Is there a future for the ‘Amazon of Africa’?

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1:13I'm watching a video with my colleague Anu Adeoye. In it, a bunch of executives from a company called Jumia have gathered in downtown Manhattan, inside the New York Stock Exchange. Everyone is happy. Everyone's clapping. They all look very excited. There's some fist pumping, clapping. You know, it all works. Everyone is very excited.

1:39The reason they're so happy is because this is the day Jumia is officially listing on the exchange. It's April 2019, and the company's being called the, quote, Amazon of Africa. So expectations for the company are sky high. It was a massive time. It was a time of massive hype. This was the first time that an African tech startup had gone public anyway, never mind that this was happening in New York, the biggest capital market in the world. And at the time, it was also the largest African IPO outside of the energy sector. So, you know, this was a massive time. It seemed like Jumia was poised for success.

2:23But since it's listing, those sky-high expectations just haven't come through. I would say a company that's listed with great hype, with great fanfare, seen as potential runaway success, has essentially not lived up to the hype. And in some ways, some people would say has become some sort of cautionary tale about trying to transpose Western ideas of companies and investments directly onto the African continent.

3:02I'm Michaela Tendera from the Financial Times. Raising money for African startup Jumia was the easy part. What followed after has been the biggest hurdle. Today on Behind the Money, we're examining where they've struggled, how the company's trying to chart a path to profitability, and what this tells us about the challenges that come with applying Western business models in Africa.

3:35From its earliest days as a startup, Jumia had some big goals. Jumia was founded in 2012. It began in Lagos, Nigeria, by four people. Two of them were French former McKinsey consultants. The other two were African tech executives. And they had the idea of essentially revolutionizing our African shop. The idea was it would be a one-stop shop for anything that people on the continent wanted to buy. And they were referred to and they leaned into this whole idea of them being the Amazon of Africa. Around this time, internet connectivity and access to mobile phones across the African continent is on the rise.

4:19It feeds into general thinking that Africans are on track to join the e-commerce boom that's happening elsewhere in the world. And so a catchy description for a startup, the Amazon of Africa, is pretty much like catnip for investors. You know, 2012 is a very interesting time, just four years after the global economic crisis. So we were living, you know, in the West in an era of very cheap capital, zero interest rate. It was the time of, you know, tech optimism, the Facebooks of the world. You know, they were raising hoodoos of cash. As Jumia's founders go out and fundraise, a whole group of blue chip investors open their wallets.

5:02On paper, it's a great idea. Amazon for Africa, X for Y. You know, we were also living in this era of a lot of X for Y, you know, Uber for X country, Uber for Y country. It was a very, I think, intoxicating idea that you could take this thing that worked in Silicon Valley, in America, you know, in Europe, take it to, you know, to Africa or to Latin America, and you could get outsized returns, right? There was also the fact of FOMO, you know, this fear of missing out. You don't want to be the investor that didn't give these guys money when you could, you know, getting on the ground floor and making a lot of money.

5:44Some of the firms that invest in Jumia include Goldman Sachs, Germany's Rocket Internet, France's Orange and Pernod Ricard, and South Africa's telecoms company, MTN. And between 2012 and their IPO in 2019, Jumia raises over$800 million. I asked Anu how this compared to what other startups in Africa were raising at the time. Were investors rushing into all kinds of startups on the continent? I mean, there was funding for other African startups at this time, but nothing on the scale of what Jumia was able to attract. And I think this is where some Jumia critics will say a lot of the things that the company has been able to do or achieve has been because they had this unique access to capital.

6:36And this is where I point out that a few years ago, there was some research that showed that in Kenya, which is one of the biggest hubs for technology on the continent, a lot of the investment goes to startups run by non-Africans. And that's kind of a point that Jumia's bashers have made that, you know, Jumia was able to attract investment because he had two well-connected former McKinsey consultants who were French. And if you also look at the investors who put money in this company, there were some prominent French companies involved, you know, Orange and Penorica. So I think that's kind of the point that Jumia's critics always make.

