The Underlying problem with African Tech Startups

In the company of unrealistic goals, ludicrous government policies, manipulated financial data, gross negligence, and profligacy on the part of public institutions that have plagued the growth of African Startups lies a coherent threat.?

Misuse of funds and the fallacy of what a startup should be.

Using Nigeria as a case study, we can be able to trace these growing pains to the very depths of its first success in the tech industry. E-Commerce in 2015.

The success of Jumia, Konga, Dealdey, Yudala, Payporte, Olx, and others lead a tech revolution that saw the sub-sector rise to a worth of over 10 billion dollars.?

But Nigeria's recession of mid-2016-2017 saw two-thirds of those companies fold or get sold. This was a glimpse of what was to come. Few heeded.

2019 saw the rise and dominance of Jumia. The number of Active Consumers as of June 30, 2019, was 4.8 million, up from 3.2 million a year ago and 4.3 million at the end of the first quarter of 2019.

Jumia’s 2019 Gross Merchandise Value (GMV) — the total amount of goods sold over the period — contracted by 3% to €301 million in the fourth-quarter. And its revenues was at €160 million, representing growth of 24% over 2018

By the last quarter of 2019, Jumia became the first African e-commerce site to announce its IPO on the NYSE. And with the financial boom and rise of VCs in 2020, the sky was just the starting point.

But in 2023, it is reported that Jumia's stock has fallen 70% since its IPO as growth stalls and operating losses mount.

What happened??

It was rumored that Jumia posted inflated figures at the very beginning. And there followed a dump after the actual figures came to light.

Bloomberg reported that a damning report by short sellers Citron, who alleged fraud, sent the stock into a downward spiral. The company later reported that it had identified improper transactions within the Nigerian sales force, where orders had been placed and subsequently canceled.

True or not, Jumia has recorded back-to-back losses every quarter since it went public in 2019; it finished 2022 with $207 million in adjusted EBITDA losses, a 5.3% rise from the $196 million it recorded the year before.

In cost-cutting measures, Jumia has finalized some business exits it announced it would make in Q3 and Q4 2022; the e-tailer took these measures to improve resource allocation and focus on core areas with attractive investment returns.?

Jumia Prime will be discontinued across all its markets. The company will also suspend its logistics-as-a-service in all markets except Nigeria, Morocco and Ivory Coast. Then, it will scale back first-party groceries in Algeria, Ghana, Senegal and Tunisia.?

It will also discontinue food delivery operations in Egypt, Ghana and Senegal. The company stated these activities accounted for less than 1% of group GMV in the first nine months of 2022 and 2% of group adjusted EBITDA loss.?

The Rise of Nigeria's Fintech and other sectors.?

2019, the year that E-Commerce in Nigeria peaked saw the rise of other tech sectors. Notably, Fintech. Between 2014 and 2019, it was estimated that Nigeria’s Fintech sector had raised more than $600 million in funding.

Digital payments in Nigeria surged more than fivefold since 2014, hitting 105 trillion naira ($256 billion) by 2019. This rise was partially fueled by companies like Flutterwave and Paystack, which developed easy-to-use payment solutions for individuals and businesses.

In 2021, the Fintech sector raised about $800 million in 2021, which was 120% higher than what Fintechs raised in the last three years combined.?

U.S. payments giant Stripe paid over $200 million to acquire Paystack in October 2020. And Tiger Global valued Flutterwave at over $1 billion in March 2021.

By 2022, Nigeria had three fintech unicorns and shared a whopping 44 percent of Startup funding in the country. And Nigeria Startups in general raised over 2 billion dollars between 2015 and 2022.

The Doom.

We are beginning to see major layoffs from major Fintechs and startups in the country. And one thing outlined as a contributing factor is the decline in the country's currency, Economic inflation, bad policies, the decline in external funding, inflated estimates, and mismanagement of investor funds.

I was saddened when I heard Chipper Cash considering a sale, less than two years after reaching unicorn status.?

And over the years I have seen a pattern of companies spending loosely on marketing, endorsements, and lifestyle rather than user experience and education. And it never ends well.?

For our startups to survive this economic mess we have prioritize user experience and education, good management and competence, rather than flamboyance and glamor. Being an Idealistic founder with a turtle neck or black t-shirt is no longer enough.

And with Web3 slowly gaining prominence in Nigeria and Africa, emphasis has to be made on building something that resonates with the people and culture. Or see ourselves fated to fall into the same mistakes of other sectors in the tech industry.

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