Africa represents opportunities for those who are prepared to invest in the growing economies, but doing business in Africa requires an understanding of the nuances of the role of politics, cultural and socio-economic attributes in business, writes HILTON VELDSMAN, client service director at Native.
Consider these facts. There are 1 billion people or 15% of the world’s population on the African continent – 60% are younger than 30 years, and nearly half live in cities. The combined economy is $1.9 trillion. This is set to double by 2025. Economic growth on the continent is 2% above the global average since 2000, and is currently 6% in 2012/13. Eight out of 54 countries are dealing with conflicts today compared to 30 countries with conflicts in 1990, which shows convergence of democratic ideology and overall stability.
Of the consumers in Sub Saharan Africa there are the basic survivors, the working families, rising strivers, cosmopolitan professionals and the affluent. The basic survivor group makes up the largest consumer group in Africa and is typically made up of low income earners living in urban slum areas or rural areas.
Working families are the second largest consumer group while the rising strivers have emerged from the first two segments and have built their purchasing power through access to credit or other resources. They value upward mobility and base their buying decisions on convenience and quality. More than 50% of Africans (600m) have a mobile phone.
There’s no denying that Africa is undergoing an explosion in connectivity. Fixed-line broadband connections in Africa have been virtually non-existent but with each new cable laid, there is an upsurge in mobile phone and internet usage.
Silicon Savannah, an area in the west of Nairobi, has allowed entrepreneurship to flourish because of the combination of modern technology and ample capital. Kenya’s investment in technology means that every town has mobile broadband internet access, and the phone signal never falters across the length and breadth of the country.
Mpesa a mobile money account, for example, is the largest transaction bank in the world. There are 29 million mobile phones in Kenya, 8 million bank accounts, and 17 million Mpesa accounts.
Mxit, as another example, was developed in South Africa and exported to several African countries with huge success.
It’s secret to success?
According to Herman Heunis, Founder and Managing Director of Mxit, says three key strategies were used in assessing lower income African consumers. Firstly, it kept its product simple, minimising customisation. Secondly, Mxit improved reach through accessing early adopters in communities and ensuring that users are constantly educated about new services. And lastly, Mxit continues to ensure it understands and appeals to its target consumers’ most basic needs, ‚”which can often be misunderstood if there is not sufficient research,‚” he adds.
So how can companies take advantage of the burgeoning opportunity in Africa?
I believe there are five critical success factors when embarking on an African strategy the five ‚’P’s.
Perspective Doing business in Africa can be risky, but not more so than in other emerging markets. Provided one is mindful of the risks, opportunities should be actively sought.
Planning Patience and persistence yield results and careful planning and flexibility will lead to successful outcomes.
Places Creating a hub or node is far more relevant in the African context than duplicating individual distribution points.
Partnerships Deep relationships at various levels within government and local businesses will strengthen the outcomes of any project.
People Identifying, nurturing and retaining talented and committed local staff will ensure sustainable success in Africa.
The key is not trying to impose tried-and-tested solutions but recognising Africa is unique and therefore requires unique solutions.
As consumer demand in more mature markets struggles to reach pre-recession levels, companies are increasing looking to emerging markets to drive business growth and Africa is the most promising, albeit the least understood.
The business environment is however improving, infrastructure is being strengthened, and growing numbers of consumers are earning more and purchasing products and services that support their aspirations. The opportunities are indeed ripe for the picking.