No matter how you see it, size matters. And Africa needs to jumpstart the plan of deeper continental level market integration. Looking at Alibaba’s recent quarterly numbers, it is evident that in today’s world, you need size. At its present growth rate, Alibaba’s annual profit could acquire all equities in the Nigerian Stock Exchange. The New York-listed ecommerce giant made $10.2 billion profit last quarter. Our total market cap in the NSE is not up to $40 billion.
Chinese e-commerce giant Friday announced a massive 47 percent leap in net profit for the fiscal year 2017/2018, helped by a rise in smartphone and tablet transactions on its shopping platform.
Profit climbed to 63.985 billion yuan ($10.2 billion), boosted by a 60 percent rise in revenue from its core business, the online retailer said.
The New York-listed firm added 98 million active consumers over the year ended March 31, to a total of 552 million using its e-commerce marketplaces.
While many can argue that Internet offers unbounded and unconstrained distribution making market integration not critical for Africa, the fact remains that economies of scale will not seamlessly happen unless we fix cross-border trading challenges [This happens even for pure digital products like Facebook and Nairaland. Nairaland may be losing potential advertisers in Rwanda due to payment issues]. Alibaba benefits from a huge market size: China, the world’s second largest economy. African companies would benefit with a huge continental African market.
The difference between investing $4 billion per year and $200 million could be attributed to scale. The race to best AI and other emerging technologies would be won by scale because as I noted weeks ago in the Harvard Business Review, platforms enjoying near-zero magical cost make being small challenging. Simply, it is now winner-takes-all.
Apart from those areas, everyone is competing against global ICT utilities like Google and Facebook. We are learning that having more customers, which the internet provides, does not necessarily translate to more revenue, since getting those extra customers typically means offering things for free or discounting them. And global consumer technology powerhouses like Tencent and Google use customers to generate data that drives growth and revenues. These companies aggregate the data and scale massively with near-zero marginal cost, which is all made possible by the internet. Because they are ahead with an enormous number of users, they keep getting better, and the data they accumulate drives improvements in their algorithms. Changing this order is largely hopeless, and that creates a competitive stasis for local entrepreneurs.
Alibaba is joined by other Chinese firms like Tencent and Baidu in demonstrating that scale matters. The recent investment of $16 billion in an Indian ecommerce company is also a testament of the size of India. A fragmented India would not have been attractive to Walmart.
Walmart, the world’s largest retailer, has finally confirmed that it is making a $16 billion investment into Flipkart for a 77 percent share of the online retailer. Tencent, Tiger Global, Microsoft, Accel and Flipkart co-founder Binny Bansal will continue to be investors in the company with this deal. The investment will value Flipkart — India’s biggest online retailer with 54 million active customers and projected gross merchandise value of $7.5 billion for 2018 — at $20.8 billion when the deal closes. That close is expected to happen later this year after getting regulatory approval.
Walmart, Amazon and Alibaba have pockets of investments in Africa, usually from South Africa. They do really want to do business in Africa. But with our fragmented and heterogeneous markets, they do not come with the boldness you see in China and India. An integrated African market would change how they see the continent.
Sure, besides market integration, Africa needs to empower the citizens. That means people earning decent living wages. That will ensure they have money to spend. If the African Union wants to follow anything in the decade of 2020, it must ensure that Africa has a more integrated market. It would help our companies and our overall economic systems.