The African Continent: Emerging Markets Full of Potential and Challenges
July 17, 2013
Last August, Andrew England and Xan Rice reported, “From Lagos in the west to Nairobi in the east and Lusaka in the south, trendy new shopping malls have sprung up across Africa as the continent’s mushrooming cities modernise and its emergent middle class swells.” [“Retailers wake up to Africa’s promise,” Financial Times, 6 August 2012] That same month, analysts from McKinsey & Company confirmed that consumerism was the fuel behind the GDP growth rate of many African countries. The report entitled, The rise of the African consumer, was written by Damian Hattingh, Bill Russo, Ade Sun-Basorun, and Arend Van Wamelen. An article announcing the release of the report stated, “Most investors and businesses know about the tremendous potential of Africa — the world’s second-fastest-growing region, topped only by emerging Asia. But it may come as a surprise that Africa’s growth is fueled not by resources but rather by a rising consumer market.” [“The rise of the African consumer,” McKinsey & Company, November 2012] The article continued:
“The continent’s consumer-facing industries are expected to grow by $400 billion, representing its single-largest business opportunity, by 2020. But many companies don’t know how to translate this potential into action, because of a dearth of market research.”
Justin Sandefur agrees with the McKinsey conclusion that there is a dearth of data available about African nations; but, he believes, those interested in collecting and analyzing data too often obsess “over national statistics.” And, he argues, that is the wrong data to be obsessing over. [“Seeing Like a State in Africa: Data Needed,” Center for Global Development, 17 May 2013] Sandefur is more interested in development than marketing, but the data needed to advance both is very similar. For example, while it’s interesting to note that “the continent’s consumer-facing industries are expected to grow by $400 billion,” that figure is way too vague to be of use to a marketer. Even when McKinsey analysts inform us, that “the African market opportunity is concentrated, with 10 of 53 countries — Algeria, Angola, Egypt, Ghana, Kenya, Morocco, Nigeria, South Africa, Sudan, and Tunisia — accounting for 81 percent of Africa’s private consumption in 2011,” that information only narrows the search for data that marketers and developers really need.
The important data for both marketers and developers is local (as granular as the neighborhood level). Sandefur argues that developers need “reliable data, and more disaggregated data.” Marketers need the same. Sandefur stresses reliability (or veracity) for a good reason. He points out, for example, that you could ask schools to report the number of children who are attending class so that proper resources can be allocated. “At the end of the day,” he writes, “schools get allocated more teachers and more funding if they report more pupils. So schools have an incentive to exaggerate their numbers.” If, on the other hand, you asked parents in the area around the schools about how many of their children are attending school, you would get a much more accurate number because parents would have no incentive to exaggerate.
The bottom line is that data reveals both the potential and the challenges that marketers face in African countries. One of the companies hoping to fill the data void is IBM. In August of last year, it announced that it was opening a research center in Nairobi, Kenya. [“I.B.M. Adds an African Lab to Its Growing Global Research Network,” by Steve Lohr, New York Times, 13 August 2012] Lohr continued:
“In Africa, the problems — and opportunities to solve them — would seem in greater abundance than computer science expertise. And indeed, the Nairobi lab is intended as a hub for nurturing home-grown skills. I.B.M. plans to build the lab up to 50 researchers within five years. In addition, it will be the center for a ‘resident scientist program,’ which will bring in researchers from Nairobi and elsewhere in Africa to collaborate with I.B.M. scientists. The candidates can come from universities, government or industry, typically for one-year stints. The I.B.M. lab is seen as a step toward reversing the tradition of bright young Africans’ departing for the West, in search of advanced education and jobs. ‘A lot of them, like me, have gone into the diaspora,’ said Osamuyimen Stewart, 46, a scientist at the I.B.M. lab in Hawthorne, N.Y. ‘We want to help train Africans to innovate in Africa,’ said Mr. Stewart, a Nigerian. ‘The best minds there should be working on big national problems and African problems.’ The Nairobi lab will seek to develop technology-assisted solutions to the problems of Africa’s fast-growing cities (Africa has 52 cities of more than a million people — more than are in Europe). Water management and transportation, I.B.M. executives say, are prime examples. And solutions, they add, need not depend on long, costly projects.”
