OUT OF AFRICA?
Consumer spending in sub‑Saharan
Africa is expected to reach $1trillion
by 2020, up from $600 billion in
2010, according to research group,
Euromonitor International.
The drivers of this growth are not just middle-class Africans.
Poverty levels in SSA are still quite high, with food and other
basic necessities dominating consumer budgets. So, with
lower income consumers also in the picture, the food subsector of FMCG has a very large market to cater for.
Catering for it in the right way, however, requires the company in
question, and others like it, to rethink their business models. At
the risk of stating the obvious, it is important to understand that
Africa is not one big country. It is a continent made up of more
than 50 countries of diverse culture, language and traditions. The
population is also highly fragmented, with varying spending habits,
different demographics and different sets of needs and wants.
With this in mind, this European multinational should be prepared
to tailor its products and services to suit. Some companies have
succeeded on this front by, for instance, rebranding, redesigning
their packaging or adapting the product size to local needs for
convenience or affordability. Many others, however, have made
grand entries into Africa with business models and products
that have worked in their markets of origin. This is perhaps the
most tragic mistake, and one that comes with a steep price.
64 Emerging Markets Business Summer 2016 • Issue No. 1
To succeed where others have failed, rather than considering
retrenchment, the company has to go the extra mile in
responding to Africa’s dynamic environment. In addition, it may
need to take a more pragmatic approach to its expansion. With
the growing entrepreneurial capacity in Africa—especially in
agro-processing—locally-owned factories and companies are
likely to enjoy better tax benefits than multinational companies.
While the multinational has invested in its own facilities in
Africa, it might be worth considering outsourcing or partnering
with local firms. Major infrastructural investments can make it
difficult to recoup the capital expenditure and in turn impact the
cost of the end product which is then passed on to the consumer.
Against this backdrop, succeeding in Africa is not easy, but the
company clearly has the resources. What it needs to do now is
use them to better effect by really getting to know Africa in all
its diversity and developing a strategy that fits. The prospects
remain positively real and multinationals looking to tap into
the continent must be ready to explore beyond what is normal
and consider tailor-made solutions to adequately respond to
the needs of the African consumer.