RUDYARD Kipling once said “the first condition of understanding a foreign country is to smell it”. Kipling almost certainly had Africa in mind with this statement. Nothing rings more true when doing business across this rich and diverse continent. Sights, smells and sounds are all important.
While African-wide strategies may start in the boardroom, these cannot be successfully developed on the back of annual rankings and country surveys. Such reports are a useful starting point to identify possible challenges and opportunities inherent in these markets. But the real work of establishing which African market to target, and when, begins on the ground, immersed in the place itself.
A recent visit to Nairobi and Lagos with a group of local and international business executives highlighted the growing strength of various domestic players in both East and West Africa. These are increasingly challenging the traditional dominance of established multinationals.
The notion of Africans investing in Africa is a growing and positive trend across the continent, exemplified by highly competitive players from retail and fast-moving consumer goods to financial services and real estate. A prevailing theme across sectors and geographies that has become central to any African-wide business strategy is the scale and vibrancy of informal markets. In this space, the agility of domestic players is giving them a competitive advantage over foreign firms that are less familiar with the terrain.
The emergence of powerful local players is most evident in Kenya’s financial sector. A decade ago, multinationals dominated banking services in that country. Barclays and Standard Chartered were the clear market leaders, with more than 100 years of experience in Kenya. Today, the top three banks by market share are all local: Kenya Commercial Bank, followed by Equity Bank and Co-operative Bank of Kenya. Their success is accredited to an intimate knowledge of the market with a domestic flavour.
Keroche Breweries in the Rift Valley is another example of how local players are challenging the dominance of multinationals with products that meet local tastes and requirements. Keroche was founded in 1997 by Tabitha Karanja, arguably the most renowned female entrepreneur in Kenya. Karanja built the first 100% local brewery in the country and broke the eight-decade liquor market monopoly in Kenya.
Karanja attributes the success of Keroche to her deep understanding of the local market and to identifying a gap in the middle-to low-income market segments that were not being catered for by the big players. With locally available raw materials and start-up capital of 500,000 shillings, ($5,000) Keroche began by producing fortified wines that proved more popular than expected. In 2008, beer was added to the Keroche portfolio, and by 2015, production capacity had expanded from 10-million to 110-million litres of beer a year with the opening of a state-of-the-art plant in Naivasha. Keroche holds 5% of the market in Kenya, with plans to ramp this up to 20% within the next five years.
Nakumatt is another home-grown Kenyan champion that emerged from the Rift Valley. Established in 1987, Nakumatt is East Africa’s leading retailer with anticipated growth from 61 branches across the region today (46 are in Kenya) to more than 100 branches within the next five years.
Nakumatt’s aggressive expansion and its unrelenting competitiveness is based on a deep understanding of domestic consumers, providing competitively priced products and a uniquely innovative operating model that caters directly to local market requirements. One example is the introduction of 24/7 shopping hours that grants shoppers more time and less stress — away from the notorious Nairobi traffic — to ponder and compare big-ticket items or simply visit a store with fewer customers.
The informal market presents one of the greatest opportunities and threats to business in Africa. But it is still poorly measured and misunderstood.
While the sector is estimated to contribute roughly 5% to GDP in SA and 16% of employment, in Kenya, it adds about 35% to GDP and up to 80% of employment. In Nigeria, the estimate soars to 66% of GDP and a staggering 90% of employment — no small measure in an economy of more than $500bn with 185-million people.
Kibera in Nairobi, one of Africa’s largest urban slums that turns 100 years old in 2017 — and Makoko, a floating fishing village in Lagos, illustrate both the potential and dramatic challenges that informality presents to business and policy makers.
Numbers for both Kibera and Makoko are sketchy. Kibera is home to between 500,000 and 1-million people, while Makoko has a population of between 100,000 and 300,000. Both exude the restless energy that defines African markets, while illustrating the enormous challenges of urbanisation and inequality that are shaping modern Kenya and Nigeria today.
By most western standards, Kibera and Makoko are slums that lack access to basic resources such as clean water, electricity and sanitation. But the vibrancy, energy, sense of community and resourcefulness that characterise these settlements demand a new approach to retail and services that is both unique and intoxicating.
In stark contrast to Makoko and not far from this so-called “Venice of Lagos”, Eko Atlantic rises from the shores of Lagos’s Victoria Island in a multibillion-dollar residential and business development area under construction on 10km² of reclaimed land. This is the largest privately funded city project in the world, with an estimated $600bn of real estate. It promises to be the “Dubai of Africa”, boasting green-conscious and state-of-the-art infrastructure.
Eko Atlantic will be home to the largest and richest multinationals and elites in the world, occupying skyscrapers and penthouse apartments. It is a true representation of the grandeur and aspirations of modern Nigeria, despite the enormous socioeconomic challenges just a short boat ride away.
The critical importance of context in shaping and driving strategy in Africa is undeniable. If companies and individuals are serious about understanding new markets and growing their interests across the continent, visiting these markets with constructive immersions and engaging with those on the ground is essential.
Samuel Johnson’s old adage carries resonance in Africa.
He once said, “The use of travelling is to regulate imagination by reality, and instead of thinking how things may be, to see them as they are.”
This is how we grasp Africa’s new normal in 2016 and begin to realise the true potential this vast continent has to offer.
Article written by LYAL WHITE AND LIEZL REES, Prof. of the Centre for Dynamic Markets at the Gordon Institute of Business Science. Rees is the centre’s manager.
Source: BDLive
