fbpx

Editorial: Why Global Businesses Are Following Retail Boom in Africa

Editorial: Why Global Businesses Are Following Retail Boom in Africa

South Africa, Nigeria, Rwanda, Kenya are among the pioneering countries in which businesses have successfully tapped into the retail industry. While many investors are taking the wait-and-see approach, there is no denying that Africa’s growth will flourish.

When retailers choose Africa as a location for investment, there is job creation for a job-ready population — and this is a key in increasing the number of those who will be Africa’s middle class which will aid in pushing the retail industry forward.

Africa and Industries Within it are Expanding

In a study by Global Retail Development Index, a handful of African nations were listed among the top 30 countries for retail investment.  The vast continent has continuously been projected for increasing growth in recent and upcoming years.

 A 2011 World Bank report states that “Africa could be on the brink of an economic take-off, much like China was 30 years ago and India 20 years ago.”

This study focused on identifying markets that are most successful today and those that have a promising future ahead. It also mentioned that by 2100, five of the 12 most populous countries in the world will be in Africa. Africa’s growing sectors like agriculture, natural resources and telecommunications have played a role in its expansion and attracting the eye of other business industries around the world.

For example, in 2010 Bharti Enterprise made a major move by purchasing a mobile phone company network that reaches throughout Africa for $10.7 billion. Following that, one of technology’s pioneers, IBM recently opened a research lab in Nairobi, Kenya. These businesses are paving the way for new industries by assuring leaders in the global business community — especially in retail — that Africa is a promising place for investment.

More recently, South African retail giant Woolworth’s Holdings has jumped on the industry expansion bandwagon and is attempting to create an even bigger presence by acquiring Australian retailer David Jones.

“The combination will create a leading Southern Hemisphere retailer with meaningful scale, able to leverage common fashion seasonality with enhanced sourcing capability,” Ian Moir,  Woolworths Chief Executive said in a Wall Street Journal report.

Global Businesses are Looking for Something Different

Every market has unique challenges that require a different approach for success. Africa is very diverse — its 1 billion-strong population spans across 54 countries. Along with diversity comes an array of cultures, languages and demographics. Businesses are having to be more innovative and aggressive when it comes to marketing in Africa. As retailers face little or stagnant growth, they are taking a step back from rapid expansion strategies and taking a second look at developing markets where growth is big and small. This is why there is great opportunity in Africa.

Shoprite, Massmart, Carrefour, Spar, Mr Price and Truworths are some of the top retailers which have established a notable presence in Africa’s retail industry. Major moves include Shoprite’s partnership in the development of a $85 million shopping mall in Kano, Nigeria. Global retail pull U.S.-based retailer Wal-Mart acquired a 51 percent share of supermarket firm Massmart in 2011 for $2.4 billion. Massmart has also announced that it will launch 1,246 stores in Africa by 2016.

Since companies can’t use their cookie-cutter approach and models in Africa, the call for flexibility pushes them to re-purpose and adjusts infrastructure to be welcomed as a potential retailer. This allows companies a faster turnaround by not having to expend extra manpower and places Africa as a top competitor by having suitable accommodations.

Growth of Africa’s Middle Class

Expanding industries, job creation and rising incomes have placed cash in the pockets of Africa’s new middle class. The African Development Bank estimates that 34 percent, 326 million people belong to this class. According to pan-African Standard Bank, the number of households with annual incomes greater than $3,000 at market exchange rates may increase to 100 million by 2015. The continent’s middle class is considered to be made up of those who spend between $2 -$20 a day. This group is targeted and more so than other potential customers, the middle class is interested in trendy, new options retailers have to offer.

“Reducing poverty means creating a middle class, sometimes people think pushing the middle class means forgetting about poverty, but it’s the other side of the coin,” Mthuli Ncube, African Development Bank Chief Economist told Reuters. “It’s the middle class that drive demand in an economy.”

In 2013, the World Bank reported that consumer spending accounted for more than 60 percent of the Sub-Saharan’s thriving economy. It was also estimated that growth would continue at a 5 percent rate over the next several years. The middle class has been able to achieve growth due to relative stability, politics and economic policy.