7:22Anu, so by 2019, how are things looking on the ground for Jumia? Jumia expanded across the continent. They had operations in 14 different countries in Nigeria, in Egypt, in Morocco, in South Africa, in Kenya, in Ivory Coast. And in those countries, different verticals. So they had the core e-commerce offering, but they also had, you know, things like food delivery. So basically like your DoorDash. They had a travel portal where you could book tickets and book hotels. That was Expedia. You know, they had their hands in so many different pies at this time in 2019 that we're talking about. Wow, that really sounds like a lot of different businesses in one.

8:03Yeah, exactly. You know, from my conversations with former Jumia insiders, this was a strategy that was largely driven by outside investors. You know, the idea was we are going to prioritize scale. And this idea is that, in Jumia's case, expanding across Africa was part of its bid to show that it's a pan-African concern with interest in many verticals and in so many different countries as well. Right. And so how was all that expansion impacting their financials in the lead up to their IPO? Jumia had lost roughly$1 billion since its founding in 2012 to its listing in 2019. And the argument always was that they had to take those losses as they were expanding, which is obviously the ethos of Silicon Valley types, that you move fast, you break things, you invest, and eventually at some point down the road, you will make money back.

9:05So Jumia is optimistic. Yeah, so they're burning cash. But investors have hope that they'll make a return soon enough. And it seemed like they shared that optimism when Jumia made its splashy IPO. But this hype doesn't stick around for very long. Within a few weeks, a report from a short seller called Citron Research drops, accusing Jumia of fraud. So Citron Research said that it had obtained a confidential presentation that Jumia made to investors in the months before it went public, and that there were serious discrepancies between that presentation and the information that was disclosed in the IPO filing.

9:52Jumia denies these accusations, but the company's stock takes a hit. This report into Jumia was a blockbuster. It made them lose roughly 25 % of their value around the time of the report. And I think that was the first real problem that Jumia had as a public company. Bear in mind, this report came roughly three, four weeks after they had gone public. It was basically someone putting a pin in the balloon of this company that had just gone public. From there, Jumia hits one bump in the road after another. The company's losing more and more money. Investors' confidence in this once-shiny unicorn starts to fade.

10:35In 2022, Jumia reports a loss of more than$200 million. So what happened? Why did a company with so much promise that raised so much money run into so many problems?

10:54Well, for one, it has to do with a bet the company made early on. We mentioned before that Jumia expected more people in Africa to join the e-commerce boom thanks to the growing access to mobile phones and the internet. So half of Jumia's bet is paid off. Loads more Africans are online now than ever before. I think roughly half of Nigerians are online now, you know, and you can see it in, you know, TikTok and whatnot. But the other half of that bet was that as more people get online, they are going to shop on the internet. That has not paid off. That's because people basically don't see e-commerce as a core concern for their lives.

11:39If you look at the time between now and 2019, it's been a period of great upheaval on the continent. We've seen high inflation in so many countries where Jumia is present. We've seen currency devaluations in Nigeria, for example. You know, the pandemic also did not help them. So there's been sort of a mismatch between what Jumia was expecting from their potential customers and what really panned out. That point goes a bit further, too. So I think when the company first began, you know, from my conversation with the CEO now, but also from people who worked at the company, there was this sense that they were kind of looking to serve the urban elite, quote unquote, that is, you know, people living in the big cities, people who, you know, also were middle class.

12:28and it felt like they thought it would be similar to the type of middle class that you obtain in the West, which I think kind of feels like a misjudgment of what the income levels are. Another persistent problem Jumia faces throughout has to do with logistics. Basically, getting that item you ordered online from a warehouse to you. So it's all well and good to say you want to build the Amazon of Africa. But when Amazon was starting out in the US, logistics was pretty much a straightforward thing. People knew how to get things from point A to B. Logistics is still a growing industry in many countries in Africa, right?

13:13So it's easy for people to order something online, but you still need to get it to them. That means, you know, infrastructure, roads, you know, do they even have addresses? There's places, you know, particularly outside of the big cities where Jumia operates in, where people still don't have addresses. And making the execution of all this even more difficult, Anu tells me the company's top executives' offices were in Dubai. The founding executives, at least 50 % of them are French, and they had a large office in Dubai where people were based. This kind of blew my mind from my reporting. It was because some people who were working for Jumeir, from really senior people who Jumeir had brought in from all these various elite institutions were either unable or unwilling to move to Africa.

