What does Africa unique markets have to offer? In recent years, Africa has rapidly become an attractive investment destination for multinational companies looking to expand into some of the world’s fastest growing markets. Despite the collapse of global commodity prices, African economies are growing at a notable rate. This growth manifests in different ways, including the expansion of Africa’s middle class. According to the latest report by the Boston Consulting Group, Drawing a Route to Market for Multinationals in Africa, South Africa, sub-Saharan Africa’s annual growth rate of 7% from 2005 to 2015 is expected to rise to an impressive 12% per annum until 2035.
The report also reveals that in Africa’s eight biggest economies – Nigeria, South Africa, Egypt, Angola, and others – private consumption is anticipated to grow at 5% a year to US $1.25 trillion in 2025. This proves that the continent’s growth is fueled not only by its resources, but by its flourishing consumer market as well. These consumers are found in the urban areas and are conscious about the brands and qualities consumed. More than 90% of Africa’s urban consumers that are going against the trend in maturing markets, remain optimistic about the continent’s economic future.
Any company seeking to get a slice of this irresistibly delicious pie that is Africa, should know that opportunity coexists with complexity.
Consisting of 54 Africa unique markets – each culturally, economically, and politically unique – Africa presents a different set of challenges.
When it comes to trade, modern channels are as common as traditional ones. This means that multinationals need to address both in order to succeed. New channels include shopping malls, supermarkets, and the burgeoning e-commerce, while traditional trade is mainly dominated by open-air markets such as vendors, kiosks, and cantinas – small rooms packed with basic goods. This combination of channels can differ from country to country. For instance, South Africa’s modern trade is commonplace even in small, less developed cities, and Kenya’s modern channels are mostly dominant in major cities such as Nairobi and Mombasa.
Traditional trade also varies by market. To give an example, cantinas are more popular in Angola than anywhere else on the continent. However, Nigeria is dominated by open air markets, which offer basic goods and sometimes only provide a specific type of product. Multiple factors such as local culture, consumer preference, economics, and state of development have influence on traditional trade. These are all factors that big businesses in Africa need to consider for successful operations.
African unique markets are further separated by consumers’ varying purchasing and consumption patterns. An item as simple as tea is purchased differently depending on where you are on the continent. Moroccans prefer to buy their tea in traditional markets, while Kenyans mostly purchase theirs at supermarkets, and Ethiopians largely buy tea and coffee at kiosks. To further complicate things, consumption patterns differ within individual countries. Take Ghana, for example, where urban consumers favour imported frozen chicken because they view it as higher quality. Conversely, Ghanaians in smaller towns lean towards fresh, locally produced chicken because it is perceived to offer higher nutritional value.
Luckily for multinational companies in Africa, there are several steps that can be taken in order to deal with the challenges of operation on the continent:
- Study the Africa unique markets and understand critical factors like its size and drivers of consumer behaviour.
- Decide where to play by assessing factors such as your company’s willingness to invest and how local operations match your global strategy. It’s also important to consider channel strategy (modern trade, traditional trade, or a combination of both).
- Establish the right structure and distribution. This is where you decide how to structure your value chain- which parts are outsourced or kept in house, and how many distributors are used.
- Choose the right partners, particularly for distribution. In Africa, the main types of distributors are pure traders, who provide basics such as stock points and logistics. There are also established distributors who are experts in working with multinationals entering a new market. You can use small distributors who focus on working with a limited number of brands, or you can choose niche distributors which deal with specific types of products or channels.
- Design a route to retailers and support in-store execution. Routes can significantly affect your distribution costs, so it’s important to work with your distributors to establish the amount of time it takes to service each selected outlet.
In the midst of all the complexities that Africa unique markets presents, there are opportunities that no other growing markets offer. To take advantage of these opportunities, companies need to understand each of the continent’s unique markets before they plunge into new territory.