The budding e-commerce industry in Africa is beginning to shed light on the realities of the industry's difficulties in this endeavor.
While Jumia’s proposed listing on the New York Stock Exchange is a boon for the sector, it also inadvertently serves as a reminder of how tough the space is. Indeed, parts of Jumia’s S1 filing with the US Securities and Exchange Commission (SEC) read like a long list of reasons making a case against e-commerce in Africa.
Being upfront and extensive about possible business risks are routine when filing for initial public offerings. And while some the 23 “risk factors” Jumia lists in its filing can be seen as generic business risks (political instability, regulatory uncertainty and active competitors), others offer an insight into the difficulties of achieving e-commerce in some of the continent’s markets.
Despite ambitions of facilitating online commerce, Jumia has had to incorporate local nuances in its business model. With credit cards and online payments largely undeveloped at the time of its inception, it adopted a payment-on-delivery option as a workaround. But that has presented its own risks.
For instance, Jumia’s filing shows 95% of customers in Kenya used the cash-on-delivery option in 2016 but as it relies on third party delivery agents to remit funds, over $800,000 in cash payments made that year had not been collected as of early 2018. While the company says it has improved its cash reconciliation system, it notes the risk of fraud remains “due largely to the prevalence of cash on delivery in many of our markets.”
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