Africa’s tech-enabled commerce sector has come a long way over the last decade and is now on the cusp of a significant shift. After years of development, some attrition along the way, the ecosystem is maturing, and winners are starting to emerge. Backed by substantial investment, companies such as TradeDepot, Twiga, and Wasoko (formerly Sokowatch) are quickly establishing themselves as market leaders. They have scaled far beyond product-market fit, battle-tested their business models and scaled to leadership in their home markets. Now, investors are keen to shift to the next phase with a new focus on funding to fuel consolidation and pan-African expansion.
The “product-market fit” era has yielded several “leaders”
Africa’s tech-enabled commerce ecosystem has gone from nascent to burgeoning over the last decade, the year Jumia was founded to pioneer e-commerce in Africa. For the most part, we’ve seen a range of new startups battling to develop new services, scale beyond product-market fit, validate their value proposition and business model, and compete to win customers at scale against extraordinary odds. We’ve also seen the sector’s first phase of significant VC funding rounds.
However, things have changed significantly during the last few years. Funding is pouring in at an unprecedented rate, and large funding rounds are becoming increasingly common. Last year alone saw nearly $300m invested, an impressive figure considering this was the approximate total amount of funding recorded in the five years from 2015 to 2019. Today, a new crop of companies has emerged as market leaders and are now looking to consolidate their dominant position and expand to neighboring countries. We’re seeing the conclusion of the validation era and the beginning of a new heavy scaling phase, with investors focusing on funding cross-border growth.
The first signs of this shift can be seen in deals like Wasoko’s recent $125m Series B funding mega-round led by Tiger Global to fuel its expansion to West Africa and beyond. MarketForce’s latest round is another example. The company recently raised $40 million in Series A funding to enable it to enter additional markets in East and West Africa. Twiga Foods’ latest round of $50m led by Creadev is to be used to expand aggressively across Sub-Saharan Africa.
How will larger players compete?
In the coming years, competition at the top-end will heat up as emerging market leaders attempt to venture into new markets and establish supremacy. We’re likely to see a heavy expansion phase like the Uber Vs. Lyft wars of the late 2010s as companies spend down on the war chest they have built up.
We are already seeing a move towards owning the supply chain, as GIG Mobility did with its vehicle fleets and Twiga has just done with its new subsidiary. In May, Twiga announced the launch of Twiga Fresh, through which it will farm and distribute its own agricultural produce to traders. Thus far, Twiga has invested $10m in the new venture and has already begun producing fruit and vegetables like onions, tomatoes, and watermelons on its 1,600-acre farm. For many tech-enabled commerce players to succeed, they will need to own or control more of the supply chain end-to-end, from sourcing of product through to their collection, storage, and distribution. This not only ensures quality control, it also enables these players to capture more of the profit margin available from every sale.
We are also seeing players expand their business models, specifically to handle payments and financing. Already Tradedepot has evolved their model to include customer financing. Logistics companies such as Lori and Kobo find that financing unlocks significant incremental logistics volumes, basically enabling deliveries that would not have been possible otherwise through lack of working capital. When merchant customers are able to access instalment payment schemes, evidence shows they order 30% or more on average and increase their own volumes and profit margins. Financing customers therefore becomes a significant growth ‘lever’ for large commerce enablers in Africa.
As larger players spend big to scale up and move into new markets, they are likely to step up their acquisition of smaller companies to speed up time to market, reduce market entry and customer acquisition costs, and leverage best practices and technologies. We’ve already started to see an uptick in companies turning to M&A for these reasons. In February, Nigerian-based online marketplace Jiji announced the acquisition of its main competitor in Ghana, Tonaton, in what is a significant market consolidation in the space. The acquisition will provide Jiji’s users’ with access to a more extensive network of buyers and sellers, significantly increasing trading opportunities and the aggregate user base.
The purchase of Tonaton follows Jiji’s acquisition of car marketplace Car45 to grow its vehicles category. Nigeria-based TradeDepot acquired Green Lion in another recent deal, one of Ghana’s largest B2B e-commerce platforms. The acquisition will enable the company to leverage Green Lion’s established data, technology, and logistics network to connect more retailers to suppliers. It will also provide access to new financing options like loans or BNPL.
In addition to increased consolidation within the sector, smaller companies will likely shift focus to the upstream and downstream services around the core commerce business, which are more niche or nascent. We’ve seen this before in more mature markets with dominant category leaders. For example, there are now many Amazon 3rd party aggregation companies servicing the core Amazon e-commerce business. These aggregators purchase various businesses and brands on Amazon and look to scale them into lucrative brands. There are already some emerging winners in the space, e.g. Sendy’s expansion towards MSMEs via partnership with Google to tackle Nigeria (Sendy’s HQ has traditionally been East Africa – namely Kenya).
To operate successfully in these subsectors, companies would need to ensure they are able to compete on the basis of good product experience, scalable tech back-end and sound unit economics – as these niche-r sectors will typically be funded by a smaller group of more specialised investors.
The next few years could shape the next decade
We believe Africa’s tech-enabled commerce sector is looking at its next phase, scaling. During this phase, we are likely to see the continent’s first real powerhouses with ability to compete internationally.
Looking forward, we expect funding to hit $500m per year by 2025, with funds likely to continue skewing heavily toward the “winners” in the space. Backed by substantial investment, we’ll see emerging market leaders like TradeDepot, Twiga, Wasoko, MarketForce, and others solidify their dominant positions and embark on a heavy scaling phase across the continent. These companies will look to capture more of the vertical value chain and use M&A to propel their growth efforts. Smaller players will find it hard to compete, and many will likely switch focus to new, more niche, and fundable business models that will service the core tech-enabled commerce market.
All told, these next few years are likely to define the composition of Africa’s tech-enabled commerce sector for the next decade and beyond. We’re excited to see how things play out. As always, we’ll be there on the frontlines facilitating deals and keeping a close tab on new developments as the sector transforms.
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