Mastering Africa's complex consumer market requires tailored strategy

03 January 2018 5 min. read
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Despite Africa containing a monumental consumer market that is projected to grow rapidly in the near future, there are considerable complexities surrounding successful entry into the region. Research from The Boston Consulting Group (BCG) highlights how varying market compositions and trends across the continent call for caution among international entrants. 

The African continent appears to have hit a growth trajectory. The economy in Sub-Saharan Africa (SSA), which grew by 7% annually from 2005 to 2015, is now expected to grow at 12% till 2035. The growth is primarily driven by an expanding middle-class and an increasingly wealthy affluent segment across the continent.

The continent’s eight largest markets are anticipated to reach a value of $1.25 trillion by 2025, growing at a rate of 5% per annum in the interim. Nearly 90% of urban consumers in the region have expressed optimism about the future, despite a relative slump in the economy over recent years.

One of the biggest drivers of growth in Africa in years to come will be foreign investment. The economy is already being flooded with Foreign Direct Investment from major economies, particularly China. However, the consulting firm warns against the common mistake of adopting a uni-dimensional strategy when entering the continental market.

Traditional Trade Communications

The reality is that the continent is a picture of diversity. As stated in the report, Africa has “more than a billion consumers (60% living in rural areas), 2,100 languages, and 54 countries.” In order to contextualise the wide effects of such diversity, the report categorises the variations into five areas, namely, variety in trade channels, and consumption patterns, limited infrastructure, lack of market data, and the various regulatory and business environments.

Africa is home to a plethora of trade channels, ranging from traditional street vendors to more modern channels such as supermarkets, shopping malls, and even e-commerce in some regions. In essence, the channels vary between, as well as within countries. For example, a majority of the South African economy employs modern trade channels, while the same channels would be restricted to major urban centres in Kenya, and play a very small role in Cameroon.

In addition to the level of economic development of a country, cultural factors also play a major role in these variations. Street markets, for instance, are an integral part of the culture in many countries, often doubling up as means for social recreation. A multinational corporation (MNC) entering the market must be sensitive to these variations, expanding its scope beyond modern channels of trade.

Differences in Coffee and Tea purchasing

Closely related to the variations in trade channels is the variety in the consumption patterns that they cater to. Cultural differences bring with them a diverse range of eating habits, fashions, and styles of furniture among a sea of other nuances. Just in terms of the consumption of tea and coffee, the report found four different preferred sources across five countries.

In Egypt, for instance, most people (42%) buy their tea and coffee from a general store, while 85% of Ethiopians buy tea or coffee from a kiosk. A majority of Kenyans and Ghanaians buy the beverages at the supermarket, at 75% and 32% respectively. Meanwhile, 45% of Moroccans prefer to buy their beverages at traditional (street) markets.

Other areas of caution for MNCs include a major deficiency in infrastructure on the continent. Recent data suggests that there is a $100 billion gap in infrastructure funding in Africa, of which Nigeria is a good example. The national road network in the country is utilised for 90% of the transportation of goods and people. However, less than 20% of these roads are actually paved.

Lack of market data is another major issue for MNCs in the region. Markets in Africa suffer either from a lack of reporting or from data misrepresentation, which could prove catastrophic for businesses. In Nigeria, for instance, there was a discrepancy of 1.7 metric tons between the reported amount of rice consumed and the reported production volume.

Principal operating models Africa

Lastly, the report details the regulatory environment in Africa, which tends to vary across countries, but is fairly stringent across the board. In addition to import duties and trade barriers, there are regulations such as the Broad-Based Black Economic Empowerment (B-BBEE) in South Africa, which tends to act as a deterrent for MNCs due to its stipulations on ownership redistribution. 

In light of this multitude of cultural and economic nuances, the report recommends that MNCs carefully mold their strategy to truly tap into the potential economic benefits. To this end, a successful strategy would consist of five steps according to the report. These are: comprehensively understanding the market, deciding a level of ambition and the target market, setting up a proper distribution system and structure, forming strategic partnerships, and planning all the way down to the in-store sale.

Commenting on the market scenario in Africa, Takeshi Oikawa, Principal at The Boston Consulting Group in South Africa said, “A lot of MNCs are talking about complexity in doing business in Africa, but very few are properly addressing the complexity. Data dark environment requires its own investment into market intelligence. For instance, estimating a market size is not a simple task due to lack of statistics/data, smuggling from neighbouring countries etc.”