Jumia Egypt hopes IPO boosts confidence and business
EXCLUSIVE- What Jumia’s IPO means for e-commerce in Egypt: Jumia became the first African tech company to list on a major global stock exchange when it concluded a New York IPO on Friday, the company said in a statement (pdf). Jumia raised USD 196 mn after selling 13.5 mn shares at USD 14.50 apiece, Bloomberg reports. We had a chat with Jumia Egypt CEO Hesham Safwat to break down what the listing means for the company and the way forward for e-commerce in Egypt.
The IPO will boost confidence and consequently business, particularly “for investors who see Africa as challenging, as well as sellers and customers who still see e-commerce as a black box,” Safwat said. “This would create more variety in products and more competition so that customers can find the best prices.”
Jumia isn’t profitable yet, but the share sale process reflects optimism: “Our losses are between EUR 120 mn and EUR 150 mn per year, but we are still growing the business and this is just the start of another phase in Jumia's journey,” Safwat said. “Investors like the potential. when they see the high growth which is still in the beginning. Also Africa is the fastest growing continent and there are 700 mn internet users in the countries we operate in and rising.”
So when should we expect profitability? The company’s loss-to-revenue ratio fell to 20% in 2018 from 32% in 2017 and is expected to fall further in 2019, indicating the company is moving toward profitability, Safwat said. Jumia recorded EUR 828 mn in revenues in 2018 — a 63% increase compared to 2017. Gross profit increased 62% y-o-y to EUR 45 mn in 2018. In Egypt, revenues grew by 80% y-o-y in 2018 and the company is eyeing a 75% y-o-y increase in 2019. “We are building a sector, not a company, so we are subsidizing the service to build a market. Otherwise, we can be profitable if we put the real price of the service,” Safwat said.
The E-commerce Act should not treat all online entities as equals: The law should differentiate between various types of e-commerce — whether online malls like Jumia, companies websites and individual social media pages — and there should be support and incentives for this sector. “We create jobs, reduce costs of stores, open up trading opportunities and reduce the cost of electricity and fuel. What we want is for the government to incentivize companies to move to online trading,” Safwat said. On the flipside, Safwat sees the Finance Ministry’s plans to tax online sales as beneficial, since it would better regulate the sector and improve its reputation.
Government support is important: “This is a new phase in which we need the government's support for this sector mainly through reducing taxes,” Safwat said. “The government is trying to regulate the informal sector and the best way to do this is put them under e-commerce umbrellas like Jumia and giving them incentives to become part of the formal economy,” he added.