MTN,Jumia and Business Cycles in Nigeria
When MTN invested in Jumia, I was surprised. I knew Jumia showed promise, but their scale of operations ensures a lot of cash burn and negative earnings. Like all businesses in the digital economy, you envisage some year on year growth in customers and infrastructure. This implies a long run growth, which reduces cash balances and operating revenues also. It won’t be a a problem if this trend continues provided within a reasonable horizon, the business will turn a profit and the value of growth opportunities available.
However, what we have seen is a macroeconomic environment where a huge number of Nigerians are cut off from the internet, basic payments facilities, credit systems and stagnant or no incomes.
The question then is what can be done right. I believe in 20%. That is, the pivots that can be turned to drive 80% of results.
History reminds us, that growth industries lead to qualitative adjustments in structures of societies. The Model T of Henry Ford created a signature that will last till eternity. The signature of the Middle Class. Before that, the rich and poor were the social demarcations. With Model T, the middle class that was somewhat in oblivion became evident, and their influence and assertiveness grew.
What has e-commerce done for Nigeria? It has improved the appreciation of Digital Marketing. Brands embraced digital marketing because of the Jumia’s and Konga’s. It can’t stop there.
What next? Ecommerce and growth businesses in the digital economy must advance Nigeria by opening up new growth areas. The phenomenon of unconnected areas and mobile money stagnation we have can be included in the new economy thereby making these businesses have “real growth opportunities”.
As it is, they have to cut down on staff, core marketing operations, delivery operations etc.
Jumia has now gone into travel? These companies are just lost in one area and locked into a particular class of customers.
These are areas I expect to see government policies targeting. If government won’t move, let the growth companies lobby government to articulate and implement a ” Grand Microeconomic Strategy” that will get this thing done.
The current nature of Nigeria makes almost every business cyclical or stagnant after certain stages of growth, though they have economic profits of net positive earnings.
For firms like MTN, I expect them to focus on investing in more strategic assets like NIPOST and human facing connectivity infrastructure that they can use to catalyze growth of new economy businesses.
Jumia was never a strategic asset. Anyone with some huge cash and a great digital marketing team in Eastern Europe would have pulled that feat.
I give kudos to Jumia and Konga. They made Nigeria digital, as in digital in the human sense of it. They need help from policy makes to get the expansion, economic rents penetration and valuation they deserve.