A good year for retail in Africa

A good year for retail in Africa

With a population of over 1.02 billion (15% of global population), retail spend of almost $0.9 trillion (N144 trillion) in 2013 and economies expected to grow at 5.3% in 2014, Africa is fast establishing itself as a ‘retail frontier’.

 

Available data leads us to the conclusion that 2013 may go down as one of the best years yet, for retail on the continent.

 This is not only because more was spent on retail in nominal terms, but because more retail focused investments flowed into the continent, more brands, which where hitherto not in mass circulation were introduced, also, new versions of products that are already in circulation were introduced. Indeed, retail contributed more to most African GDPs in 2013.

 In 2013, notable injections into retail trade came in form of new investments or expansions of existing retail paraphernalia.

 Last year, the South African retail market got a boost when the world’s largest retailer, Walmart, expanded its international business with a 51 per cent stake in South Africa’s retail and wholesale giant, Massmart.

 The $2.4 billion deal gave Walmart access to 50-million new customers while using Massmart’s footprint to expand into other African countries.

 Mid 2013 saw the announcement by French retail giant, Carrefour, that it will set up shop in West Africa, especially in Ghana and Nigeria. Though, the retail outlets will be fully operational in 2015, moves began to actualize the project.

 By September, Imara S.P. Reid Stockbrokers, a Johannesburg based investment bank, said South Africans which had invested in retail through it, had committed as much as $2.5 million to retail endevours in sub-Saharan Africa.

 Before the year closed in December, South African retailer, the Spar Group Limited, in partnership with an Angolan company, opened a store in Luanda, Angola’s capital. The Fouani Group, which retails electronics, also opened new shops across Africa, especially, in Nigeria.

 Apart from these investments, new product lines as well as advanced models of existing products were introduced into the continent, as western producers, along with their local partners (retailers) increased their brand offerings and new established supply chains.

 Major electronic and IT brand retailers, beauty and personal care product retailers, machinery makers as well as food chain retailers launched new products into Africa in 2013.

For instance, the Spanish clothing retailer, Zara, entered the Kenyan market through a distribution agreement with local retailer, Deacons. Also, Deacons launched its own Massimo Dutti clothing line in Kenya during the year.

 In Nigeria, Black & Decker launched over twenty household machines, black|Up Paris, a maker of personal care products launched four beauty products, in conjunction with Montaigne Place a Lagos based retailer while Maybelline New York, also a personal care products manufacturer, formally introduced its products into the country.

 The IT and electronic section of the retail market received a barge of new releases from Apple, Blackberry, Samsung, Techno, LG, Nokia and Panasonic.  This amounted to more raw materials for local retailers and millions of dollars in spending for customers who could afford new brands.

 The impact of these changes will be felt more in 2014, though there are some positive indications, already. In Nigeria, the contribution of wholesale and retail to GDP stood at 9.03% by Q3 2013 compared to 7.44% for the corresponding period in 2012.

What’s driving the trend?

Factors which have traditionally been identified as retail trade drivers continued to fuel its growth in 2013.

According to the African Development Bank (AfDB), rapid population growth and urbanization; poverty reduction and the steady growth of the middle class; improvement in Africa’s business environment and lower trade restrictions; and improvement in use of technology have all contributed to the rise in retail trade in Africa.

 As of now, the World Bank classifies half of Africa’s 54 countries as either middle or high income countries. Some 122.7 million Africans are now classified as ‘middle class’, 30 percent higher than the number of people who made up that class 13 years ago. By 2060, the number of middle-class Africans is expected to reach 1.1 billion.

 Given this mix, the aspirational behaviours of Africans and availability of a verity of products has also been identified as important retail drivers, as products which were hitherto not available on the open market are now available.

Is this trend sustainable?

Most forecasts are positive about the sustainability of the trend in retail growth in Africa. The continent’s economic outlook for the next five years is promising. Its GDP is expected to grow by 5.3% in 2014 according to the IMF. (Sub-Saharan Africa is expected to grow at 6.1 %.)

According to the AfDB, poverty levels as a percentage of total population, was 48% in 2008, by 2020, it is expected to be 20%. 

 We however acknowledge that simply because a continent has favourable demographics does not guarantee higher economic growth and explosion in retail expenditure.

 We hold that the deciding factor will be how consist African countries remain focused on development motivated policy, reforms in trade and agriculture, and job creation. These will inevitably make the retail cake bigger.

 We also observe that the dominance of retail trade and invest on the continent center on Nigeria, South Africa, Ghana, Kenya and Egypt, this reflects an inherent skew in the development of retail on the continent.

Nigeria’s prospect and retail power houses

Similar factors fuel retail in Africa and Nigeria. According to the UN’s Population Division and Euromonitor, Nigeria remains the largest consumer market in Africa, with a population of 167 million (7th largest in the world). Its population will hit 229 million in the next decade.

 According to Nigeria’s trade and investment minister, the retail market has attracted over $1.3 billion (about N205.4 billion) in investments in the last two years while consumer spending, is well in excess of $100 billion a year.

 In terms of regional retail power houses, Lagos, which accounts for close to 50 percent of the country’s cargo traffic dominates retail transactions in Nigeria. But this does not mean that other states are docile.

 There are several factors which point to the fact that more retail naira is available (or will be available) for retailers in the hinterland, especially in the South-South and North West.

 Our analysis on government budget figures, deals stuck in the economy, population structure and consumption patterns show that those regions are fertile for retail businesses.

 About 62 percent of deals struck in Q1 2013 were domiciled in the South-South, the region’s budget per capita of  N90,794 dwarfs that of every other zone in Nigeria. Also, we estimate that about 15% of the Nigerian population dwells in the region. Data on aviation travel in the country shows that 25% of flights in the country went to the zone.

 As for the North-West, its major strength lies in the number of inhabitants it holds; it accounts for 26% of Nigeria’s population, Kano, which is acclaimed as Nigeria’s most populated city is in this zone.

 Apart from Lagos, we note that food spending is relatively high for major cities like Kaduna, Kano, Warri, Port Harcourt and Benin in Nigeria. This is in line with economic theory which food expenditure takes a higher proportion of disposable income in countries where incomes are low.

As incomes and living standards increase, we expect consumption of sophisticated products like electronics to increase in Nigeria.