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It Looks Scary, But Don’t Worry About It

Published 9 years ago
By Forbes Africa

When Michael Wood came to South Africa nearly a decade ago, it was to run the Gillette Company’s southern African business, after a 10 year stint in Russia. Gillette was eventually bought out by Proctor & Gamble (P&G). In 2009, Wood and two marketing directors left P&G to start Aperio, a fast-moveable consumer goods (FMCG) focused business consulting company that helps companies find opportunities and develop businesses in Africa.

“Africa, from an outsider’s point of view can look a little bit scary because there are a lot of countries, a lot of complexities, obviously there are a few horror stories in there,” says Wood

But, he feels that the continent, in some cases, is a lot easier to do business in than Russia, China and India when they first opened up.

Risk factors that may leave companies uncertain can be eased through partnering with established local businesses who know the market. Favorable FDI policies, like tax breaks, also make things easier. Effective trade blocs are another consideration for manufacturers.

African nations are far from the top of the list when the World Bank and International Finance Corporation ranked the ease of doing business in countries. South Africa is the highest African country at 39. Behind it are Rwanda, Botswana, Ghana, Namibia, Zambia and Morocco—placed between 52 and 97.

“If FMCG companies have the ambition for growth, the appetite for some risk and can get some expert help to define and develop their African business; the opportunities can be endless,” says Wood.

Investors beware! A one-size-fits-all approach will not work in Africa. The brand must relate to each specific market, and with 55 countries and thousands of languages, Africa cannot be mistaken for a single market. You’ve also got to make sure of what sells in each country. In Nigeria, for instance, the sachet format works better—be it powdered milk, washing powder or alcohol. This is simply for affordability purposes, not to be mistaken with being cheap. FORBES AFRICA can be bought while sitting in Nigeria’s notorious traffic, a testament to the fact that the country is big on “on-the-go consumption”.

“It’s [Nigeria] not an easy place to operate in and it’s quite complex, but if you get it right… you can build a very successful business,” says Wood.

Those who think that South African markets have come as far as they can, might want to heed Wood’s advice that, although there is generally more potential in other markets in Africa, the country still has a big enough emerging market—with a reported 67% of the population being lower income consumers.

According to a Unilever report, South Africa’s black middle class has grown from 1.7 million people in 2004 to 4.2 million in 2012. Its annual spending is estimated at R400 billion ($38.4 billion). This group is driving retail and vehicle sales, while also seeking affordable housing and education. There’s a view that marketers are not adjusting fast enough to meet the needs of this new market. An October 2012 report by McKinsey & Company says that Africa’s consumer-driven industries will grow by more than $400 billion by 2020.

Spending pattern shifts in South Africa are said to be due to the emerging black middle class, urbanization and an increase in store credit, with the bulk of the country’s spending being on food and drinks.

South Africa’s GDP per capita of $7,750 and consumer expenditure of $4,697 is no comparison to the United States’ (US) at $49,940 and $34,723 respectively, but a growing population coupled with increasing spending capabilities is nothing to laugh at.

Although the US, United Kingdom (UK) and other established markets are large, their growth forecast has many companies turning towards Africa. The continent is gathering spending power. The US and UK’s average spending forecasts are each less than 5% a year, while South Africa’s expenditure growth is expected to increase to more than 10% a year.

Companies that have been on the continent for a long time have the advantage, but are they adapting fast enough?

Unilever has been in Africa for more than a century. The company’s second quarter results show a slowing of growth in the emerging markets—Brazil, Russia, India and China. The company’s underlying revenue rose by 5% year-on-year and developing market sales rose by 10.3%.

“The reality is that today there are very few developing markets left. That’s why Africa is currently generating so much interest as the next BRICS market for many companies,” says Wood.

An Economist Intelligence Unit report says, “A recent survey concluded by the Economist Group of 217 global companies based in 45 countries revealed that expansion in Africa is a priority for two thirds of them within the next decade.”

If the report is to be believed, the largest population growth between 2012 and 2028 will occur in Kampala, Dar es Salaam and Lusaka.

Not only does Africa have the world’s fastest growing population, but it also has the youngest. These youngsters are more brand conscious than their elders. Although brand loyalty and quality are important to African consumers, they are deemed to be highly price sensitive—depending on the country. Trust in a brand goes a long way, even if it means paying a little extra for a product.

It’s supposedly easier to change the habits of the youth, and with a young continent like Africa the possibility to create lifetime customers is endless.

“If you want to be a super-brand then you have to look like a super-brand,” says Wood as he gives examples of how Coke does it best in South Africa and how South Africa’s MTN is pulling it off in Nigeria.

MTN has a market capitalization of around $36 billion and revenue of $18 billion, with more than 200 million subscribers and access to 22 countries in Africa and the Middle East.

It faced some challenges when it began expanding into the rest of Africa.

“The company soon discovered that what works locally does not always work abroad.  Operating across the continent required adapting to local cultures and practices,” says MTN group chief human resources and corporate affairs officer, Paul Newman.

MTN has also come across limiting policies and legislation in some countries.

The opportunity to tap into Africa’s growth is not for international companies alone, but a wake-up call to Africans to take hold of their people and service their needs, but most importantly their pockets. We need to think beyond just agriculture and minerals.

Civil unrest and poor infrastructure aside, Africa and her people clearly have much more to show the world. As for Wood, he thinks that FMCGs will be the driving force behind a lot of countries’ growth.

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Related Topics: #Botswana, #Ghana, #Gillette Company, #Michael Wood, #Namibia, #October 2013, #Proctor & Gamble, #Rwanda.