Growing in Africa
Prioritizing your investment in Africa
Assessing the US$5,000–US$20,000 annual household income segment in a sample of African markets
This framework ranks the potential of African markets based on a variety of indicators — primarily the growth rate of the target market segment, the number of households within that segment as a proportion of the whole market and the ease of doing business in that country.
Source: Ernst & Young
Questions to consider:
- Do we understand the growth opportunity in Africa?
- Where do we stand relative to our competitors?
- What are the lenses we need to apply in deciding our strategy for Africa?
- Where should we start our journey or leverage our existing presence?
- What level of investment will be necessary and what are the timescales for returns?
Working effectively with local partners and government is essential for success and sustainability in African markets where rules can change unpredictability, and investment strategy may need frequent and radical revision.
Summary: Considering potential markets for entry or expansion is a complex exercise in Africa. We believe it first requires answering strategic questions then taking a kaleidoscopic analysis to assess the strengths and weaknesses of each potential market through a variety of lenses.
Answering Africa’s strategic questions
Any global consumer products company working in Africa needs to weigh the following as part of its attractiveness analysis:
- Political stability - Civil unrest, regime instability, economic hardship and corruption are more prevalent in Africa than in any other continent. How do we assess the likely economic and political stability of the markets we are targeting and manage the risk of regime change? What is the level of ongoing civil unrest and is there much evidence of government intervention or contract frustration?
- Infrastructure status - What is the quality, connectivity and reliability of roads, trains and ports? Distance may not be the issue, but time - how long do journeys actually take? How reliable are power and water supplies?
- Quality and reliability of local manufacturing - Is there a local supply and manufacturing base of sufficient quality that we can leverage?
- Legislative and regulatory environment - What are the legal constraints in terms of import vs. local manufacture, and buy vs. build?
- Consumer understanding - Do we have sufficient insight into local consumers across all target segments of the population? Do we understand more than where they live and how much they earn? Do we know how they like to live and how they spend?
- Variety and complexity of routes to market - Do we know and understand how to get goods to market? Can we leverage an existing distribution network or will we need to innovate and build our own?
- Local talent - Are there local staff available with appropriate experience and language skills? To what extent will we need to deploy local staff from day one in order to comply with local requirements?
- Regulatory, tax and legislative change - The pace and scale of change in Africa can blindside businesses that are not well networked and can complicate understanding/recognition of local accounting and tax issues. Could we partner more effectively with local businesses to mitigate the impact of protectionist government intervention?
- Corporate social responsibility considerations - Working effectively with local partners and local government is essential for success and sustainability in many African markets where rules can change unpredictably, and investment strategy may need frequent and radial revision. How do you identify the right relationships and manage them effectively?
Taking a kaleidoscope approach
Two of the lenses you may find helpful in market prioritization are groupings and dimensions.
Grouping markets, like regions, individual countries, trading blocs and countries with cultural affinity, helps company assess the situation.
Most companies start their analysis with conventional macroeconomic indicators. On this basis, South Africa, Tunisia and Morocco are all reasonably mature, diverse and (more or less) open economies, with relatively positive growth prospects.
Urban conurbations are another lens worth looking through. The continent’s five largest consumer markets by 2020 are likely to include Cape Town and Johannesburg (South Africa) and Lagos (Nigeria).
Additionally, urban corridors, for example, are viable markets in themselves and are often missed in straightforward country-based comparisons. So, for instance, while Nigeria and the broader West African region may look daunting in terms of market development, the Greater Ibadan-Lagos- Accra (GILA) urban corridor has a population of about 25 million consumers, and has the potential to become the real economic engine of Africa.
Finally, trade blocs can also create a favorable operating environment and companies should consider the benefits of operating within established country groupings. One example is ECOWAS (the Economic Community of West African States), a regional group of 15 West African countries.
Assessing the US$5,000–US$20,000
annual household income segment
in a sample of African markets
Dimensions like a sector view, demographics and socioeconomic bands, are the second way companies can prioritize the market.
African consumers come from a variety of ethnicities, creeds and cultures, not to mention house hold income. Understanding this enables a more "joined up" perspective of African consumers that stands apart from historic and colonial boundaries.
While each company will need to construct its own framework for analysis, depending on its strategic priorities, we have produced a sample identifying the high potentialAfrican markets for companies targeting consumers in the middle class, US$5,000– US$20,000 annual income.
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