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Africa’s burgeoning middle class and consequent increase in disposable income becoming increasingly attractive for yield-chasing multinational companies.

That ubiquitous McKinsey & Company report from two years ago which said Africa’s consumer spending would reach $1,4tn in 2020, spurred not only a wave of Afro-optimism, it announced to the world that Africa was open for business.

The continent, long shrouded in scepticism and instability has become a modern day mecca for consumer-facing multinationals in search of higher yield.

“Africa’s emerging middle class and favourable demographic structure is expected to result in a major increase saving and investment rates, trigger a spike in disposable income and create a new and vibrant consumer class, all of which will provide ample opportunities for corporates to engage in business activities on the continent,” Ronak Gopaldas, sovereign analyst at RMB says.

Bruce Layzell, General Manager New African Markets at Yum, the owners of brands including KFC, Taco Bell and Pizza Hut, says Africa is giving people the ability to get in on the ground floor of its development.

“Things are just starting to boom, so if you go now you’re going to enjoy massive upside and if you wait much longer its going to be very crowded and much more difficult to get in there,” he says.

Yum, which is considered the world’s largest fast-food restaurant company, hopes to open 130 KFC stores in Africa this year, Keith Warren, MD, KFC Africa says.

Local player Famous Brands, whose portfolio includes Steers, Wimpy and Debonairs Pizza already operates in 15 African countries.

CEO Kevin Hedderwick says the group’s strategy with regards to Africa, is to “think deeper rather than go wider.”

“We want to focus on markets where we currently have representation. We’ll probably end the [financial] year adding about 45 new restaurants in Africa,” Mr Hedderwick says.

In Africa, drinks giant Diageo has seen annual sales rise 15% over the last five years.

And the London-listed maker of Johnnie Walker whisky expects growth in its biggest emerging market region to accelerate beyond this figure.

One of the main driving forces behind Africa’s growth spurt is the increasing pace of urbanisation and consumerisation.

Research from the Economist Intelligence Unit predicts that by 2050, 63% of Africa’s population will be urban.

“As Africans flock to the cities, and disposable incomes rise, their demand for modern goods and services such as telecommunications and banking services will accelerate,” their “Africa: Open For Business” report reads.

Telecoms players were among the first to spot Africa’s potential.

The world’s 5th largest mobile operator by subscribers, France Telecom, which has operations in 18 African countries through its key brand Orange, has set a target to earn €7bn in revenue from its emerging markets by 2015.

Mr Gopaldas says cheap mobile broadband, a proliferation of feature phones and Internet-connected hardware means that information can be disseminated quickly and accurately in viral form.

“This provides a major opportunity for financial services sector, with the likes of FNB seeking to grow their product offerings across a number of jurisdictions on the continent,” he adds.

Retail players are also one of the biggest beneficiaries of Africa’s consumer boom.

Walmart’s acquisition of a 51% stake in Massmart is its ticket into Africa.

And its unlikely that it will be the last global heavyweight to enter Africa.

“If I had to put money on it, I’d say Tesco will be the next … but not anytime soon. If the opportunity presented itself, I’m sure they wouldn’t turn their noses up,” Natalie Berg, research director at Planet Retail says.

South African retail giants are already cashing in. With the largest footprint among SA’s retailers, Shoprite has earned its stripes as continent kingpin.

Part of Shoprite’s success is owing to its first mover status – it’s been trading in various African countries for well over 18 years.

Rival Pick n Pay has three openings planned for next year – in Mozambique‚ Zambia and Mauritius.

Nigeria’s decision to lift a ban on imported textiles unleashed a flurry of excitement among clothing retailers, and construction spurred by the need for formal retail experience in key cities is also driving the country’s retail boom.

Foschini is in the midst of an aggressive expansion that will see it adding 57 new stores over the next three years in countries like Nigeria and Mozambique.

Now, while rich-pickings are clearly there, they must be tempered with the reality of doing business, as risks do exist – Africa is a tough but lucrative market to trade in for formal retail operations.

Lack of infrastructure, limited access to real estate and energy supply affects businesses, as does the volatile currency risk.

“Overwhelming bureaucracy and trade barriers disrupt supply chain and result in very high cost of operations and impact margins,” Cedric Bra, retailing analyst at Euromonitor International says. 

Africa, previously the poster child for poverty, famine, disease, decaying infrastructures, corruption, conflict, crime and brutal violence, is now a continent where wise investments can offer high rates of return, as the 54 different nations that inhabit it enjoy a prolonged spurt of economic growth. Its vast mineral wealth, together with the infrastructural developments taking place, have made Africa increasingly attractive to foreign investment.

“The truth is that Africa is the final frontier for major global business opportunities and growth,” says Louise Robinson, sales director of Database 360.

 

“Investors and businesses that continue to ignore Africa are missing out on a vast untapped market, with an abundance of investment opportunities across many different sectors and industries,” says Robinson.

