How One Tech Startup is Pioneering Africa’s E-Commerce Industry

Jumia has created a sustainable ecosystem of digital services and infrastructures through online and mobile marketplaces and classifieds. With Jumia, Expand Your Horizons!

—From the Jumia Website

Jumia logoMany parts of Africa haven’t yet solved the problems that plague retail commerce. Specifically, areas of the continent have distribution problems—the result of undeveloped transportation and logistics networks. Currently, informal markets comprise many business transactions, which has led to problems like overcharging and theft. Some people resort to traveling abroad to find the goods they need, packing them in overstuffed suitcases to carry on the flight home.

However, talented entrepreneurs, investors, and innovators are working to solve many of these problems. The continent’s expanding middle class and ever-growing customer base are attracting investors to the African retail market.

The Jumia Group is an excellent example of this period of transition for African retail. Jumia recently became Africa’s first tech startup company to reach a $1 billion valuation. The company has achieved its massive success by focusing squarely on developing reliable e-commerce services.

On a macroeconomic level, the McKinsey Global Institute predicts that Africa’s largest economies will spend approximately $75 billion on e-commerce sales by 2025, or about 10 percent of total retail sales. With the continuing adoption of mobile technology and increasing Internet access, other startups are moving into the e-commerce space as well.

None have been more successful than Jumia, however.

History of Jumia

Jumia is a Nigerian retail and e-commerce site that sells a wide array of product types: fashion, electronics, appliances, furniture, children’s toys, and even food and alcohol. The company was founded in 2012 by entrepreneurs Tunde Kehinde and Raphael Afaedor, who subsequently obtained an investment of $35 million in Series B funding that buttressed the company’s initial scaling efforts. Other large investments followed.

produceUnderstanding the challenges in the African retail industry, including “poor infrastructures, bad traffic, limited choice, limited information, expensive products and services,” Kehinde and Afaedor decided to leverage the power of the Internet to meet consumers’ needs. The founders were well-attuned to the continent’s expanding middle class, and they also understood the common risks associated with e-commerce in Africa. Kehinde and Afaedor developed their business model with these factors in mind, and the result has been a resounding success.

Dubbed the “Amazon of Africa” by media outlets, Jumia appears to be on a sharp upward trajectory of growth. Indeed, many observers have commented on the company’s similarity to Amazon in many regards, including in the aesthetics of its website, delivery times, and low costs relative to other retailers. Jumia has also prioritized security, convenience, quality, and price to attract even more customers.

During the first nine months of 2015, Jumia recorded transactions totaling 206 million euros, or nearly $231 million USD—a 265% increase over the previous year. Such momentous growth has allowed the company to expand its operations to 23 African countries in four years. According to the company’s website, over 500,000 businesses are using Jumia to sell their products.

African Development and Jumia

The McKinsey Institute predicts that Africa’s “iGDP”—or the Internet commerce contribution to gross domestic product (GDP)—will be comparable to that of leading economies by 2025. A significant factor in the McKinsey estimations is Africa’s continuing adoption of mobile devices.

ComputerAnother overarching factor in the success of Jumia is the technological advancements occurring in major urban areas throughout Africa. Network infrastructure development—namely, mobile broadband and fiber-optic cable—is enabling millions of Africans to access the Internet for the first time. In addition, people who reside in major urban areas in Africa tend to have higher disposable incomes, providing e-commerce companies with a deep well of prospective customers.

The decreasing cost of smartphones has also contributed to Jumia’s customer base. Mobile network operators have begun to establish business relationships with device manufacturers to capitalize on the growth of Africa’s cell phone market, including in less-populated regions of the continent. This is a significant development, as expansion into the rural areas of Africa provides Jumia with another customer base to target.

Remaining Challenges

While Jumia has experienced success by mainstreaming e-commerce in Africa, there are still persistent barriers that make cross-border e-commerce difficult. Some of these challenges are familiar: poor infrastructure, underdeveloped logistical networks, fraud, and low credit card usage rates. In addition, many countries in Africa do not have a formal address system, which complicates delivery. Manuel Koser, a partner at a venture capital firm that worked with Jumia, summarized the company’s current position in an interview with The Guardian: “Jumia has been very successful at fundraising and it is a real success story, but it needs to move to a sustainable business model.”

In attempts to tap into the market of off-line citizens, which remains a disproportionate majority of Africa’s population, Jumia introduced a service that acts as an “online hub” where commissioned sales agents work with customers who lack Internet access. The company hopes that these outreach efforts will help bring more customers into its fold.