Prospects Remain Positively High for Retail and Consumer Businesses in Africa –Report

Posted by African Examiner Business News, Latest Headlines Wednesday, March 16th, 2016

By Eric Ojo, Abuja

BALTIMORE, MD (AFRICAN EXAMINER) – Despite the comparatively low economic growth in the wake of falling commodity prices, slowing revenues and volatile currencies in Sub-Sahara Africa (SSA), prospects for growth in the retail and consumer businesses remain positive, a report released by PwC has said.

The PwC’s report noted that in spite of the decline in growth in Africa’s economy, the long-term outlook remains positive, adding that the economic growth predicted for 2016 and beyond in some African countries and the growth expected in Africa’s consumer market provides major opportunities for retail and consumer companies looking to the future.

PwC’s inaugural publication entitled ‘So much in store’, is an in-depth study into the make-up of SSA’s retail and consumer goods industries, and provides an outlook for the coming five years by focusing on 10 African economies that the PwC believes will offer some of the most compelling opportunities for retail and consumer businesses looking to expand into Africa. The countries include, Cameroon, Ethiopia, Ghana, Côte d’ Ivore, Kenya, Nigeria, South Africa, Tanzania and Zambia.

The report also observed that significant global megatrends will help drive the retail and consumer goods industries and create future opportunities, adding that Africa’s demographic dividend, its growing middle class and rising income levels, and rapid urbanisation will all have a part to play in the continued growth of the retail sector across the continent.

“Currently, Africa is home to more than one billion people which is expected to increase to more than two billion by 2050 Africa’s working age population is forecast to grow at a faster rate than its overall population.

“When the labour force grows more rapidly than the population dependent on it, resources become available for investment in economic development and personal consumption. This offers an opportunity for rapid economic growth”, the report added in a statement made available to African Examiner.

Lending credence to this trend, Anton Hugo, Retail and Consumer Industry Leader, PwC Africa, explained that as Africa has risen to prominence as an investment destination over the past several years, the role of retail and consumer goods has equally taken on greater significance.

“SSA remains one of the fastest growing regions in the world and the successful expansion of a number of global and African retailers and consumer goods companies across the region speaks to the opportunities that exist”, he added.

Hugo further noted each country in Africa has its own value proposition and smart investing in Africa means investors need to understand key regions and local markets. Despite these risks, according to him, investors and retailers will continue to see the African market as a huge opportunity.

He equally stated that consumers in SSA are becoming more aspirational and brand-conscious, adding that Africans are becoming more connected to global trends than ever before as a result of growth in internet penetration and travel.

Also in his submission, Edafe Erhie, PwC Partner in Nigeria pointed out that Africa’s fortunes are very much tied to those of the global economy, noting that pressure on emerging market currencies coupled with a decline in oil and other commodity prices has seen pressure on government revenues and the ability of governments to increase social expenditure and wages in the public sector.

He therefore recommended that African retailers will need to focus their efforts on operational efficiency and managing the effect on their operations of volatile currencies.

The report also posited that African organisations are becoming dominant players in local markets and expanding their presence across the rest of the continent.

It added that for the foreseeable future, informal retail will continue to dominate sales in SSA because with the exception of South Africa and Angola, it is estimated that upwards of 90 percent of sales in the focus countries is through informal channels such as markets, kiosks, table-top sellers and street hawkers.

“However, the industry is in the process of modernising with a number of western-style shopping centres taking shape in countries like Nigeria, Kenya and Ghana. It is also interesting to note that in some countries such as Ghana, Nigeria and Zambia, many of the malls are anchored by South African retailers.

“For some countries, the building of shopping malls is a challenging and expensive business due to the difficulties in securing land, resources, and the costs associated with building”, said Michael Mugasa, PwC Partner in Kenya.

The report equally noted that there is a growing movement towards local production across the African continent. “This trend is driven by a number of factors. These include, amongst others, political stability and government incentives to boost local manufacturing. Despite the opportunities, manufacturing in Africa comes with numerous challenges”, it further explained..

A critical success factor for retailers and consumer goods companies moving into many African countries has been their ability to implement supply chains that deal with the operational challenges that exist.

It also observed that the dominance of informal trade and Africa’s large rural population makes distribution a complex exercise. However, as 90 percent of sales are made through informal channels, those that ignore this segment are missing out on a significant share of potential revenue.

The report however acknowledged that there are also many examples of companies that have introduced innovative ways of improving their distribution in various countries.

“Given the size of Africa, supply chains tend to be complex and expensive. Other obstacles include poor transport, inadequate local supply capacity and the dominance of informal retail trade”, Hugo further explained.