 

A global economic force

 

Robinson believes that the continent’s potential to become a global economic is a force to be reckoned with does not stem from a misguided loyalty or blind patriotism. The facts and figures back her up.

 

Over the past decade, Africa’s GDP has grown by an average of 4.7% per year – at twice the pace of its growth in the 1980s and 1990s. These findings were made by McKinsey & Company following an in-depth analysis and micro-level study of Africa’s economies and consumer markets.

 

“Africa largely escaped the recent global recession. In fact, Africa – along with Asia, excluding Japan – were the only regions to actually experience economic growth during that time,” says Robinson.

 

Africa – once called ‘the hopeless continent’

 

“The Economist once called Africa ‘the hopeless continent’, but after it experienced a GDP growth of 5% during 2010, the magazine promptly rebranded it as the ‘hopeful continent’ and it is now one of the fastest growing regions in the world.”

 

It has been predicted that if Africa continues to maintain that growth rate, consumers will be spending approximately $1.4 trillion worth on goods and services by 2020. And the International Monetary Fund (IMF) also forecasts that between now and 2015, Africa will be home to seven of the world’s fastest growing economies, with Ethiopia topping that list.

 

“This is why the World Bank has been investing millions into Ethiopia, including a recent approval of a loan of US$684 million to fund a thousand kilometre long transmission line that would supply power to Kenya from Ethiopia’s Gibe III dam,” explains Robinson.

 

Africa – the ‘hopeful continent’

 

She adds that despite its size, Africa offers a relatively small market as business across the continent is still largely in its infancy, so it is imperative for those looking to invest to do so sooner rather than later.

 

“The Chinese have become economically involved in every country in Africa, and if you don’t get in now, you may as well not even try later – the first in will have the best opportunities.”

 

For private investors and businesses that still need convincing, Robinson presents the following: “Data collected by the UN indicates that Africa offers a higher return on investment than any other emerging market. This is because fewer foreign companies have a presence here, therefore there is less competition. There is also plenty of consumer demand for goods and services.” 

With domestic labor costs rising, many Asian manufacturing producers are now looking to relocate their factories in other regions of the world. Could Africa replace Asia and/or China as the world’s next manufacturing hub?

To be sure, Africa has a number of manufacturing advantages that it has yet to realize. Besides low labor costs and abundant resources, these include duty-free and quota-free access to U.S. and EU markets for light manufactures under the Africa Growth and Opportunity Act and the Cotonou Agreement.

Is this enough to offset Sub-Saharan Africa’s generally low labor productivity relative to that of its Asian competitors?

Yes, if Africa can implement appropriate supportive policies to leverage its opportunities soon. This is the finding from a recent book by a team of World Bank economists. China dominates the global export market in light manufacturing, and its competitive edge far exceeds that of low income exporters that recently entered the global market.

But steeply rising costs of land, regulatory compliance, and especially labor in China’s coastal export manufacturing centers have begun to erode the latter’s cost advantage, a trend likely to accelerate in the coming years.

The ongoing redistribution of cost advantages in labor-intensive manufacturing presents an opportunity for Sub-Saharan Africa to start producing many light manufactures, enhance private investment and create millions of jobs.

According to new evidence, feasible, low-cost, sharply focused policy initiatives aimed at enhancing private investment could launch the region on a path to becoming competitive in light manufacturing.

These initiatives would complement progress on broader investment reforms and could foster industrialization and raise the market share of domestically produced goods in rapidly growing local markets for light manufacturers.

And as local producers scale up, product will improve, and experience with technology, management and marketing will accumulate, allowing them to seize emerging export opportunities.

In Sub-Saharan Africa, as in China and Vietnam, policies that encourage foreign direct investment can speed up industrial development and export expansion. Isolated successes can be multiplied, as with Ethiopia’s recent foray into selling cut flowers in EU markets: a single pioneering firm opened the door to an industry that now employs 50,000 workers.

Previous studies identified long lists of constraints, including corruption, red tape, inadequate utilities, poor transport and skills, inadequate access to finance, and so on. In contrast, the book proposes smaller, more specific, and sometimes newly identified constraints.

Narrowing the analysis can make the reform agenda more manageable within the financial and human resource constraints of most African countries.

Take the leather industry in Ethiopia. This sector employs about 8,000 workers and exported about $8 million in 2010, a fraction of similar countries in Asia such as Vietnam. Ethiopia’s labor costs are lower than Asia’s and the country has Africa’s second largest cattle population, next to Sudan.

Furthermore, climatic conditions mean Ethiopian animal skin is among the best in the world. Yet the most binding constraint is the shortage of quality processed leather due to poor disease control, lack of quality processing of raw hides and restrictive trade policies on processed leather.

Once the problems are identified, the proposed solutions are straightforward. Treat ectoparasites (the skin disease that causes blemishes) at modest cost; allow imports and exports of raw hides and processed leather to help alleviate this constraint; and provide technical assistance.

