Trajectory of Nigerian online retailer likely to illuminate future of African peers

YET, FOR ALL THE APPARENT SYNERGY, IT S TURNING OUT TO BE NOWHERE NEAR AS EASY TO DO IN AFRICA AS IT IS ELSEWHERE

One of the most interesting African initial public offerings (IPOs) is due to take place soon. It is that of Nigeria-based online retailer Jumia, one of only three African “unicorns”, unlisted companies valued at more than $1bn.

The listing is great news, but it has some investors wondering if it’s an effort at sustaining a difficult business or an attempt at fuelling a powerhouse growth trajectory. The answer may be a little of both.

The news of the possible listing has been around for a while. News agency Reuters reported from Germany in 2018 that German start-up investor Rocket Internet was preparing Jumia, in which MTN has a big stake, for a possible New York listing in the first quarter of 2019, which could value the firm at about $1bn.

Few details were available at that point, except the potential value of the company of about $1bn, of which shares worth up to $250m were likely to be sold, which would mean the listing of a smallish stake. No final decision had been taken about metrics. Few financials were available either, except that Jumia increased the goods it sold in the 14 African countries it operates by 71% in the first half of 2018, to €315m.

Growth in the first quarter increased by 71% and in the second quarter by 62% compared to the year before.

But here is the problem. Jumia saw its adjusted loss before interest, tax, depreciation and amortisation widen to €120.1m in 2017 off revenue of €94m. Yowzah.

Rocket Internet, a fascinating company in itself, was ecstatic about this growth, but even for huge enthusiasts of digital business, is a company that loses more than its revenue really sustainable?

This week the story popped up again, when Bloomberg reported without formal comment from any of the parties that the listing was going ahead, but the value put on the company was now a chunk larger at around $1.5bn.

The story included an important detail. MTN Group was planning to raise “as much” as $600m from selling its shares at the IPO. In other words, MTN intends to use the IPO as a way to exit.

This IPO and that of the Nigerian business is partly aimed at reducing debt, which is now R70bn.

MTN and all the parties involved cannot discuss their reasons for the decision, but I find it interesting from a conceptual point of view that MTN is exiting if it is indeed doing so. An enormous amount of money has gone into creating Jumia.

MTN put R2.4bn into the holding company, called African Internet Holding, in 2012 to get a one-third stake. Apart from Rocket, the third partner was a company called Millicom International Cellular. Global bank Goldman Sachs and European insurance group Axa put in another €300m in 2016. Also in 2016, global mobile company Orange put in €75m. As they say, a billion here, a billion there, soon you are talking about real money.

For the mobile companies, the argument has always been that if they did not get involved in an internet business, they were being blind to a great opportunity. What they could bring to the party was a payments platform, transactional expertise and a direct line to consumers. They would be blind not to seize the opportunity.

Yet, for all the apparent synergy, it’s turning out to be nowhere near as easy to do in Africa as it is elsewhere for all kinds of reasons. Perhaps the biggest problem is that it’ sa different ecosystem from the rest of the world because the supporting infrastructure is so badly lacking.

That means your ability to benefit from rapid organisation and rapid growth is missing. Combine that with the lack of homogeneous markets across the continent, and it all starts becoming very complicated. It’s worth noting Naspers sold its Nigerian e-commerce business Konga for, it is believed, a very modest $10m in 2018.

The typical retort to this argument is a single word: MPesa, the fabulously successful transactional platform in Kenya, partly owned by mobile operator Safaricom. However, it’s also possible that M-Pesa is an outlier, in that it got so big so fast that regulators were not able to keep up.

One of the great utilities of Jumia’s listing, if it happens, is that it could provide some insight into this existential question.