14:08And from my reporting, what people said was, you know, a lot of the employees were based in Africa, but the key decision makers were not. And so they felt that a lot of their local context and their local knowledge were not necessarily incorporated in decision-making processes. So there are a lot of reasons that Jumi has struggled. The only question is now, can they turn things around?

14:39The future of fixed income investing will continue to blur the lines between public and private markets. Nuveen's credit platform was built to navigate this shifting landscape, channeling capital toward the businesses, infrastructure and energy solutions that are shaping tomorrow's economy, all while aiming to deliver the resilience and returns that portfolios seek today. Nuveen. Invest like the future is watching. Visit nuveen.com slash future to learn more. Investing involves risk. Principal loss is possible. Do you think the company expanded too fast as well, like during this time? I think, I mean, inside is 2020, right?

15:17Aanu Adeoye: It's always easier to speak a few years later when we had to fix up a few things. But I do believe that to be successful in the markets we operate across Africa, you need amazing execution. What you're hearing now is Anu speaking with Jumia's current CEO. His name is Francis Dufay. He was appointed CEO in 2022, the same year the company reported that$200 million loss. Anu interviewed him in August. I think there was a part of him that was being diplomatic about, you know, Antitrust 2020 and him not wanting to cast aspersions on the people that came before him running the company. But what he was saying here was we tried to do too many things too quickly, too soon, too fast.

16:04You know, they wanted to deliver your food, but they also wanted to help you book your holiday, right?

16:11Aanu Adeoye: Yeah, it's obvious that the company went chasing too many different topics. Yeah. I mean, it looked like a good idea because it had been done on other continents. And everyone at the time wanted to build a super app with all the services on Earth. But the truth is that to execute one business at scale, like e-commerce, well, it turns out you really need to focus particularly in our operating environment. So for Dufe, it's basically him saying we should have been hyper-focused and not, you know, add our attention drawn away to all these other extraneous things that didn't really do much for our bottom line.

16:51Like his predecessors, Dufay worked in consulting at McKinsey earlier in his career. Francis is a well-regarded, soft-spoken guy. I've met him a few times, spoken to him a few times. And, you know, before he became CEO of Jumia, he was a vice president in the company. So he was an insider. He had been with the company since 2014, so he joined only two years after founding. He has been based in Abidjan in Ivory Coast since 2014. So he's kind of immersed in one of the big markets where Jumia operates. Since Dufe took over the reins as CEO, he's had one key objective. Yeah, I mean, the company was quite clear about why they brought him in.

17:34It was to reach profitability, right? It was a sense that this loss-making could not continue. Anu, what's been Dufe's plan to achieve that? What Francis and the leadership team at Jumia have done is to essentially become a smaller version of themselves. You know, when they went public, we said they were in 14 countries. A few months after going public, they left a few more. And now Jumia is present only in nine countries. Last year, they left South Africa and Tunisia. they have closed a lot of their verticals, food, travel, you know, they all works. They no longer do that. They only do logistics, e-commerce, and they have their payment business.

18:17Under Francis, they have slashed marketing spend by a lot. It's now only a quarter of what it used to be. They have had rounds of layoffs. They have mostly closed their offices outside of Africa. So the Dubai office that used to be a source of consternation to a lot of people has now been closed. So yeah, Jumia is basically shrinking in the hopes of becoming profitable partly through that. Are all those changes having an impact on their finances? They've reduced losses from$200 million in 2022 to nearly$100 million at the end of last year. They're on track, according to them, to lose between$45 to$50 million this year.

19:06Other metrics are improving, and I'm quoting from the company's second quarter result here. Gross merchandise value, which is essentially the total sales value, grew 6 % year-on-year to$180 million. There was a 25 % increase in revenue to about$46 million. Others have grown as well. So I think, you know, while these numbers may not necessarily sound that large, in the context of everything we've discussed and the work they're doing right now, it's clear that things are trending in the right direction. What about the issue they had with figuring out the type of customer that they were trying to sell to?

