Let me congratulate Jumia for entering Africa’s finest ecommerce market: South Africa. Typically, you tell startups from Nigeria to shine their eyes before they go south since South Africa is a more matured market, and exceedingly competitive. You do not thoughtlessly go into business in South Africa. If someone drops you blindfolded, in Cape Town, in the night, you may think you are in San Francisco when you wake up! Typically, a kid born in Cape Town or Johannesburg has to leave South Africa to visit Africa!
With South Africa, Jumia will become a real ecommerce company as there are enabling infrastructures which actually make ecommerce to earn that “e” for “electronic”. What we have in Nigeria are physical stores with online stores since there are no leverageable anchors that reduce marginal cost during scaling. Without those enablers, the scalable advantages move towards “0”, turning a typical digital platform marginal cost plot to look like an average fixed cost curve with no inherent advantages via economies of scale.
Largely, as I have noted here many times, operating a pan-African ecommerce venture is hopeless, because your marginal cost instead of going to near-zero, as you scale, turn into a curve that looks like an average fixed cost curve (a shape that is similar to the one you see in Dangote Cement which confirms that ecommerce in Africa is a physical business, not electronic). When that happens, scale does not bring efficiencies on transaction and distribution which are critical for the profitability of digital businesses.
But in South Africa, Jumia can unleash its capabilities and can actually grow without the typical impediments imposed by the paralysis of African infrastructure. No wonder, investors like the call as Jumia’s stock has added about $1 to close above $4 since the announcement. Jumia had listed at $14.50 a share, valuing the company at $1.1 billion. Just four days later, its stock hit $49.77, raising its value to $3.8 billion.
Jumia pays its co-CEOs with Wall Street scale and we expect them to deliver Wall Street-like value. In 2019, the duo collectively went home with $5.3 million in all compensations, implying that a Jumia CEO earns more than any CEO of a quoted company in the Nigerian Stock Exchange, including the CEO of MTN Nigeria, and GTBank CEO. They certainly need to deliver!
Of course, Takealot, South Africa’s leading ecommerce player, is not an easy competitor. That is not an issue: there is room for all of them to cohabit when you remember that Jumia has a good warchest in cash to fight any battle. South Africa will treat Jumia fine.