It's Official! 🙌
Nigeria officially joins AfCFTA, the results for Jumia’s third-quarter & Multichoice’s Half-year and the third wave of economic revolution in Africa
This week sadly two former African presidents died: Ghana's Jerry Rawlings and Amadou Toumani Touré of Mali. Meanwhile, Cote D’Ivoire’s president kicked off his controversial third tenure by jailing an opposition leader. What a way to start a new term, huh!
It’s Official! Nigeria joins AfCFTA
It’s official! After much dragging of feet, earlier this week, Nigeria officially became a member of the African Continental Free Trade Area (AfCFTA).
What’s this about?
Some 8 years ago, during the 2012 African Union session at Ethiopia, Heads of States agreed to create a single continental market for goods and services, with free movement of workers and investment.
You see, the AfCFTA is one out of many moves to make the African Union like the European Union -- same policies, same currencies, greater security and more opportunities for businesses and markets, which lead to improved economic stability and growth. You get the gist?
But all that glitters isn’t gold
The motive towards creating the AfCFTA although great is not without it’s possible drawbacks.
Lower Tariffs: A major incentive is that the trade tariffs paid between African countries would reduce. African businesses, traders and consumers will no longer pay tariffs on about 90% of goods that they trade between African countries. However, some countries that receive more tariffs than they pay would be disadvantaged. The World Bank has estimated that over 80% of all goods entering the Port of Cotonou (Benin) are destined for final delivery outside of Benin. Niger and Nigeria account for about 90 percent of Cotonou's transit/re-export traffic.
Increased Competition: Opening up borders and economy to other countries leads to a battle between sectors. There’s been an influx of goods from other countries. For example, Nigeria’s Manufacturing sector now competes with that of 54 other countries, this explains why there was a lot of pushback from Nigeria’s Manufacturing sector.
Jobs: As per Stears Business, African employment is expected to see some significant shifts: by 2035, there will be almost 2 million fewer workers in processed food and other business services (accounting, legal, real estate), and 3.5 million more workers in energy-intensive manufacturing. The freer flow of goods, services, and workers would mean that jobs would be lost, while more would be created in certain sectors.
The elephant in the room: Closed borders
For over a year, Nigeria’s land borders with Benin, Niger, and Cameroon have been closed, a part of the government’s plan to stop the smuggling of food items which it says undermines local agricultural businesses. Joining the AfCFTA would mean that the Nigerian government can’t just wake one morning and do what it likes.
Broken Promises: African countries are known to not keep trade agreements, even ECOWAS countries do not allow trade between each other. For Example, Cement manufacturers in Nigeria can not and are not allowed to sell cement in Benin Republic, even though Nigeria and Benin Republic are both members of Ecowas Trade Liberalisation Scheme (ETLS) - a scheme that should allow the free movement of goods without tariffs between ECOWAS members.
Looking forward: In a world where everything works as planned, the AfCFTA would only deliver positives, but that world doesn’t exist yet.
Dig Deeper: Will the AfCFTA be worth it for Nigeria? [Paywall]
The results are in: Jumia’s third-quarter & Multichoice’s Half-year
And the numbers are in for two of Africa’s biggest public companies: eCommerce giant Jumia & leading entertainment company Multichoice.
Here’s how they performed
Subscribers: For the first time it crossed the 20 million subscriber mark, looking into the figure. Out of the 20.1 million subscribers, 43% (8.7 million) are in South Africa while 57% (11.4million) are in the Rest of Africa.
Revenue: Increased by 2% to $1.7 billion, a breakdown of that is $1 billion from South Africa, $558 million from Nigeria and the rest of Africa, while the remaining comes from Iretido, it’s content security, management and delivery service.
Group trading profit/loss: Rose 36% to $365 million, while multichoice’s Rest of Africa business continues to suffer with losses of $19 million.
Partnerships/Acquisition: DStv also launched its new Explora Ultra decoder which includes a built-in Netflix app and the ability to add your Netflix subscription cost to your DStv bill. Why would anyone want to buy this?
