Jumia -Africa's Punching Bag

It took Amazon 9 years to be profitable in the USA — the best market for e-commerce in the World. Jumia, operating in a region tougher by an order of magnitude, has a fair chance to do it in 10–12 years from launch. So why does it seem in the recent online publications (1, 2, 3, 4, 5) as if Jumia’s is a failure?

“Amazon is hemorrhaging cash and might not survive. It struggles with a weak balance sheet, poor working capital management, and massive negative operating cashflow — the financial characteristics that have driven innumerable retailers to disaster through history.” Lehman Brothers’ Analyst about Amazon, June 2000

Yeah… that quote didn’t age well either. While the (now defunct) Lehman Brothers became the face of the crooked and greedy financial systems, Amazon is now one of the most powerful companies in the World. But Amazon’s story is far from a smooth ride. They barely made it through the Dotcom bubble and had to face a lot of negative press, skeptics, and simply pure haters through most of the nineties. They were lucky Social Media wasn’t a thing yet back then. The single most important reason Amazon survived it’s first 10 years is the fact that they raised enough money, sometimes only weeks before going Chapter 11. All the Amazon cool products and features praised nowadays came way later.

Drama gets clicks. Press exaggerates stuff. Markets work in cycles, so does media and it’s sentiment. Financial Times called Jumia “Amazon of Africa” already in 2013. CNBC made a video about how Jumia is beating Alibaba. You can’t praise someone forever, it gets boring. Bringing a hero down is what people love to see. Just ask Batman or Superman. Once editors run out of positive angles, they hunt for negative ones. That works in searching for topics about Apple, Google, Facebook, as well as AI, Renewable Energy, etc. It’s also worth mentioning that out of 5 recent negative articles I linked above, only one of them was written by a real journalist working for the title. All the others were either op-eds, written by someone from the outside, an anonymous writer, or a former fired Jumia employee. Everyone has a dog in this fight and is either long or short on Jumia, including myself. A large portion of my book is about my personal experience and reasons for leaving the company I helped build. But I do acknowledge the big picture here. 

“Their business model can’t work”, “The only way they won with me was by cheating” — say former competitors that lost the fight.

“They are too demanding, their model won’t work” — say former employees who couldn’t keep up and got fired.

“They conditions are draconian, they are rude, and also a failure” — say former business partners who failed to negotiate a better deal for himself

“Our market is different than the others. You need to adapt to our rules” — says literally everyone in every market.

There is a lot of frustrations among African entrepreneurs, many times very valid ones. It’s much harder for them to raise money from International VCs due to a lack of trust towards them. And African investors, on the other hand, largely don’t understand the technology as a sector. Jumia takes a lot of the blame for the “foreign vs local”, “African vs European” “white vs black” animosities. 

Some people just want to see Jumia burn for reasons not related to business. They are cheering at the “neocolonizer” retreating and having problems. I must say that in many cases I was disappointed to see people (who I considered reasonable and established entrepreneurs and executives) engaging in spiteful twitter rants about Jumia, where the only tangible thing that got disclosed in those rants, was their personally motivated disgrace towards Jumia. Germans have a word for it: “Schadenfreude”. Which means a pleasure derived by someone from another person’s misfortune. I mentioned “ze Germans” which bring us another case.

Trying to define the nationality of a global company in the modern world is one: impossible and two: pointless. It’s impossible because there is simply no global consensus about what to take into account. What counts and what doesn’t? Is Citizenship of the founders as important as passports of later-stage investors, who now have the majority? What if the investor is a multinational company? Is the startup HQ location important? What if the HQ is just a cost center (pays no taxes) and the IP (intellectual property) is hidden in a different entity in a different country? What about the location and nationality of the clients, employees, and other stakeholders? What if they are complicated entities too? This conversation takes us down the rabbit hole, and even if we conclude anything, it will be just an opinion. Passports and nationalities have become just another commodity, and both corporates and individuals can change them. This is why the whole conversation is also pointless.

But when Jumia used the Africa context in its IPO communication, all hell broke loose. And the drama even earned its own Twitter hashtag #jumiaisnotafrican. It seemed like all those frustrations towards Juma finally found its way out. And the business sharks (or hyenas) were watching from thousands of miles away…

A short-seller, in most simplistic terms, is someone that makes money when the stock is losing value. Jumia’s average Short Volume Ratio (number of shares short in a stock divided by the stock’s average daily trading volume) for the last 12 months is around 25%. In financial markets, anything above 10% is pretty high and above 20% is extremely high. Jumia’s short interest is higher than Tesla’s (24% for the last 12months) which was considered as the short-sellers favorite victim globally (just look at the amount of bad press it got). 

The value of the public stock is simply a result of the investor’s/buyers’ confidence in the company’s future. If you fuck up the confidence, the stock goes down (BTW I just explained the whole philosophy behind financial markets — you’re welcome). What’s the best way to fuck up someone’s image? Black PR. Publish lies, fake news, exaggerations, and make it go viral. It won’t matter anymore (no one will care) even if after a couple weeks or months, most accusations will turn out to be fake. “A lie can travel halfway around the World while the truth is putting on its shoes” goes the saying.

