Africa’s E-Commerce Unicorn Jumia Is Struggling
By CultureBanx Team
- Jumia shuttered its operations in Cameroon
- Shares of Jumia are down 77% since its IPO in April
Jumia (JMIA +5.25%), known as the Amazon (AMZN +0.63%) of Africa has shuttered its operations in Cameroon, as the company struggles along the path to profitability. The e-commerce business has seen its stock price decline steeply since its New York IPO in April, down 77%. This calls into question the company’s strategy of prioritizing growth over profits as it now seems to be backfiring.
Why This Matters: Perhaps comparing Jumia to Amazon or to the likes of Alibaba (BABA +1.04%) is a bit mis-guiding, given that the the U.S. juggernaut at comparable points in time was always more profitable and growing faster than the Pan-African company. The struggle is very real for Jumia as its third-quarter results missed revenue estimates for the second time in three quarters since becoming a publicly traded company. At the end of 2018 the e-commerce firm loss $977 million. Investor appetite remains questionable considering the company's persistent financial losses in its core markets.
At the end of 2018 the e-commerce firm loss $977 million
Cameroon’s economy is one of the largest in central Africa, but growth has been stalled over the past couple of years due to geo-political issues, macro-economic instability and a humanitarian crisis. Economic growth in the oil producing country is likely to slow to 3.9% this year from 4.1% in 2018, according to the International Monetary Fund. The IMF notes that a subdued performance by the country’s non-energy sector is weighing on growth.
Jumia’s Cameroon struggles may indicate similar problems in its other African markets, primarily because building an e-commerce operation at scale in countries with less developed logistics and transport infrastructure is hard and expensive. These countries are highly fragmented and have underdeveloped digital payments capabilities. Additionally, many African countries have high import tariffs with a limited ability for locally sourced products, which increases the cost of running an e-commerce business.
Jumia isn’t the first e-commerce platform to quit Cameroon. In fact, French-owned Afrimarket left the country earlier this year and Cdiscount vacated Cameroon in 2016. Businesses have often complained of customs clearance delays.
Situational Awareness: There are some things working in Jumia’s favor, it counted 81,000 active merchants and over 4 million active consumers last year. The company also has a proprietary payment service, JumiaPay, in markets like Nigeria and Egypt. It hopes to make this payment tool available globally.
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