Connect with us

Broadcasting

Techpreneurs Must Avoid Jumia, Konga Strategies to Survive

Published

on

Kindly share this post

By Prof. Evans Stevenson

E-commerce in Nigeria has often been touted as a difficult terrain and not for the faint-hearted.

This position is backed up by concrete facts and verifiable evidence, especially when one considers the well-documented struggles of several players in the sector. Despite the allure and glitter that the segment holds, one requires deep pockets and a strong dose of guts and bloody-mindedness to survive in e-commerce, especially in a very challenging market such as Nigeria.

Undoubtedly, the promise of e-commerce and its potential for investors to strike gold remains undeniable. The foregoing remains evident when you consider the predominantly youthful population that Nigeria possesses – arguably one of the most youthful in the world, the increasing exposure that education and the internet brings, growing data connectivity and teledensity rates as well as the burgeoning interest in the convenience and savvy that online commerce brings. Also worth mentioning is the rise in social commerce among youths in Nigeria, with many turning to entrepreneurs via trading on social media platforms such as Instagram and Facebook, among others.

But despite these promising markers, a few weighty obstacles remain for potential new entrants into the market, especially from a strategy standpoint.

I was a lead panelist at a recent Consumer Trends Research/Analysis session in Nairobi, the Kenyan capital where the conversation naturally dovetailed into the prospects of e-commerce in Africa. Crucially, the Nairobi event, which witnessed attendance from key experts, opened the eyes of many to some of the pressing challenges that have deterred investors from reaping the undoubtedly immense benefits from their portfolio investments in e-commerce platforms on the continent.

One of the few take-aways from the session was the fact that the Nigerian e-commerce market is unmistakably one of the biggest in Africa. This is hardly divorced from the fact that Nigeria, despite its struggles, still remains Africa’s biggest economy. Also, unlike in other African countries where you would nominally have one big e-commerce player, Nigeria has two giants in Jumia and Konga, both of which are understandably the dominant actors in a segment which also has a few other competitors.

But in focusing on the strengths of the Nigerian e-commerce market which remains very attractive to budding techpreneurs and other young people driven by the lure of wealth and privilege that entrepreneurship holds, it is critical to sound a cautionary note of warning: copying the strategies deployed by current market leaders, Jumia and Konga, may be an exercise in failure.

In breaking down this caution to future entrants into the market, it is essential to begin by, first of all, establishing that the Jumia strategy is a very expensive one, a suicide strategy, so to speak, that is very hard to sustain but one which, if it comes good, would turn its proponents into overnight superstars. Founded in 2012, Jumia initially raised $26 million from Summit Partners in March 2013. At the time Jumia did not specify how it will spend the fresh capital – a subtle indication of an absence of a clear-cut strategy – but back then, Jeremy Hodara — co-CEO of Africa Internet Group (AIG), which owns Jumia — said the funding was a validation of the company’s progress.

“We are very pleased to have been given this show of confidence, which acknowledges Jumia’s success. We consider this a recognition of the huge potential of e-commerce in Africa and the strong momentum of Jumia across the continent,” Hodara had stated back then in 2013.

Flush with cash and with no apparent strategy or clarity on what to spend it on, Jumia had embarked on a massive marketing splurge to outspend and out-hire its competitor, Konga, which had also entered the market in 2012. A year later and now backed by Rocket Internet, Jumia announced it had raised €120 million ($150 million) in new funding. The company confirmed that the round values it at €445 million ($555 million), adding that the new funding would boost its continent-wide expansion. Active in nine African markets — Cameroon, Egypt, Ghana, Ivory Coast, Kenya, Morocco, Nigeria, Uganda, and Tanzania — and also the UK at the time, Jumia’s strategy hardly altered until its rival, Konga pioneered the online marketplace structure that has become so popular today. After initially thumbing their noses at this innovative strategy as something bound to fail, Jumia later followed suit and launched its own marketplace after Konga.

