By Silver Kayondo
Last week, Jumia Technologies AG- Africa’s largest e-commerce retailer listed on the New York Stock Exchange (NYSE: JMIA). The company’s stock debuted at the $14.5 price per share after setting the initial valuation between $13 and $16. By the close of first day, the share price had shot to $ 18.95 a remarkable 31.7% jump higher than its initial public offering (IPO) price of $14.5 raising $196 million, which will go up given that about 2 million more shares are still available to underwriters thus taking Jumia’s possible total raise to $225 million. At the time of writing this article, the trading activity is still growing very positively. By all accounts, this is not only a novel transaction for the African continent, but also signals a very positive outlook for Jumia, the continent’s digital economy, and the future of fundraising for Africa’s start-ups.
However, in spite of the above success, some critics have faulted Jumia for claiming to be an African company, yet it is incorporated in Germany, headquartered in Dubai and having its central tech team based in Portugal. The proponents of this narrative argue that it is immaterial that Jumia is the largest e-commerce business across Africa with operations in 14 countries including Nigeria, Kenya, Uganda, Morocco and Egypt. Furthermore, they argue that Jumia should not “misrepresent” itself as African because its success signals not the potential of “real” African start-ups, but the potential of Western founders and their money to succeed wildly on the continent.
Unfortunately, the above narrative is problematic because there is no fixed or universally accepted definition of an “African start-up”. This is further complicated by the emergence of new digital business models that focus less on physical place of domicile and leverage more on cross-border digital presence to generate value across their platforms.
Additionally, the criticism against Jumia fails to contextualize the enormous social impact the company has had on the continent. Jumia’s platform has about 81,000 active merchants transacting online with millions of consumers and directly employs about 5,000 team members in Africa. All these indices do not take into account the indirect associated benefits to other platforms such as fintechs, payments, digital inclusion, local content development, last-mile delivery networks, digital literacy, skills and technology transfer, and other functional utilities that accrue from use of Jumia and other related platforms.
Most fundamentally, the Jumia listing debate needs to progress from the nationality of the entity and focus on the fundamental lessons that African start-up entrepreneurs, policy makers and regulators can learn from this novel transaction. In terms of value, the Global Consulting and Advisory firm, McKinsey projects that e-commerce will be worth $75 billion in Africa’s leading economies by 2025. According to eShopWorld, Internet user penetration in Sub-Saharan Africa is predicted to grow from 17.9% to 20.6% in 2020. Research firm Statista estimates that the ecommerce sector in Africa generated $16.5 billion in revenue in 2017 and forecasts revenue of $29 billion by 2022.This calls for swift development and convergence of Africa’s digital economy strategies to cater for cross-border business regulation, tax administration, employment, investment obligations, and other aspects relevant to maximize value in our infant ecosystem.
Jumia’s positive story is a sign that Africa’s brand is leverageable in the international capital markets. It serves as a signal that there is value in the continent and it is anticipated that this will build more trust in Africa as an investment destination, and attract more domestic and international venture capital and private equity into the continent’s start-ups to build more scale and impact. We look forward to facilitating this new dawn.
Silver Kayondo is a Partner at ORTUSafrica Advocates LLP. He specializes in technology, venture capital and private equity transactions. Twitter: @SilverKayondo Email: lawyerkayondo@gmail.com
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