.
Africa’s e-commerce is a long-term play and future growth faces many challenges. Deficiencies in physical infrastructure could slow expansion into new markets and internet penetration growth has been uneven at times. But, these challenges do not change the inevitability of a rising online African consumer class. Jumia has the strategic investors, capital, and patience to wait it out. Impressive in its own right, the company’s IPO gains even more significance when one considers what it represents for the future of African e-commerce and the incredible opportunities this exploding market holds.
