Thorough research and on-the-ground experience is key to understanding and unlocking Africa’s complex consumer market. These and other points were discussed during a panel discussion at last month’s Africa Outlook 2014 summit, presented by Frontier Advisory. Below are the key outtakes from the session. [hidepost=9][/hidepost]
Growth of the middle class in Africa is real given that about one-third of the continent’s population is now classified to be middle class, according to Dennis Dykes, chief economist at Nedbank.
With consumer expenditure expected to accelerate from US$600bn in 2010 to $1tr in 2020 as per Accenture, there are a number of factors that have underpinned this rising middle class. Some of these include better fiscal and monetary policies, lower interest rates and favourable terms of trade. Notable health and other social welfare improvements have left populations less burdened. Increased competition and the ‘China price’ have contributed to lower inflation and improvements in consumers’ propensity to save and to spend on, among other things, consumer goods. This has also allowed the African consumer to invest. Fixed investment spending in Africa has risen from about 15%-16% of GDP to an excess of 25%. There are, however, major improvements still required in the social welfare space.
Despite greater purchasing power among African consumers, consumer-facing businesses will need to do their homework or will be subject to paying high school fees if a key component of their market entry strategy does not include a thorough understanding of the market in question. On-the-ground experience is second to none and establishing networks in those markets is vital.
Knowledge of the level of competition in a market and a thorough assessment of risks versus potential is vital to the survival of a firm that is targeting the emerging African consumer market. Different markets have different needs and service providers need to understand these dynamics in order to effectively capture, retain and expand the complicated African consumer base. This is particularly the case as data on Gini coefficients, purchasing power and price sensitivity is dated at best, where these exist.
Reliability and availability of technology, data and information, as well as local legislation, language barriers, taxes, governance and corruption are some of the challenges facing businesses in Africa.
However, in light of this, cosmetics and beauty company L’Oréal still regards moving manufacturing of various product lines sold in the continent to Africa, said Dave Hughes, general manager of L’Oréal SA’s consumer products division. This is regarded as the next logical step in order to meet the dynamic needs of its African consumers which includes the wealthy and the emerging middle class. The establishment of L’Oréal’s manufacturing site in Midrand (South Africa) for its Dark and Lovely products, as well as production facilities in Kenya and Egypt are some of the investments made by the French company.
David Miller, CEO of South African-based fashion retailer Busby, emphasised that while taking a long-term view to position a company in Africa’s frontier markets, where the emergence of viable consumers is no longer an oxymoron, it remains key for companies like Busby to be profitable in the short to medium term. Busby’s Aldo store in Luanda, Angola is a case in point, recording the same turnover as Busby’s Aldo story in Sandton City, Johannesburg.