Amazon is scaling its presence in Africa by officially establishing its headquarters in Cape Town, South Africa. The headquarters will take up around 70 000m2 of space of the River Club mixed-use precinct which has just been given the construction go-ahead by the city of Cape Town.
This won’t probably come as a surprise to many as the retail giant already has a very grounded presence in Cape Town with smaller offices and data centres for its Amazon Web Services.
Amazon’s Foray into South Africa
Amazon’s journey into Africa started in 2004 when a team led by a South African, Chris Pinkham established a Development Center in Cape Town to build what would become Amazon Web Services (AWS) pioneering technologies for the Elastic Compute Cloud (EC2).
EC2 allows users to rent secure and resizable compute capacity in the cloud. It is designed to make web-scale cloud computing easier for developers.
Despite its presence, the global retailer has not aggressively pushed its e-commerce business on the continent allowing Jumia, the NYSE listed African e-commerce firm to fill the lacuna. Interestingly, Jumia is often referred to as the Amazon of Africa.
Expanding its services beyond Amazon Web Services in Africa
The question on the minds of many is that will Amazon expand its services beyond Amazon Web Services with its new headquarters? This is difficult to answer as Amazon has not said anything about launching its online retail business on the continent using South Africa as a launchpad.
But why spend $280 million on an African headquarters without unveiling your online retail business? The truth is sooner rather than later, Amazon will launch its e-commerce business on the continent and it will take on Jumia and Naspers-owned Takealot.com.
Give or take Amazon may simply focus its e-commerce business in South Africa
Africa is a demanding and punishing terrain to run a business especially an ecommerce one. The lack of infrastructure is one of the biggest challenges that any ecommerce platform will face on the continent. From Nairobi to Lagos and Kigali; the situation is the same.
Also, the continent is grappling with internet penetration. Statista report shows that as of January 2021, Southern Africa was the region with the highest internet penetration rate in Africa, at 62 percent. Northern Africa-56%, West Africa-42%, and Eastern Africa 24%. Again, it should not come as a surprise if Amazon takes this route.
If Jumia can do it, Amazon can do it by learning from the former’s mistakes
In 2012, Jumia brought the Amazon model into Africa. It started in Nigeria and of course, had a lot of challenges in convincing Nigerians that they can sit in the comfort of their homes and order goods and services.
Backed by Rocket Internet’s money, it went on a lavish marketing drive to educate and sell its value proposition to Nigerians who had the mindset that anything online is fraudulent. It had to battle scams, fake products, and the logistics nightmare.
It moved from housing products in warehouses to a marketplace where you can order from any buyer and it will be delivered to your doorstep. You have to consider the fact that both internet penetration and the number of internet users then were nothing to write home about. Jumia has overcome all the aforementioned and it is now focused on profitability.
Arguably, one can say that Jumia opened the eyes of many Africans to the potentials of running a digital business.
For Amazon, the challenges it will probably have to battle in its quest to boost its presence on the continent are infrastructure and inconsistent government policies.
Beyond this, there are no problems. It is very popular in Africa and it has the dollars to market itself to Africans, get the needed human resources, and eventually become the leading ecommerce firm. But this will no doubt be an arduous task.
Should Jumia be worried?
The Amazon of Africa has a solid market position on the continent. It only needs to do improve its processes and innovate to ensure that it maintains its market position.
Jumia can’t compete with Amazon financially but it can consolidate itself with the story that it is a popular African brand and promote the narrative that it pioneered e-commerce on the continent.
Regardless, it should watch its back for the real Amazon.
