‘Explore Nigeria at your peril’

2014-04-16 18:52

“Africa is not for sissies,” analyst Chris Gilmour has warned in response to Pick n Pay’s strategy to actively explore new opportunities in the rest of Africa with a special focus on Nigeria, Africa’s biggest economy.

Pick and Pay released its results yesterday, showing group turnover had increased by 7.7% to R63.1 billion and revenue outside South Africa grew by 27.9% to R3.2 billion.

Good growth was achieved in Zambia and this may have been the reason the company felt compelled to install a team on the ground in Nigeria to explore opportunities in that market.

“I can see why South African companies want to expand into Nigeria, it has over 150 million people, it has the biggest GDP growing at over 6% and we hardly reach 3% ... but explore Nigeria at your peril,” said Absa Investment analyst Gilmour.

The ominous sentiment was based on the fact that Nigeria proved too challenging for too many South African retail stores. Last year, Woolworths was forced to pull out of Nigeria because of reasons including complex supply chain processes, high rental costs and high duties.

“Nigeria is phenomenally difficult place to do business. It is very hard to understand. The bureaucratic process of getting goods into Nigeria is incredibly frustrating,” said Gilmour.

The other main challenge South African stores encounter in the West-African market is the competition with the informal sector.

Gilmour said even though Nigeria had many consumers, most still preferred to shop in the informal market: “Nigerians haven’t recognised formal retailing and [SA] retailers who are only breaking into the market will have a tough time.”

He added that there are also structural issues to be mindful of: “The electricity grid in Nigeria is only a tenth of South Africa. Pick n Pay will need to invest in generators which are very expensive. The country brings a unique set of problems.”

However, Gilmour said he understood why businesses were looking to conquer the Nigerian market. He said there was a growing middle class and even though the GDP per capita, the country’s standard of living, was much lower than that of

South Africa, the bigger consumption market is the reason business believes “you’ve got to be there”.

But David North, Pick n Pay corporate affairs and group strategy director, says the company is aware that Nigeria, “like any market, presents challenges as well as opportunities, and these need to be understood and assessed. That’s why we have put a team on the ground – to immerse themselves, weigh up the opportunity and report back before we take any decisions.

“Our Africa business is performing well and has the potential to be a second engine of growth for Pick n Pay. We have taken a strategic approach, focusing on those countries where we see sustainable opportunities.”

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