Amazon has won approval to build its African headquarters (HQ) in Cape Town and is expected to bring thousands of jobs to the aspiring tech hub. But the firm is keeping its plans quiet, sparking speculation over what it will do with the space.

The US retail giant has been on the continent for 17 years, but hasn’t entered the local e-commerce market. This has started a guessing game about whether the firm intends to grow the presence of its cloud computing arm Amazon Web Services (AWS) or if it will launch an online retail business.

On April 19, the city of Cape Town issued a statement approving the R4bn ($276m) River Club project, a multi-use development in which the “US retail giant, Amazon, will be the anchor tenant, opening a base of operations on the African continent.”

“Our relationship with Amazon goes back a while. I’m delighted they are expanding … to their HQ for Africa,” Cape Town mayoral committee member alderman James Vos said on public radio two days after the announcement. 

He expects it to be a boon for local employment. “With Amazon HQ we can expect many thousands of new jobs for Capetonians … The whole development, from construction to IT, and call centre jobs and web development — Amazon really provides Cape Town with a huge opportunity.” 

Mr Vos also believes it will attract other tech companies to the city. “It really opens the door for many more investments in the IT and tech space,” he said. “It positions Cape Town as a destination of choice for IT advancements.”

Local press has been a flurry with the news, but Amazon is yet to confirm the development. The firm did not respond to fDi’s request for comment.

A long history

Analysts say the city is a natural choice for Amazon’s Africa base. “The HQ was a matter of when, not why,” said Arthur Goldstuck, managing director of tech market research organisation World Wide Worx in South Africa. 

In 2004, Cape Town became one of Amazon’s first international outposts when it opened a development centre in the city which went on to build the firm’s original cloud platform, known as the Amazon Elastic Compute Cloud. This technology helped lay the groundwork for AWS, the division which now accounts for the majority of the company’s operating income globally.

Last year, Amazon announced it was hiring 3000 customer support staff in the city, while AWS chose it to host its first cloud region in Africa. According to fDi Markets, nine of Amazon’s 19 projects on the continent are in Cape Town and five are in Johannesburg; the rest are abroad, split between Kenya, Morocco and Egypt.

Tough market to crack

The announcement has spurred speculation over whether Amazon will start offering more than AWS on the continent. The only country in which it operates a marketplace is Egypt, via its Souq subsidiary, which it acquired in 2017 and operates across the Arab world. Amazon’s retail-related operations in Africa are otherwise limited to contact centres supporting customers in North America and Europe.

The city says Amazon is taking 70,000 square metres of the new River Club complex. Some pundits say a space this size suggests the firm is thinking beyond AWS; however, Mr Goldstuck does not expect it to enter the local e-commerce market anytime soon. 

History shows Amazon does not expand into a region until it becomes commercially viable. “Demand for cloud has increased exponentially in South Africa and across Africa in recent years, justifying [AWS’s] presence. Demand for e-commerce has not grown as exponentially, and still makes up only around 4% of South African retail. In other African countries it is far lower,” said Mr Goldstuck. “That proportion would have to rise significantly for Amazon to make an e-commerce move.”

It would also face fierce competition from Takealot, which dominates South Africa’s online retail market, and Nigeria-headquartered Jumia, which operates in 11 countries and is listed on the New York Stock Exchange. 

Whatever Amazon’s plans, it will not move into its new offices on the outskirts of the city centre for some time. Construction will take place over three to five years and the project faces pushback from environmental and heritage groups that argue the site is sacred to indigenous groups.