Why companies new to Africa should first focus on smaller countries

Multinational consumer goods companies are increasingly looking at entering the African market. However, with 54 different countries and around a billion people, deciding which countries or markets to prioritise can be tricky.

“You can’t treat Africa as one single market. So choosing where to play and where you will get the best return is the critical question,” said Michael Wood, co-founder and director of consulting firm Aperio, at an event in Cape Town organised by the University of Stellenbosch Business School.

According to Wood, many companies target the continent’s biggest economies, such as Nigeria, South Africa and Kenya.

However, he said that for companies new to the African market, it might be better to first enter a smaller country.

“The [large] markets are normally more complex, they have more competition, and the cost of failure is often higher than if you were to start in a smaller market. So what we… advise often is: start with a smaller market in Africa, learn how to operate within the African environment, and then go to the bigger markets.”

Another strategy that companies use is to target specific cities in Africa – typically large urban centres such as Lagos (Nigeria), Kinshasa (Democratic Republic of Congo) or Accra (Ghana).

According to Standard Bank, it is estimated that about 40% of Africans currently live in urban areas, making Africa more urbanised than India, and slightly less urbanised than China. By 2050 it is expected that more than 60% of Africans will be urbanised.

According to Wood, companies cannot ignore Africa’s secondary cities, as most of the growth over the coming years is going to come from these smaller centres.

Due to a general lack of reliable market data, Wood advises consumer goods companies eyeing the African market to spend time in the countries they are looking to enter. “What we found works best in terms of assessing whether a market is interesting and attractive to enter, is literally going there and spending a period of time in the marketplace, meeting people, understanding the market, meeting with retailers, with distributors, with wholesalers, with consumers, with companies that already operate in that environment.

“By the end of the week or two weeks that you are there, the different pieces of information that you pieced together gives you a relatively good, and importantly first hand, understanding what is happening in that market.”