The Communists during the Cold War had a special derogatory term “useful idiots” to describe Soviet sympathizers in the Western countries. Those people “were propagandizing for a cause without fully comprehending the cause’s goals, being cynically used by the cause’s leaders” (Wikipedia)

Citron Research is an investment company banned from Hong Kong stock exchange and sanctioned by the American Futures Association, in both cases for disclosing false and misleading information. Citron has decided in 2019 that “fresh out of IPO” Jumia is its next target. They have combined a lot of scattered information about fraud among Jumia salespeople. Such fraud has always been a common thing across the Globe in every department where people are paid only commission from sales. Citron took those stories and made it look like it was all a grand scheme orchestrated by the people at the very top to inflate the valuation before the IPO. The truth was that the fraud amounted only for a couple of percent of the GMV, and had no effect on the financial results. But the story was out, useful idiots kept sharing it online like there was no tomorrow. The damage has been done. Stocks have plummeted, short-sellers have made a fortune. 

Sheldon and Raj were never rude, they just didn’t know how to speak to women or people. Just like some Jumia managers. The company strategy has always been to stay pretty restrained when it comes to Press. As long as there was proper communication with the investors when Jumia was private, the average Joe wasn’t much of an issue. That changed with the IPO, the publicly listed company had no choice but to be more open. You can’t just ignore the media and let the numbers speak when the numbers don’t speak well. It’s all about narration. It was clear to see that Jumia leaders were not ready to deal with the old dogs of the financial markets media coverage. Jumia’s CEO gave an overall decent interview on CNBC during the IPO. Unfortunately, he got caught off guard and his not the luckiest statement about not enough developers in Africa cost Jumia a big backlash in the home market. Obviously, there are many developers in Africa. In 2012 however, every major local startup (Konga, Slimtrader, Wakanow, and others) was struggling with building local dev teams and in most cases outsourced it at some point for example to India. Challenges in building eCommerce in Africa are more offline related than online, and at an early stage of growth, you simply want to focus on other priorities than building own tech. Jumia’s Nigeria CEO also didn’t give the best and most assuring answers when addressing the fraud accusations on TV. Not everyone is made for such appearances and that’s OK, but in times of crisis, haters and short sellers will take advantage of that. Another thing was calling European Jumia managers arrogant. For many local employees, this was the first time to work with a foreigner. And for many of these foreigners, it was the first time to work with someone from Nigeria, Kenya, or Senegal. Conflicts were bound to happen. I remember being called rude a couple of times in the early days in Nigeria just because I always got straight to the point in email or a meeting. So I later learned to ask about the general health of my interlocutor, as well as his family, neighbors, and pastor, before jumping to the issue. 

When Rocket Internet put its first steps in Nigeria in 2012, all you could hear is that this Clone Factory is here just to quickly build a business, suffocate local competitors, and cash out after 2–3 years on the company’s success, before anyone notices. Rocket, although being a very active global investor and venture builder, doing mergers, acquisitions and exits every year, did the opposite, stayed with Jumia for 8 years, pumped hundreds of millions of dollars, and brought new investors on top of that. Rocket stayed with Jumia through thick and thin, pushed it through a tough IPO process. Show me another example, where the early stage investor of the company is judged for exiting after 8 years, post IPO. Typical Seed Stage VC timeline is not longer than 5 years. 

In startups, the investors decide whether losses are still a “feature”, or already a “bug”. Problem is, most retail investors don’t understand how high the operating costs are and how painfully slow the Jumia markets grow. 

“Africa” and “Potential” are always together in every PowerPoint presentation I see. But this means nothing if your investment horizon is not long enough. I honestly don’t even know where to start when comparing the first markets for Amazon and Jumia. We would have to look at purchasing power, internet adoption, the precision of addresses, online payments trust, merchants’ reliability, logistics services, currency fluctuation… and end with having access to running water and 24/7 electricity in your office. We are talking about the biggest economy in the World (the USA in the 90s with e-commerce growing 300% YoY) and Nigeria, a country where n 2017 Google was renting street billboards to educate about its search product, where around 2mln people (1% of the population) make more than 10k $ per year. In Africa, you simply need more time and money. You grow slower and you will achieve break-even at much higher revenue levels than anywhere else in the World. 

There is only a handful of companies in Sub Saharan Africa that did even remotely as much good for the ecosystem as Jumia. The IPO itself validated the market and many fund managers got their investments thanks to that. Hundreds of Jumia employees went on to become founders and raised money from investors thanks to Jumia in their CV, and thousands got a better position in a different company thanks to their e-commerce background. Hundreds of millions of dollars were pumped into offline marketing through local marketing agencies, printing shops, billboard owners, etc. Market education is the hardest to quantify but probably the most important argument among all of them…

At the end of the day, numbers will show us everything. Who knows. Jumia might be one of the few winners of the COVID-19 lockdown. Technology adoption (beyond obvious Facebook and Whatsapp use ) within your total addressable market has always been the issue. China’s post lockdown numbers have shown that many of the first time shoppers from lower-tier cities have come back for further purchases. That is exactly what we need here too.

There are so many challenges that need to be addressed for e-commerce in Africa to become hot again (hot because of exploding demand, not investor wallets) and it’s very likely that no one has cracked those challenges yet. No one benefits from Jumia’s problems besides short-term-thinking short-sellers. What made me fall in love with Nigeria when I moved there many years ago was the omnipresent hustle and absence of whining. This impression got only stronger with every new African country I’ve been to.

More hustling, less hating. This is not a zero-sum game. There’s enough room for everyone.