The company is also buying a 20% shareholding in BetKing, a pan-African sports betting company.
What it means
Despite having the majority of its population in the rest of Africa category, MultiChoice’s revenues are still mainly from its South African audience.
Multichoice like other companies has seen a huge decline in revenues due to a $19.35m decline in advertising revenue and a decline in commercial subscriptions of $38.69m with hotels, restaurants and other commercial customers mostly closed during the lockdown. But with its South African market, new partnerships and acquisition, it’s hoping to keep it’s head high.
Gross Merchandise Value (GMV) - the total value of merchandise sold: €187.3 million, down 28% year-over-year
Revenue: €33.7 million, a 17.7% decrease year-over-year.
Gross profit: €23.2 million, a year-over-year increase of 22%
Operating loss: €28.0 million, a three-year low, decreasing by 49% year-over-year
What it means
Due to the pandemic, it has focused on selling everyday items like groceries and home essentials to its consumers. It explains why, even though its number of active users is up to 6.7 million (22% change YoY), its GMV reduced by 28%. Most of its users are buying inexpensive groceries and household items.
The last two quarters show that Jumia is shifting its focus. Jumia is making progress in becoming a third-party marketplace. As a result, revenue from third-party marketplace is €23.4m while first-party revenue is a paltry €9.8m. Jumia is reducing its operating loss, by reducing its costs, while it struggles to increase revenue.
Logistics: The third wave of economic revolution in Africa
Some time ago, we talked about the state of the logistics industry in Africa (here) and we are here again;) This industry is starting to attract investors who have seen the impact of the first wave(eCommerce) and the 2nd wave (fintech) of the economic revolution in Africa.
The logistics sector is filled with opportunities that have a huge impact on Africa’s economic development. This is because most African businesses sell physical things that you can’t move, and while eCommerce and fintech have provided the right online infrastructure for businesses, it's the people on ground organizing the movement of the cargo that do the heavy lifting.
Dreevo and Lori
Egyptian startup Dreevo which raised big bucks during a funding round last month has seen massive growth delivering more than 100,000 shipments for over 200 merchants since its launch in May. The startup makes money through shipping fees and value-added services while providing custom-tailored solutions to suit a variety of business models such as door-to-door delivery, warehousing, fulfillment and pick-up stations. it plans to expand to other countries in the MENA region in the future.
In Kenya, another logistics startup, Lori Systems has secured funding and support from a US venture capital firm Imperial, which specializes in integrated market access and logistics solutions. Lori Systems provides supply management solutions to transporters and cargo owners, ensuring flexibility, reliability and cost savings for both sides. It operates in Uganda, Rwanda, South Sudan and Nigeria.
The 2nd wave remains
As finance remains a core part of economies, we continue to see investment in Fintech.
FinChatBot raised a US$1.6 million funding round to help it expand into Europe and West Africa. Its main service is conversational AI (chatbot tech) for financial service providers in South Africa. Its clients include MTN Financial Services, Bidvest Insurance and Sanlam.
Nigerian startup Xend Finance has publicly launched its decentralised finance (DeFi) platform for credit unions and cooperatives following a US$1.5 million strategic investment round. It provides a value alternative to traditional credit unions by providing higher interest on savings on a platform that is safe and transparent.
One thing that stands out in the African business ecosystem is the interconnectedness of these three waves of businesses. For the future, innovators could look at border crossings as it's still a huge challenge in Africa as there are week-long lines at borders and at entrances of ports. In Kenya, Uganda and Nigeria, some businesses find truck logistics a bit challenging.
For expansion, digital logistics companies can also look at partnering with already established traditional logistics companies, helping them to transition from manual to automated systems, creating a scenario where everybody wins.
Worth Reading 📚
Successful outcomes are never the result of a single choice. They are built up through good choices over time.
A profitable business is never a choice, it is a series of choices.
A fit body is never a choice, it is a series of choices.
A strong relationship is never a choice, it is a series of choices.
-- James Clear