Subsequent fund raises which came from convincing its growing band of investors of the promise of investing in the potential e-commerce goldmine saw Jumia go public in 2019, listing its shares on the floor of the New York Stock Exchange (NYSE). A high point in the company’s history, Jumia would, however, fall from grace after being touted as Africa’s first unicorn. This came after it was discovered to have cooked its books and eventually being called out by a US-based firm, Citroen Research which described its shares as worthless. Also, it is important to cite the huge losses that have trailed Jumia from inception and which many experts see as a black hole it can never fill with the way the business is currently structured.

Till date, the Jumia strategy is one that has seen it refrain from building any form of infrastructure in Nigeria, its biggest market. Investigations reveal the same applies across the other countries in which it operates. Hardly can the company count on owning office spaces, retail stores, warehouses or core logistical or physical presence in Nigeria. For years, Jumia has run on a cash-intensive strategy which has seen it burn through investors’ funds at a fast rate and racking up monumental losses to boot. But while it can claim to have regularly grown Gross Merchandise Volume (GMV) – described as total value of merchandise ordered over a given period of time – it can hardly gloss over the deficits in its books.

From a revenue standpoint, Jumia currently relies on three main areas: first party revenue from direct sales business of inventory owned by the business, revenue from its marketplace (which is currently its highest earner) and other revenue, which currently includes revenue from its logistics-as-a-service activity launched in 2020.

Its recently released 2022 Q1 results show that Jumia is currently valued at about $778m, a figure which falls way short of its all-time valuation of about $5.8 billion achieved in February 2021. Also, its shares are down 32%, despite being recently up by 44%.  And while it claims GMV has risen by 27% per year boosting revenue by 44% year on year – a nine-quarter high – Jumia still reported a total comprehensive loss of $41 million and has a net asset of just $413 million after a massive accumulated loss of $1.7 billion.

Clearly, the biggest gainers were Jumia’s early-stage founders and investors who cashed out in time when other investors came calling. It is clear to global analysts that Africa is a tough continent and Jumia’s strategy may now be to find a buyer, but where it fails, it will be a disaster for investors.

It, therefore, came as a surprise when news recently made the rounds of a potential acquisition of Jumia by the Zinox Group, a technology conglomerate which I understand have acquired years of outstanding experience as a leading light on the continent. Such an acquisition would only make sense if the share price crashes to record lows, justifying such an investment as Jumia, today, is unarguably a loss-making venture that would require intense work to turn it around on the path of profitability. It could also be that Konga and its backers at the Zinox Group wants to use Jumia’s current network to expand to other African countries where Jumia is still recording losses.

But has its rival, Konga, fared any better?

Marginally, yes.

When it entered the Nigerian market in 2012, same year as Jumia did, Konga was also keen on raising money from investors as validation of their standing. The management of the company also burnt through a lot of cash to remain competitive in the face of Jumia’s bullish spending. So, the first few years witnessed both brands going head-to-head and racking up huge losses in the process. To its credit, Konga was a bit more conservative in its spending but that is not to say it recorded much more significant head-way than Jumia at the time.

The company, did, however, do much better in building essential infrastructure. It launched its own internally owned logistics vehicle – Konga Express – to overcome the thorny challenge of last mile deliveries, while also securing a license from the Central Bank of Nigeria (CBN) to float its own mobile money wallet known today as KongaPay. This is in addition to pioneering the marketplace structure known back then as the Konga Mall – a first in the African e-commerce market and beyond and which was later replicated by other local and international players. Konga also stood out for its investment in warehousing structures which helped it retain huge inventory.

Successive fund raises from perennial investors Swedish-based AB-Kinnevik and South African-headquartered Naspers, however, failed to save the company from almost running aground before its current owners, the Zinox Group, stepped in.