Some of these measures require changing existing policies. Others require provision of public goods such as industrial parks that could be inexpensive.

Ethiopia’s comparative advantage in wages, productivity, and natural resources has led the Huajian Group, a Chinese shoe maker, to build a factory in Ethiopia in three months, with two production lines starting in January 2012, exporting 20,000 pairs of shoes a month and creating some 550 jobs.

So the opportunities and the preconditions are certainly there, provided African policy makers speedily seize them, as the book notes. But will Africa be the world’s next manufacturing hub?

Not likely. Manufacturing can be an unprecedented opportunity for Africa to industrialize and provide productive jobs to millions of Africans, especially young people who make up as much as 36% of the total working-age population; three in five of Africa’s unemployed are under the age of 25.

 

 

But the emergence of China as a powerhouse producing a variety of manufacturing goods at very cheap prices thanks to the large scale and skilful exploitation of the supply chain means that not all manufacturing jobs will be transferred from China to Africa.

Due to widely varying country conditions, some African economies can take advantage of favorable wages and natural resources and benefit from taking timely measures to develop and export manufacturing goods.

But large-scale production requirements also mean that some jobs will be transferred to countries such as India, Bangladesh, Cambodia and Vietnam while others will move to China’s interior.

In short, the invisible hand of globalization will work to ensure a redistribution of cost advantages to the benefit of the ultimate consumers around the world. 

 In an attempt to help the East African country, a credit of $205 million has been offered to Uganda by India to expand its infrastructure for electricity distribution and boost the local workforce through investments in the agricultural sector.

The statement released in Kampala, also informed that Mr Narendra Modi , Prime Minister of India and  Mr Yoweri Museveni , President of Uganda also discussed the reform of the UN Security Council.  Mr Modi was on a two day visit to Uganda, to strengthen bilateral ties between the two countries.

A loan of $141 million will be given to construct electricity transmission lines to Kampala and its substations. Another $64 million will be spent on agriculture and dairy production, said the statement.

The relationship between the two countries goes way back to the 19th century when the British brought in large number of Indians into East Africa to build a railway from the coast of the Indian Ocean into the hinterland, concluding in Uganda’s west. Many Indian labourers stayed back after the construction of the railway and established themselves as a large and economically successful community.

During Dictator Idi Amin rein, he accused them of exploiting the country, subsequently expelling them from Uganda, handing over their business to the locals. Some of them returned back to the country, under the leadership of President Yoweri Museveni and are prosperously growing in many sectors including manufacturing, retail and services.

Museveni and Modi “reaffirmed the need for a comprehensive reform of the UN Security Council, including its expansion, to make it more representative and responsive to the geopolitical realities of the 21st century.”

Ethiopia was Africa’s fastest growing economy in 2015 and has the continent’s second largest population. At the foundation of the automotive potential in Ethiopia are the state-driven economy and a government that is geared towards industrialisation, making it one of the most promising African markets to enter in the industry.

AUTOEXPO AFRICA has been chosen by global manufacturers and exporters as the precise platform to enter the market of the millennium, Africa. After dominating the market in Kenya and Tanzania, the event now ventures into Ethiopia with the launch of AUTOEXPO AFRICA – ETHIOPIA, to be held at The Millennium Hall, Addis Ababa, from 21 – 23 March, 2019.

Ethiopia’s automotive market is dominated by second-hand imported vehicles while the main drivers of new commercial vehicle sales are the construction, agri-business and retail sectors. This emphasises the high return on investment available for global exporters and manufacturers from the industry, with automobile spare parts being a particularly attractive market.

AUTOEXPO AFRICA – ETHIOPIA promises to be the leading trade exhibition in the region for automobile, truck and bus parts, equipments, components, accessories and tools, showcasing the latest developments in the automotive industry, with prominent industry experts, stakeholders and decision makers in attendance, making it an ideal event to source new products, network and usher in new contacts and business opportunities.

Maruti Suzuki has been at the top when it comes to the domestic market but it has only now started looking at exporting cars. The company should aim for up to 25 per cent of its production to be exported although it strongly believes overseas shipments to touch 2 lakh units by 2020, according to company MD and CEO Kenichi Ayukawa.

The company’s total production combined with the parent company Suzuki will cross 2 million units by 2020 and Maruti Suzuki has been examining the idea of entering new markets with their new vehicles. 

 

The exports will increase further once cars manufactured in the country meet India’s upcoming stricter safety and emission norms. “We await the exports to be at least 10 per cent of the total production. If it becomes 2 million capacities we are expecting export of 2 lakh units. If demand increases we will further try to enhance it. Exquisitely, 20-25 per cent of the production should be exports,” MSI MD and CEO Kenichi Ayukawa reported to PTI in an interview.

The company, which has been exporting to markets like Chile, Indonesia, South Africa, Uruguay and Nepal, are also looking at models which could be shipped to developed markets like Europe and Japan.