2013: A good year for retail in Africa

Obodo Ejiro examines the changes which took place on the retail landscape in 2013

With a population of over 1.02 billion (15% of global population), retail spend of almost $0.9 trillion (N144trn) in 2013 and economies expected to grow at 5.3 percent in 2014, Africa is fast establishing itself as a ‘retail frontier.’ Available data lead 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 and new versions of products already in circulation were also introduced. Indeed, retail contributed more to most local economies in 2013.

Early 2013, the South African retail market got a boost when the world’s largest retailer, Walmart, expanded its international business with a 51 percent 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.

During the year, Imara S.P. Reid Stockbrokers, a Johannesburg-based investment bank, announced that South Africans, which had invested in retail through it, had committed as much as $2.5 million to retail endeavours in sub-Saharan Africa. In Nigeria, the Minister for Trade and Investment, Olusegun Aganga, hinted that the economy has attracted over N205.4 billion worth of fresh investments into the retail sector in the last two years.

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

Before the year closed, South Africa’s 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, Western producers along with their local partners (retailers) increased their brand offerings and established new supply chains across Africa.

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

In Nigeria, Black & Decker launched over 20 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.

Factors that 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 urbanisation; poverty reduction and the steady growth of the middle class; improvement in Africa’s business environment and lower trade restrictions have all contributed to the rise in retail trade in Africa.

The aspirational behaviour of Africans and availability of a verity of products have also been identified as important retail drivers, as products which were hitherto not available on the open market are now available.

Currently, 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 hit 1.1 billion.

Is this trend sustainable?

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

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

We acknowledge that favourable demographics do not guarantee higher economic growth and explosion in retail expenditure. The deciding factor will rest on how consistent African countries remain focused on development focused policies, reforms in trade and agriculture, and job creation. These will inevitably make the cake available for retailers bigger.

We believe that though the data may be rosy for retail on the continent, insurgencies and conflicts in parts have the capacity to torpedo the optimism which is so clearly put out in the data. The conflicts in Mali, South Sudan and the Central African Republic are lucid reminders of how fast conflict can destroy business models in Africa.

We also observe that the dominance of retail trade and investment on the continent seems to centers around Nigeria, South Africa, Ghana, Kenya and Egypt, reflecting an inherent skew.

Nigeria’s prospect and retail power houses

The same factors which fuel retail in Africa also fuel it in Nigeria. According to the UN’s Population Division and Euromonitor, Nigeria is one the largest retail market in Africa, accounting for over 15% of Africa’s GDP and armed 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, in the last two years, consumer spending has been 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 that 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 zones are fertile for retail businesses.

About 62 percent of deals struck in the first half of 2013 were domiciled in the South-South, the zone’s budget per capita of N90, 794 dwarfs that of every other zone in Nigeria. Also, we estimate that about 15 percent of Nigeria’s population dwells in the region. Also, data on aviation travel shows that 25 percent of flights in the country went to the South-South in 2012 and the first half of 2013.

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

Our research at BusinessDay Research and Intelligence Unit has shown that the most successful foreign entrants to Africa’s retail market are those that have fruitfully collaborated with locals. 

Also, because income levels remain low in Africa, low cost consumables sell faster; this is a point which brands like Apple should bear in mind (the Samsung brand seems to have a firm understanding of this).

We note that spending is relatively high in major cities like Kaduna, Kano, Warri, Port Harcourt, Onitsha and Benin City. Other insights are contained in our retail report which is yet to be published. 

We believe that as incomes and living standards improve, consumption of sophisticated products like electronics will increase in Nigeria.