In assessing where both latter-day e-commerce pioneers went wrong in their strategies, it is easy to cite the absence of a core understanding of the local dynamics, an almost foolhardy ignorance of the complex interplay that defines the Nigerian market. Although I am not a Nigerian, I have spent enough years in the country to be able to identify the Nigerian market as a tricky customer. You need foresight, guts, experience borne out of years of navigating policy somersaults, keen awareness of the infrastructural deficiencies and influence of state actors, as well as other peculiarities that shape this market in order to make a success of e-commerce in Nigeria.

I think the Zinox Group’s experience of the Nigerian market and Konga’s strategies in investing in sustainable assets in Africa like warehouses, delivery trucks and more, instead of pouring all her money into marketing shows a commendable understanding of this tough market. It also shows that the new owners of Konga want to be in business for a long time and this could be why they have not yet hit the market to raise money.

Perhaps, that is why it hardly came as a surprise when Konga, which was almost comatose and on the verge of exiting the market at its point of acquisition, is today and under new ownership, the first e-commerce firm to achieve profitability in Africa.

The lesson for aspiring entrepreneurs in Africa here is simple.

Copying the strategies that made Jumia and Konga popular may seem like an easy deal but it may not be sustainable in the long run. Hype is good and necessary. However, it is very important to thoroughly understand your market, while situating your strategies within the context or existential realities of the society and not just relying on importing foreign concepts or business school models. In the same vein, you must put in the hard work to fill the content or deficiency gaps, while also making efforts to own your own infrastructure, especially considering the country’s challenges in this area.

 

Prof. Evans Stevenson, a Kenyan-born e-commerce researcher, writes from Abuja.

 

 

 


Kindly share this post

Ugo Onwuaso is an ICT enthusiast. He believes technology should be used for general good. He holds a Master of Public Administration (MPA) degree from the Lagos state University. Dear Reader, Your support matters. But we believe that technology makes life more exciting and helps improve the lives of people around Nigeria and indeed the world. That is why, we have devoted our energy to independent reportage of technology and finance and how they affect lives. Our incisive and analytical view of how technology news affects the daily life help individuals and organizations make up their minds. Quality journalism costs money. Today, we're asking that you support us to do more. Kindly support our effort to deliver technology and finance journalism to everyone in the world. Donate as little as N1,000. Bank transfers can be made to: UBA Plc 1017156876 Communication Week Media Ltd

Broadcasting

Copyright Commission Warns School Proprietors Against Pirated Books

Published

on

Kindly share this post

AS the Nigerian Copyright Commission (NCC) intensifies its public awareness campaign, school proprietors in the FCT have been advised to exercise due diligence by procuring books from legitimate sources to curb copyright infringement and help sanitise the book value chain.

This was disclosed by Mr. Emeka Ogbonna, the Director Operations, NCC, in his address at the General Meeting of National Association of Proprietors of Private Schools (NAPPS), FCT held at Veritas University, Abuja on 9th October, 2024.

Speaking to the participants, Mr. Ogbonna acknowledged the contributions of the proprietors to the educational development of the nation, emphasising the need for wholesome practices to protect the book ecosystem. ‘’If you must sell or distribute books, ensure you get them from the right sources”, he cautioned.

He said the warning was imperative in view of complaints from right owners and publishers about schools selling pirated books. He stated that the NCC is not opposed to schools selling books, but maintained that due diligence must be exercised by ensuring that all purchased books are properly documented with authentic receipts.

Sensitising the school proprietors further on the tenets of the new Copyright Act 2022, the Director said it is a criminal offence to sell, distribute or be in possession, other than for private or domestic use, works that are pirated. Harping on the stiffer punishments prescribed for offenders by the new Act, he said schools selling or distributing books will be treated as booksellers and subject to the same standard of care.

The NAPPS FCT President, Mrs. Ruth Agboola, commended the NCC and other government agencies in attendance and lauded the Management of Veritas University for hosting the event.

