Africa’s collective GDP in 2020 is expected to reach $2.6 trillion, with $1.4 trillion in consumer spending and 128 million African households that have discretionary income.
Africa’s collective GDP in 2020 is expected to reach $2.6 trillion, $1.4 trillion consumer spending with 128 million African households with discretionary income. This is according to a report entitled: Lions on the Move – The progress and potential of African economies by McKinsey Global Institute.
This is according to a report entitled: Lions on the Move – The progress and potential of African economies by McKinsey Global Institute.
The report reveals that Africa’s future growth will be supported by external trends such as the global race for commodities, Africa’s increased access to international capital and its ability to forge new types of economic partnerships with foreign investors.
Furthermore, the long-term growth of Africa’s economy will be lifted by internal social and demographic trends, particularly Africa’s growing labour force and the related rise of the middle class consumers.
McKinsey notes that for companies, the report analysis suggests that four groups of industries together will be worth $2.6 trillion in annual revenue by 2020.
These are consumer-facing industries (such as retail, telecommunications and banking), infrastructure related industries, agriculture and resources.
Meanwhile, the Annual Broll Property Report notes that Sub-Saharan Africa continues to experience an increase in demand for real estate solutions in a very complex structure of emerging markets.
Construction in these locations is booming and some South African retailers and property developers who have been eyeing these growth trends have made an early entry into these real estate markets.
In Nigeria, thanks to rapid urbanisation, consumerism and a growing middle-class, demand for retail space has increased during the past 12 months.
The backlog of formal upmarket retail developments has brought new proposals and it is estimated that 250 000 square metres of Gross Lettable Area of retail space will come on stream during the next 24 months.
There is demand for office space with new developments mostly comprising A Grade offices.
South African and international retailers are reportedly continuing to enter the retail market in Ghana with a basic line shop rental for shopping centres commanding rentals priced between US$35 to US$65 per square metre per month.
Accra Mall measuring 20 000 square metres in Ghana is the only premier shopping centre in Ghana attracting 7 million shoppers a year.
New office developments in Ghana are leaning towards A Grade type prime locations and these are expected to have basic rentals of between US$35 and US$40 per square on completion.
In Namibia, the supply of retail space has declined while demand sales have remained stable.
Demand for space varies between 150 square metres to 500 square metres and leases escalate at 8 percent annually, according to Broll.
At the Gauteng Chapter Breakfast of the South African Council of Shopping Centres on Leasing in Africa, Dave Bennie, Africa Retail Leasing and Consulting for Broll said it is much easier to do business in Africa where you do not need a visa and there is ease of travelling to that particular country.
Namibia and Zambia were cited as relatively easy to operate in while Mauritius was said to be overtraded.
Construction in Sub-Saharan Africa is booming and some South African retailers and property developers who have been eyeing these growth trends have made an early entry into these real estate markets.
Bennie points out that Nairobi in Kenya has good infrastructure, lots of new modern residential apartments and the area is poised for growth.
He says retailers wanting to trade outside of South Africa need to assess the market and partner with locals as well if they are to succeed.
On Nigeria, he says Lagos is a tough place to do business in as property and land generally cost more than they would in New York City in the US.
As a result, he explains that property rentals are high and landlords require rentals to be paid for a year in advance.
This expensive location will become a mega-city in Africa, he says.
While signing deals is important, Bennie urges South African businesses wanting to trade outside borders to ensure that they check their health, things such as getting a Yellow Fever Vaccine are very important.
“More importantly, doing business in Africa should be seen as an adventure, one needs a strong heart and will and lots of patience,” says Bennie.
South African retailer Woolworths aims to open 16 stores in African countries this year taking the total number of stores to 60 in the current financial year.
The new stores will be larger than current ones and the retailer expects to be trading in 104 stores on the African continent (outside South Africa) by June 2014.
Woolworths is currently trading in 12 countries.
Click here to read more about the Woolworths expansion into other African countries and here about real estate investments in Africa.
Glenn Gilzean, Woolworths Group director for retail operations, says Woolworths have the advantage of having traded on the continent for many years and is well placed to expand its footprint.
“We are very mindful of the competition for limited retail space and the need to deliver a compelling shopping experience to different customers in a range of territories.”
However, Gilzean says finding the ideal entrepreneurs to “set up shop with” (as they enter into joint ventures with partners in African countries) remains a challenge to doing business in other African countries.
Asked what he thought was fuelling retail growth in Africa, he says he believes the Group’s Pan African expansion will deliver a meaningful profit contribution.
A number of factors have spurred the interest in African countries including the growth of consumer spending, which now accounts for more than 60 percent of the African GDP and is expected to increase with the growth of the upper and middle income groups.
South African retailer Woolworths aims to open 16 stores in African countries this year taking the total number of stores to 60 in the current financial year.
“The appetite for formal retail is another factor and we are well resourced to meet the needs of the aspirant African consumer,” says Gilzean.
At a GIBS Forum in Illovo, Johannesburg on Taking Advantage of Opportunities in Africa, Jason Krause, managing director of International SOS South Africa says there is no one size fits all approach to minimising risk in African economies.
He notes that lack of awareness and preparedness of what happens in other African economic markets remains a risk factor for many businesses wanting to trade outside their own countries.
While opportunities are seemingly endless in Africa, the continent is also the most risky location to do business in.
These include infectious diseases, opportunistic crimes and other health issues.
Krause says malaria is seen as a huge threat followed by road accidents, but notes that the type of industry one is in determines the risks.
He says for those wishing to jump on the Africa economic opportunities bandwagon, it is important to increase awareness among shareholders regarding the chosen country to do business in Africa and protecting employees heading these businesses is necessary to taking advantages in Africa.
“It’s all about knowing the risk, preparation and managing the risk posed by doing business in that country.”
Dave Butler, managing director, Southern and East Africa Control Risks, says Africa has become an investment destination of choice and with its young working population, the continent is poised for further growth.
Butler says business opportunities exist in sectors including infrastructure, consumerism and telecommunications, and South Africa and its businesses are well placed to take advantage of these opportunities.
He explains that businesses face risks including government change, which signals risks to long-term investors, contract negotiations, red tape and corruption.
Silke writes that with 900 million consumers on the continent, the problems and pitfalls in doing business in Africa are quickly being outweighed by the promise of a market clamouring for goods and services.
It is, however, important that one does research before investing outside of their known economies. Planning and practise all form part of preparing to enter uncharted territory and taking advantages of economic opportunities in Africa.
Butler says if one is thinking of expanding into Africa, they should:
1. Know exactly where they are going – understand the country and its politics.
2. Know your partner, ask questions such as who is behind the company and what companies' or partners’ original source of wealth is. Do a thorough due diligence.
3. Protect your reputation against allegations of corruption and bribery by remaining ethical in all business dealings.
Daniel Silke, political analyst and author of the book entitled 'Tracking the Future – Top trends that will shape South Africa and the world', writes that in a world looking for the next investment frontier, the African continent stands out as the next major contributor to global growth.
Africa will soon be courted by global corporates from more mature developed markets as the scramble for opportunities in Africa continues.
Silke writes that with 900 million consumers on the continent, the problems and pitfalls of doing business in Africa are quickly being outweighed by the promise of a market clamouring for goods and services.
He adds that Africa stands on the cusp of a critical opportunity and is well positioned in a world less dominated by the West and more open to input and influence from the developing world. – Denise Mhlanga
Print
