So last week e-commerce firm Jumia listed on the New York
Stock Exchange. One of their biggest selling points is that they were an
African company.
However, this kicked up a storm with some people pointing
out that while the company’s business is all done in Africa they have French
founders, they are domiciled in Germany and their technical support is located
in Portugal or something like that.
My first thought was, they wouldn’t have used “African
company" in their prospectus if it didn’t sell and given they do all their
business in Africa why should we begrudge them claiming they are an African
company?
Then I learnt that the funding ecosystem that is dominated
by white males tend to take mental short cuts. That the danger of Jumia
claiming to be African has set a dangerous standard for these financiers, who will
look for companies run by white males in Africa to fund, ignoring in the large
part, efforts by Africans trying to start and scale up their own companies.
Put that way I begun to see why we had our underwear in a
twist but I also thought there were valuable lessons to take from the
experience.
One, that there is a lot of money out there – more than we
can conceive, desperately searching for a return. It was reported that up to
this point Jumia had raised $800m from investors. That is about sh3trillion or
more money than we spend on roads in Uganda.
But also that this money has a price. The founders of Jumia
in getting this money had their interest in the company diluted to under 9.8
percent, I have seen some reports that between the two of them they owned two
percent of the company at the time of listing. By the time of the Initial
Public Offering (IPO) they clearly were not in control of “their” company.
At the time of the IPO South Africa’s MTN holding was the
single largest investor in the company with 29.7 percent of the company the
rest of the company was shared about 60 percent by investors from Germany,
Belgium, France and Luxembourg and 9.8 percent was held by “others” which
probably means some of the workers at the company.
"The founders could have refused to take in other investors and try and bootstrap the company from its own resources or rely on banks loans and the reality today would have been that Jumia would not have been as big as it is today or the company would be dead by now. It reached a valuation of $3b during its first days of trading on the NYSE....
So the question has to be for the African governments and
businesses, how do we tap into these huge funds sloshing about to scale up our
businesses?
African governments because companies create jobs, pay taxes
and directly and indirectly enhance living standards of citizens; companies
because growth is a survival strategy, if as a business you are not growing you
are dying or will soon be killed by the competition.
I think first off governments need to create an environment
in which local resources can be mobilized and aggregated into meaningful sums.
Then they have to create an environment in which these funds can be deployed
profitably, preferably a liberalized economy with the appropriate incentives
for businesses to grow and thrive. And finally the government has to create the
environment in which foreign funds can enter the country find bankable
businesses and make an adequate return.
And somewhere in between we need to recognize that we cannot
have our cake and eat it. That we cannot keep all the opportunities, even
within our borders, to ourselves. That there will be people with more exposure
or access to finance who come around, see the opportunity, that is passing us
by or we are too lazy to do the work to actualize, take it up and run with it.
But we forget too that there those who visit see an
opportunity and fail anyway. We fixate on the successes but for every Jumia
there hundreds if not thousands of failures.
In addition, we need to formalize our businesses. Formalisation not only makes it easy to assess the business from afar but also represents a mitigation of the risk to the financier wanting to invest.
If we could do this one thing we would be shocked how much
money is lying around, even here in our poverty stricken nation, that is just
looking for a home.
Even if you are loss making just having clear records of the
operations and basic systems in place are value in themselves. Jumia made
losses the last two years but was still able to generate huge demand and raise
$200m.
I think Jumia were within their rights to call themselves an
African country and objections to that are largely moral. It would help if they were domiciled in Africa, employed African techies on the continent but thet they didn’t is probably a function of the gaps on the continent and were demanded by their
financiers.
I am learning too that in the new world of the fourth
industrial revolution the days of a company being situated in one country are
dead and gone. It been happening for a while already but now with even a
greater pace, companies have their operations spread across countries, even
continents, and their financing and staffing requirements are just as diverse.
That’s the reality and as countries and businesses we ignore
this to our own detriment.