The meeting was also attended by the Vice-Chancellor, Veritas University, Abuja, Rev. Fr. (Prof) Hyacinth E. Ichoku and other officials of the University.


Kindly share this post
Continue Reading

Broadcasting

TETFund Suspends Foreign Scholarships Due to Rising Costs and Abscondment

Published

on

Kindly share this post

Tertiary Education Trust Fund (TETFund) has announced the suspension of the foreign component of its TETFund Scholarship for Academic Staff (TSAS) Intervention, effective January 1, 2025.

This decision, outlined in a letter dated November 25, 2024, and signed by TETFund’s Executive Secretary, Arc. Sonny Echono, cites the escalating cost of overseas training and an increasing number of scholars absconding as reasons for the suspension. The letter was addressed to heads of beneficiary institutions, including vice chancellors, rectors, and provosts.

“In response to the current excessive cost of training in foreign institutions, coupled with the high rate of abscondment of scholars, the Board of Trustees of the Fund has approved the suspension of the foreign component of the TSAS Intervention,” the letter stated.

TETFund has directed beneficiary institutions to prioritize local training within Nigerian universities, polytechnics, and colleges of education. This shift, according to Echono, is aimed at reducing pressure on foreign exchange, enhancing local capacity, and significantly increasing the number of beneficiaries.

“It is expected that this will conserve and reduce pressure on the foreign exchange rate, boost investment and local capacity in our institutions while significantly increasing the number of beneficiaries of the intervention,” Echono wrote.

However, scholars already enrolled in foreign institutions under the TSAS programme will continue to receive sponsorship until they complete their studies, ensuring a smooth transition for ongoing commitments.


Kindly share this post
Continue Reading

Broadcasting

Copyright Commission Pledges Support to Creatives on Contracts

Published

on

Kindly share this post

Dr. John O. Asein, the Director-General, Nigerian Copyright Commission (NCC), has restated the Commission’s commitment to supporting all sectors of the creative industry to reward creatives and boost the nation’s economy.

The DG NCC stated this while receiving 2024 finalists of the National IP Creative Essay Competition, organized by the World Intellectual Property Organisation (WIPO), Nigeria Office who paid a study visit to the Commission recently.

Pointing to the issue of contracts as one area that is being looked into, he emphasized that contracts should be fair and transparent with terms that are not unreasonable, enslaving or unduly onerous.

While acknowledging the long and tortuous process of statutory reform, Dr. Asein assured right owners and other stakeholders in the creative industry that the commission has commenced the process of reviewing the recently passed Copyright Act with a view to identifying areas of improvement.

In the meantime, he announced that the Commission will be putting in place administrative mechanisms to help right owners, through the provision of model contractual clauses, better negotiate and conclude contractual terms.

The Director-General also informed the visitors that the Commission has Alternative Dispute Resolution facilities to help right owners settle copyright disputes.

Congratulating the essay finalists, Dr. Asein used the opportunity to announce their induction as Copyright Ambassadors and urged them to be good representatives of the Commission and the copyright industry.

Dr. Tobi Moody, Director, WIPO Nigeria Office and leader of the delegation, informed the Commission that a total of 256 students from 68 tertiary institutions in 27 States entered for the competition, with a winner and 19 finalists emerging.

Dr. Moody disclosed that the Competition is in line with WIPO’s policy of encouraging students to research and be actively involved in Intellectual Property (IP) matters. He assured that WIPO will support the finalists with capacity building prizes and opportunities to further strengthen their engagement in the field of IP.

The theme for the 2024 essay competition is “IP and Sustainable Agriculture: Combating Food Insecurity in Nigeria”.

Mr. Ikenna Mba, a year-four law student of the University of Nigeria, Nsukka emerged the overall winner of the competition while Mr. Chinonso Izundu, a year-five law student of the University of Port Harcourt and Mr. Adekunle Olajide, a year-four law student of University of Ilorin, were first and second runners-up respectively.


Kindly share this post
Continue Reading

Trending