Local firms must surf Africa’s growth wave

2011-11-19 08:53

South African companies should expand across Africa to take advantage of the Mother Continent’s growing consumer market, says global management consulting firm Accenture.

A new study compiled by the firm projects consumer spending in sub-Saharan Africa will reach $1 trillion (R8.2 trillion) by 2020 from $600 billion last year. The figure is buoyed by the increase in income levels, reduction in poverty, a stable political climate and rapid urbanisation.

“Companies are building emerging markets into growth strategies as consumer demand in more mature markets struggles to reach prerecession levels,” the study says.

“Perhaps the most promising emerging market is also one of the least understood: Africa. The continent offers the last frontier for consumer growth.”

According to the study, Africa’s population will reach 2 billion by 2050 from the current billion. In 2005, Africa’s population was estimated at 920 million.

The study reads further: “Africa’s growing, increasingly wealthy population is becoming more urbanised as well. By 2050, almost two-thirds of the population will live in cities, compared with 40% in 2010.

“Urbanisation, in turn, will lead some African consumers to purchase more goods and services, and will make it easier for companies to reach consumers with products, services and communications.”

Grant Hatch, an Accenture director who worked on the research, said the South African market was becoming saturated for many consumer-focused companies and such companies needed to look north to grow their customer base.

He said although many of the local companies that have expanded into the continent were large businesses, medium-sized companies also needed to search for new markets.

“I think consumer growth in Africa will continue until 2030, but a lot of medium-sized businesses are focusing on South Africa,” Hatch told City Press. “They feel that they have not fully exploited opportunities locally or they are not big enough to expand into Africa.”

The study warns, however, that while Africa was a treasure trove, South African companies needed to plan carefully before entering various markets to counter risks associated with corruption, poor infrastructure, excessive red tape and scarcity of skills.

Dave van Niekerk, a former chief executive of Blue Financial Services who took the microlender to 12 African nations, concurs that South African companies should be looking to expand into Africa if they want to grow their businesses significantly.

“South African companies that are not in Africa are limiting their market share.

“However, you need to choose your partners carefully,” Van Niekerk said, adding that currency and political risks were some of the toughest challenges that investors may face on the continent.

His fears about political risk are not unfounded. Last month, Zambia’s new president, Michael Sata, ordered his finance ministry to cancel the acquisition of a struggling local lender, Finance Bank, by First National Bank (FNB) of South Africa.

Finance Bank was due to be taken over by FNB for $5.4 million after it was put under administration on allegations of maladministration. President Sata has since returned the bank to controlling owner, Rajan Mahtani.

Operating in Africa has also been tough for mobile phone network operator Vodacom. The operator is now in the process of pulling out of the Democratic Republic of Congo (DRC) after it fell out with local shareholder partner Congolese Wireless Networks. Now rumour has it that MTN, Vodacom’s chief competitor, is interested in buying Vodacom’s 51% stake in the DRC operation.

Christian de Faria, MTN Group chief commercial officer, said he expected growth in consumption of telecoms services, particularly data services, to be brisk going forward as cellphone penetration was low in Africa.

Research in this field shows that penetration in some economies is still at between 40% and 60%
of the population.

However, De Faria said while the continent’s growth prospects were bright, companies needed to ensure that they properly managed risks associated with doing business on the continent.

“Every continent has its own challenges and Africa is no different from other continents.

“The cost of doing business in Africa is high because of poor infrastructure, but efforts are being made to develop the infrastructure. You also need to make sure that local enterprises participate in your investment. The investment must not be one-sided; it must be a win-win partnership,” he said.

Widespread corruption is also seen as a barrier to doing business in Africa.

Sim Tshabalala, deputy chief executive of Standard Bank, which operates in 17 African nations, says the lender has a canny strategy of dealing with corrupt officials and business people.

“There are some markets in which officials and business people frequently expect ‘facilitation fees’. We are absolutely clear that we don’t engage in corruption. Conversations that could lead to corrupt suggestions don’t get started,” says Tshabalala.

“This stance may lose us some business, but it gains us better quality, lower risk and more sustainable business from honest people and companies looking for partners of equal integrity.”

Join the conversation!

24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions.

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
0 comments
Comments have been closed for this article.

Inside News24

 
/News
Traffic Alerts
There are new stories on the homepage. Click here to see them.
 
English
Afrikaans
isiZulu

Hello 

Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.


Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.

Settings

Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.




Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.