Despite its huge potential, the retail business in Africa is still 90 percent dominated by informal trade, states the PwC’s inaugural publication entitled ‘So much in store.’
The Pwc publication is an in-depth study into the make-up of Sub-Saharan Africa’s retail and consumer goods industries.
“For the foreseeable future informal retail will continue to dominate sales in Sub-Saharan Africa. 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 report notes that despite the decline in growth Africa’s consumer market provides major opportunities for retail and consumer companies looking to the future.
“As Africa has risen to prominence as an investment destination over the past several years, so the role of retail and consumer goods has taken on greater significance,” says Anton Hugo, Retail and Consumer Industry Leader, PwC Africa.
“Sub-Saharan Africa (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.”
“However, Africa’s fortunes are very much tied to those of the global economy. 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. African retailers will need to focus their efforts on operational efficiency and managing the effect on their operations of volatile currencies,” adds Edafe Erhie, PwC Partner in Nigeria.
The report list 10 African economies that it considers offer the most compelling opportunities for retail and consumer businesses looking to expand into Africa: Cameroon, Ethiopia, Ghana, Côte d’ Ivore, Kenya, Nigeria, South Africa, Tanzania and Zambia.
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.” states the Pwc report.
But the report also notes that changes in consumer lifestyles and ambitions are influencing purchasing behaviour and patterns, according to leading retailers. Overall, consumers in SSA are becoming more aspirational and brand-conscious. “Africans are becoming more connected to global trends than ever before as a result of growth in internet penetration and travel,” explains Hugo.
Those that can afford it are also becoming more health-conscious, favouring nutritious and healthy foods.
“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,” says Michael Mugasa, PwC Partner in Kenya.
Increasingly there is a growing movement towards local production. 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.
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.
“Given the size of Africa, supply chains tend to be complex and expensive,” says Hugo. “Other obstacles include poor transport, inadequate local supply capacity and the dominance of informal retail trade.”
Hugo concludes: “Each country in Africa has its own value proposition. Smart investing in Africa means investors need to understand key regions and local markets. Despite these risks, investors and retailers will continue to see the African market as a huge opportunity.”
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