19:46So in Dufay's telling, the company is now proud to serve what it describes as quote-unquote the real middle class of Africa, which is people earning between$200 to$300 a month. I think you can also see it in what he told me, you know, they no longer dream of selling big so-called iValue items like, you know, like iPhones or whatever it is. And now they are kind of much more trying to position themselves as the destination of affordable and quality goods. You know, if you're looking for a cheap watch or something of the sorts. So the situation seems to be stabilizing. But the company set a new ambitious goal for itself that's coming up in less than two years.

20:33Jumia hopes to achieve profitability by 2027. So everyone now has a date in the calendar to look at. And so there's now some time for investors and analysts and journalists like myself to look out for, to say that, you know, 2027, we're nearly there, what's going to happen. And it's also interesting because the cash on hand that they have is roughly $100 million right now, their last results, which means at current trajectory, they have two years of cash left. And they've also said that they do not intend to, you know, get any new infusion of capital. So, you know, it's essentially like a race against time.

21:19Right. So how likely is it, do you think, that Jumia will be able to become a profitable business by 2027? I spoke to a respected analyst from a media and strategic intelligence firm who said he gives Jumia about a 70 % chance of succeeding, making it, reaching profitability in 2027, which is a top mark. And he told me it's a massive increase from the near 0 % he would have given Jumia three years ago if they had not done the management change. So that kind of shows you what analysts think of the work that Dufay and his team are doing right now. We know that Jumia has been operating in a region where e-commerce faces some serious challenges.

22:04Those include ongoing problems around shoddy infrastructure and customers wary of online shopping. not to mention they're working in economies where a high proportion of household income is spent on necessities. So what challenges do you see this company up against as they aim for profitability? There are outside factors. One is the macroeconomic conditions. You need things to improve in the markets where you exist. Otherwise, nothing is going to work. But most importantly, they have two Chinese giants trying to steal their thunder. And they are Timu and Shin because both of these companies have an insane amount of capital behind them.

22:48You know, they offer aggressive discounts. You know, if you go on Timu, you can get discounts for as high as like 50 % off on items. Right. And these guys are aggressively expanding into Africa. So this idea of taking, you know, a Western business model, the Amazon of Africa, and applying it to an African business, based on what Jumia has faced, what do you think that tells us about how effective that model is or isn't? Yeah, I mean, I think Jumia is, as we've said throughout this conversation, is a byproduct of the time he came out. You know, this era of tech optimism, cheap money, this idea that technology will help African countries leapfrog.

23:33But I think the reality is much more deeper than that, right? Right. You, there's only so much you can iterate or innovate ahead of basic infrastructure, right. Which many countries are only still just like building out. And so I think again, like because this model works in country X, because Amazon worked in the U.S. where the U.S. Postal Service had been delivering things for decades on end, doesn't mean it's going to work in a country like Nigeria, where the Nigerian Postal Service is kind of more about, for example. Right. It's all of these different, like, I think nuances of knowing the local context.

24:11It's really, really important to know the local context of where you're trying to deploy all of this capital. Otherwise, you might just find yourself spending a billion dollars to learn these really harsh lessons.

24:29Behind the Money is hosted by me, Michela Chendera. This episode was produced by me and Safiya Eshmed. Fact-checking by Simon Greaves. Special thanks to Jeff Dyer and David Pilling. Sound design and mixing by Sam Giavinko. Original music is by Hannes Brown. Topher Forges is the FT's acting co-head of audio. Thanks for listening. See you next week.

25:01The future of fixed income investing will continue to blur the lines between public and private markets. Nuveen's credit platform was built to navigate this shifting landscape, channeling capital toward the businesses, infrastructure and energy solutions that are shaping tomorrow's economy, all while aiming to deliver the resilience and returns that portfolios seek today. Nuveen. Invest like the future is watching. Visit nuveen.com slash future to learn more. Investing involves risk. Principal loss is possible.