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Sunday, July 2, 2017

What will be Africa’s Biggest Untapped Business Opportunity from 2017 to 2030?


In this article I’m going to be referencing facts and data from the World Bank, Africa Development Bank, National Bureau of Statistics, McKinsey global, KPMG and USA today in analyzing Africa’s biggest untapped business opportunity. I won’t be using citations - so you don’t feel you are reading an academic essay. 
 
This topic asks a question and I personally didn't have an answer till I read McKinsey Global services market report on this earlier this year. The highly respected marketing research company particularly mentioned an industry as Africa’s biggest business opportunity by 2025 – but I emphasized untapped. 

KPMG also reports that this business opportunity will thrive as more Africans start earning above $1,000 per annum - which is the minimum amount required to be classified as middle class in Africa by ADB and World Bank criteria.

I call it untapped because as of 2014 only 8% of Nigerians patronize them. Nigeria being Africa’s largest market (by population) is still lagging behind South Africa and Egypt by sales volume in this industry. Unlike other business opportunities in Africa, this one isn’t seasonal, short term or adversely affected by harsh economic conditions except by inflation and declining purchasing power. The irony though is that even so the industry still grows even with inflation and declining purchasing power.
  • Africa’s Biggest Business Opportunity would be worth over $400 billion in sales per annum by 2020
  • Over 420 million customers would patronize the industry by 2025
  • Less than 40% of the entire market would be captured by 2025
  • The growth of this industry would also involve massive economic growth (over 5% per annum) for many African countries.
  • Internet technology would be a major driver of sales for this industry
  • Increasing annual purchasing power from customers is projected for this industry
  • The industry is expected to create many new age millionaires (less than 40 years of age) in Africa by 2030

What industry am I talking about? Let me tease you a bit. It is an industry that grows on average at 7% per annum in most African countries. It sells everyday items, is associated with the middleclass, it rarely experiences negative growth in Africa even during recessions except during civil wars and severe famine. 

I am talking here about the formal retail industry which comprises registered, taxable and regulated supermarkets, grocery stores, boutiques and clothing shops, food markets, online retail shops and any business involved in selling consumer items directly to consumers at retail prices. I am not referring to kiosks and informal petty trading although they also fall under retail albeit the informal sector. 

There has been a massive growth in population of most African cities due to rural-urban mass drift as young school leavers in rural communities migrate to towns and cities in search better economic opportunities. 

Many African cities especially national and regional/state capitals are growing at an alarming 3-5% per annum from rural-urban migration which puts pressure on domestic food security and increases local demand for consumer items and consumables.

Add the cosmopolitan lifestyle of most city dwellers and you begin to see why going to the supermarket or grocery store is more convenient that storing food supplies in barns or why maintaining a home garden isn’t feasible for them.

People can’t produce their own food items, design their own clothes, make their own makeup kits etc but they have needs for these things and the population of these people keeps rising every year in many big towns and cities in Africa. Currently less than 300 million Africans live in towns and cities but the story will change in another 8 years when their population will reach 420 million with at least 156 million of them being middleclass as against the current 60 million plus middleclass city dwellers. Nigeria in particular would have over 40 million middleclass urban residents by 2025.


Factors that will ensure the rapid growth of the retail industry in Africa
  • Rural-Urban drift [Urbanization]
  • Online Social Media influence on Millennials
  • Westernization of the growing youth population
  • Rapid growth in middl eclass population
  • Large number of white and blue collar jobs in African towns and cities
  • Improved enactment and enforcement of urban and town planning laws [Urbanization]
  • Rising influx of foreign investors
  • Increasing government spending on infrastructural projects
  • Africa’s extractive and consumer based economy isn’t likely to transform into a more productive one even by 2050 giving room for the retail boom to thrive
What does this mean for Investors and Retail Entrepreneurs?

  • There is a fast shifting trend observed among retail shoppers and consumers in Africa. Many of them now have access to mobile and internet banking, they have rising tastes for modern gadgets and products
  • There is a rapidly growing population of millennials who are gaining purchasing power to buy and pay for goods and services. Most of these people would be looking online to purchase their preferred items
  • Financial institutions in Africa are increasing their funding of consumer spending with tailor made services to their customers
  • Africans are now going cashless which makes shopping; easier, safer, faster and cheaper
  • More people will be able to spend cash on the go whether at the airports, schools, hotels, restaurants, at car parks etc
Conclusion for African Entrepreneurs and Investors

Investors and retail entrepreneurs should be looking to setup formal retail marts at strategic places in cities in Africa. Shoprite, Park ‘N’ Shop, Ebeano, SPAR and NEXT are not sufficient to meet these growing demand. More players should join and serve this market

Looking to write bankable business plans in Nigeria? Give me a call: 0803 206 4106 or email me: paulonwueme@gmail.com

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