Hopefully, other researchers will complement the IBM research effort to provide the kind of granular data that will be needed to make real progress. Having said that, not all aggregated numbers are bad. The McKinsey report concludes, for example, that apparel, consumer goods, and agriculture will account for nearly half of all consumer spending. If your company is involved in one of those sectors, then you should probably take a closer look. Other mega-trends that marketers should be interested in include the fact that “more than half of [Africa’s] inhabitants are under 20 years old.” In urban areas, “the 16-to-34 age group already accounts for 53 percent of income.” And, just as in other areas of the world, “the consumption habits of youth are quite different from those of their elders.” It might surprise you to learn that “Africa is more urbanized than India and nearly as urbanized as China.” It won’t surprise you that the McKinsey concluded that it will be in urban areas where most of the consumer spending is going to be done. That is why marketers and their clients need to know a lot more about cities and their residents.
More than likely, companies entering African emerging or frontier markets are going to be targeting that 16-to-34 age group. According to the McKinsey analysts, members of that group are more brand conscious, follow the latest fashions and trends, and are willing to try out new things. The analysts conclude, “These qualities point to a major change in consumption habits as this cohort ages, its incomes increase, and its behaviors and decision criteria become the societal norm.” It is the behavior and decision criteria in which marketers are most interested.
Although the future is looking brighter for some African nations, the McKinsey analysts note, “Poverty and unemployment are still widespread on the continent, more so than in other emerging markets.” Infrastructure also remains a challenge which means that companies will need to address distribution challenges. In many cases, African nations are their own worst enemy. Patrick McGroarty reports, “African nations are sacrificing billions of dollars worth of potential trade each year to inefficient border crossings and discordant regulations that make it difficult to do business on the continent, the World Bank said in a … report.” [“World Bank Warns on Africa Trade,” Wall Street Journal, 9 February 2012] Companies desiring to conduct cross-border trade in Africa need to keep this in mind.
Supply chain analyst and founder of Supply Chain Insights, Lora Cecere, believes that South Africa enjoys a unique position among African nations and could assert itself as a supply chain hub that could influence the rest of the continent. “South Africa,” she writes, “is uniquely positioned to gain benefit in the race for supply chain modernization of Africa.” [“Out of Africa,” Supply Chain Shaman, 4 June 2013] To gain that benefit, however, she believes that new partnerships must be formed that can help the country bootstrap its capacity and talent. Cecere also writes about another African factor that will impact how the continent develops — mobile technology. She writes, “I love what is happening in Africa on mobile application development. Most African households will never know a wire in the wall for a conventional phone. Instead, they are innovating in new ways on mobile devices.” The McKinsey analysts note that when companies are developing a marketing strategy for African markets, “their approach to marketing should take into account the new reality of the digital consumer.”
The McKinsey study makes several recommendations for companies looking to penetrate the African marketplace. Among them are:
Focus where it matters. Cities offer the best opportunity: urban Africa is forecast to contribute nearly 40 percent of GDP growth. But companies may be wise to bypass high-profile megacities, such as Cairo, Johannesburg, and Lagos, for midtier cities, like Abidjan and Rabat, which are more accessible, have less competition, and offer better profit margins.
Develop locally relevant, quality products. Companies can better tailor products to local markets if they understand what quality means for African customers and know their preferences, lifestyles, and daily needs.
Hit the right price point. Since affordability is critical, companies may have to reengineer products to hit a specific price point. The necessary moves may include offering lower-cost versions, smaller sizes, or alternative payment models.
I would add just one other recommendation — be mindful of packaging. Size and price point are interconnected factors when it comes to getting products into the hands of emerging middle class consumers. They are even more important to consider when sizing and pricing products for the so-called bottom billion consumers who live in the slums surrounding large urban areas. The study concludes, “Africa’s business and economic growth potential is widely acknowledged. The issue for companies now is how to obtain a better understanding of the market and its consumers.” Since African society is going to be a mobile society, data is going to be available and analytics are going to open the door to a better understanding of the emerging African consumer.