In recent years, the conversation at companies looking for growth in emerging markets has turned from the usual suspects to Africa. Why? Two reasons. First, the usual suspects—Brazil, Russia, India, and China-- have faced some combination of plateauing out as well as challenges of their own (e.g., sanctions in Russia and austerity measures in China). Second, Africa is booming in its own right. With GDP expected to grow at a rate greater than 6% per year across key pockets within the continent, we’re seeing substantial opportunities across both the consumer and business segments.
On the consumer side, Africa has about 200 million people between the ages of 15 and 24, and most of these emerging consumers are considerably more educated than the past generations of adults, a factor that should boost their long-term earning and spending power. Piggybacking off of this, Africa is expected to have the world’s largest workforce within the next 25 years, and this young generation will be at the forefront of it. This only partially accounts for the general rise of the African consumer, however. The rapid increase in the percentage of Africans considered in the middle class in recent history is astounding and its anticipated to continue to trend positively for at least another 6-7 years. We are seeing a completely new consumer class across the continent. While the opportunities will be widespread, Egypt, Kenya, Nigeria, and South Africa hold particular promise. The world’s leading B2C players are taking note, and we’re seeing accelerated levels of investment as those multinationals attempt to grab and build brand loyalty with these consumers early while also securing and locking up effective route to market options.
In terms of B2B markets, we see activity centered around both the substantial amount of infrastructure development taking place on the continent as well as the rise of local businesses that, riding the consumer wave, are expanding nationally, regionally and globally. This has created need and opportunity for everything from concrete, hydraulic pumps and cranes on the industrial side of the world to office equipment and professional services for the many businesses taking root and expanding on the continent. Including homegrown players with an eye towards, national, regional and global expansion.
But despite these opportunities, key challenges remain. With three primary ones being:
1) Africa isn’t really Africa: Instead, the second largest continent is comprised of 54 countries. With incredible diversity in terms of GDP levels and growth, political and social stability, social and cultural norms, tastes and preferences, existing and developing infrastructure, etc. The question isn’t whether you should invest in Africa but, rather, where, specifically, to place those bets.
2) Customer needs are different than in the West and, often, poorly understood. What’s clear is that price sensitivity remains high and product quality and performance expectations continue to lag across the mass-market opportunity. As a result, products and services engineered with developed market customers in mind may be a poor fit. And data richness relative to customer needs and how those needs differ across segments is non-existent in many cases. Multinationals are challenged with defining whether and how to either adapt their existing portfolios and / or engage in Africa-specific new product and service development
3. The real and perceived risk profile for investing in Africa remains higher than in developed markets: News about the continent for the past several quarters has been dominated with stories about poverty, civil and religious conflict, warlords wreaking havoc on the countryside and the Ebola virus running rampant through the population. Being far-removed from the continent, corporate executives sitting in New York or London may shy away from substantial, early investments on the continent. Unless they can find the means to surface the knowledge and insights necessary to effectively down-select to the countries that hold the highest reward while defining the best practices and strategy necessary to effectively manage local market risk. But skittishness remains.
The economic story of Africa is poised to change with much larger economies now possible and a prolonged growth phase following in its wake. This creates substantial opportunity for western multinationals. But to take advantage of that growth, you have to begin moving now if you haven’t already. And that movement has to be meaningful in nature and scope, as well as de-risked to the best of your ability. As other emerging markets have shown, there is such a thing as early mover advantage. And those who are late to the game or who fail to invest in a substantive and focused way create a different risk – low focus and underinvestment never creates leadership and playing catch-up once you’ve fallen behind in emerging markets remains extremely difficult.
If you are either interested, but unsure how to successfully pursue Africa or are still concerned about making an investment in this region—across either consumer or business markets, contact us for help in defining and de-risking your Africa strategy.