Why isn't Walmart in Kenya

Guest commentRetail is booming in Africa


Mirko Warschunleads the A.T Kearney consulting division for consumer goods and retail in EMEA

 


Barack Obama did not come empty-handed when he visited Kenya in July. The President of the USA had gigantic plans for the expansion of the infrastructure in his luggage. US companies want to build a new port on the coast. It is to be connected to the capital Nairobi and the neighbors Ethiopia and South Sudan via a new railway line. After all, the Americans are planning a large gas-fired power plant. The billion dollar projects could improve the lives of millions of people.

The US initiative is a signal of the upswing that many African countries are experiencing. In the public perception, the continent is synonymous with poverty, flight and backwardness. But this picture is one-sided and distorted. Who knows that Africa achieved economic growth of 3.9 percent in 2014?

According to the OECD, the national product will increase by 4.5 percent in the current year. For 2016, the organization expects growth of around five percent. Experts see the economic policy reforms that many African countries have initiated as the main cause of the upswing. Governments often show more zeal and discipline than some European countries.

In addition, the upswing is not based solely on the export of oil, gold or iron ore. Dynamic industrialization has set in in numerous countries. Ethiopia is developing into a center for textile and shoe production and, according to the IMF, expects growth of 8.7 percent in 2015 - more than China.

Welcome middle class - also in Africa

With growth, incomes rise, albeit from a very low level. A wealthy middle class is growing up in the metropolises of Africa. These consumers are increasingly finding a taste for branded products. You want to shop in supermarkets, specialty stores and shopping malls based on the western model.

The African Retail Development Index (ARDI), the A.T. Kearney calculated annually. It determines the level of retail development in the countries south of the Sahara.

At the top this year is Gabon. The country on the west coast achieved a GDP per capita adjusted for purchasing power of 21,000 US dollars in 2014, making it one of the richest countries on the continent. Supermarkets and specialty stores are starting to replace traditional small traders. Of course, the front runner is relatively small with only 1.7 million inhabitants. It is followed in second place by Botswana, one of the politically most stable and safest countries in Africa. Oil-rich Angola, where the economy grew by seven percent in 2014, ranks third.

The consumer goods market in Nigeria is considerably larger, with 178 million inhabitants the most populous country in Africa and fourth in the ranking. Around 45 million people belong to the upper and middle classes. Most Nigerians are very price conscious. However, more and more people are paying attention to the brands and origin of the products they buy.

Regardless of the growing purchasing power, modern forms of business have hardly caught on in the retail sector. Supermarkets account for just one percent of consumer spending. Consumers in Nigeria are particularly fond of online retailing.

Tanzania follows in fifth place on the ARDI, a good bridgehead for entering the market in the East African free trade zone EAC, which also includes Kenya, Rwanda and Uganda. The Republic of South Africa is suffering from an economic downturn and currently only ranks sixth. The top ten of the index also include Rwanda, Namibia, Ghana and Senegal.

German retail and consumer goods trade hesitant

Despite the great opportunities that Africa offers in the long term, German retailers and consumer goods providers have so far been very reluctant. Hugo Boss is the only branded goods company that has so far been firmly committed to Africa: with stores in Lagos, Cape Town and Johannesburg.

Aldi and Lidl have considerable international experience. The discounters show little interest in Africa. Rocket Internet is more daring - the group of companies wants to set up online platforms for fashion items, electronic products and other products in several countries.

But investment risks can also be reduced in stationary retail, as the American retail giant Wal-Mart and its French competitor Carrefour show. In order to accelerate the market entry in Africa, Wal-Mart decided to take over the local retail group Massmart. Similarly, Carrefour relies on joint ventures with local partners.

Market entry must be prepared thoroughly

All in all, Africa offers risk-taking investors opportunities that are difficult to find in this combination in other regions. The high growth is likely to continue for the foreseeable future. Difficulties should not be overdramatized. Market entry has to be prepared thoroughly.

German politicians are not idle on this either. Two high-ranking conferences have set themselves the goal of exploring the prospects for the economy in Africa more closely these days. The German-African Business Summit, which is organized by the leading associations of German business, is currently taking place in Berlin. And already on Wednesday the African Union, the OECD and the Federal Government are also holding the 15th International Economic Forum on Africa in Berlin.