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Foreign executives need to get their feet dirty to succeed in Africa

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NAIROBI, Kenya’s capital, is also known as the “Green City in the Sun”. It might as well be called the city of malls: it has never had such a wide choice. The newest outlet, named Two Rivers, sits on a road near the American embassy and contains no less than three different malls in the space of a square mile or so. Here, you can scoff a Burger King before wandering around a huge new Carrefour supermarket to stock up on French cheese, British-made breakfast cereals and Turkish-made clothes. The owners proudly proclaim that it is sub-Saharan Africa’s biggest mall. It is certainly among the glitziest.

And yet walking into Two Rivers is an odd experience. The scale is huge, but the place is eerily quiet. More than a few shopfronts are empty, with hoardings instead of windows. Those that are occupied have a mere trickle of customers, and the goods they sell—furniture, clothes, electronics—are ambitiously priced. Two Rivers feels a bit like a Potemkin village, projecting an illusion of affluence. The reality is that most Nairobians do not go anywhere near big supermarkets, where many of the products on sale cost more than they earn in a day. Nor will they buy the new clothes in the fancy boutiques. Instead, they purchase processed food in tiny quantities at kiosks, and buy clothes and fresh produce at open-air markets under plastic awnings.

Two Rivers is a project of Centum, a Kenyan firm; a large chunk of the funding comes from Avic International, a firm based in Hong Kong, as well as from Old Mutual, a South African insurer. It is one of dozens of such projects across Africa, whose aim is to capitalise on the rise of the African consumer. Malls are not the only things that can weirdly feel out of place. In Niamey, the capital of Niger, a landlocked swathe of desert that is one of the poorest countries in the world, huge billboards advertise first-class airline tickets. In Kinshasa, the capital of the Democratic Republic of Congo, they promote big-screen televisions.

Some of these ventures will make money. But as rich-world firms pull out the stops to sell their wares to Africans, they risk being blinded to two facts. Only a tiny minority of locals has the means to pay for them. According to the African Development Bank, just 13% of Africans earn more than $4 a day. And in the rush to cater to a continent of emergent consumers, foreign investors are missing real opportunities to use Africa as a production base.

For much of the past two decades, a bet on the African consumer seemed safe enough. As the turmoil caused by the end of the cold war faded, the continent entered into a period of vibrant economic growth. With the median African under the age of 20 in almost all countries south of the Sahara, the potential seemed limitless. Beer, mobile phones, washing powder, processed food: all of these products would sell in huge quantities to a fast-growing, youthful population. GDP was soaring, with growth of around 5% across the region from 2003 onwards and faster in many countries.

Yet this blessed era is over. Nigeria, which was proclaimed the continent’s largest economy in 2014, has probably lost its title again, to South Africa, after five consecutive quarters of negative growth. South Africa’s economy is also in recession, not least thanks to worries about corruption under President Jacob Zuma. According to the World Bank, the continent’s economy grew by just 1.5% last year, the slowest rate in two decades. This year growth will tick up slightly, but hardly by enough to keep pace with the expected increase in population.

The cause is the collapse of the commodities boom. Take trade with America as an example. In 2007 the world’s biggest economy imported around $90bn-worth of goods from Africa; 90% of that amount was spent on oil. By last year the figure had fallen to just $26.5bn, in large part because of the rise of America’s shale industry. China, which drove much of the boom, has cut its purchases too: in 2015 it imported less from Africa than it did in 2010. That means less money for Africans to spend. In many countries the fastest-growing source of foreign exchange is their diaspora. Perhaps a little more than 1m Nigerians living abroad (nobody is sure) remit nearly $20bn per year. That is 40 times what Nigeria’s biggest non-oil export, cocoa beans, brings in.

Sand in the gears

At the annual Africa conference of the World Economic Forum in Durban in May, the prevailing view among investors was that they just had to wait. “If you’re really playing in Africa, this is a glitch,” said one smartly suited partner from a private-equity firm. Having pinned their hopes on a rising African middle class, the vice-presidents of big Western firms assume that this is a blip. The sheer scale of urbanisation and population growth, their thinking runs, will be enough to make the numbers work.

With little prospect of a new commodities boom, the wait could be a long one. But executives willing to get their feet dirty and take a few more risks will find there is money to be made in other ways. Manufacturing in Africa is tough, thanks to costly power and poor logistics. Yet it is not impossible. In Ivory Coast, Olam, a Singaporean agribusiness firm, has opened a $75m factory, which will turn the world’s biggest cocoa producer into its biggest processor, too. Across the continent, Chinese entrepreneurs are finding profitable things to export—from donkey meat in Kenya to canned fish in Senegal.

Whether the multinational executives who jet into international conferences, imbibing good wine and bad speeches, are well-placed to spot such opportunities is questionable. Many seem unwilling to move much beyond their comfort zones, preferring to think of sub-Saharan Africa as little more than a storefront. According to one survey by Infomineo, a research company, after Johannesburg, the two biggest cities for the African headquarters of big multinational firms are Paris and London. Much good can they do from there.

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Julio Marchi ©

Publisher / Editor at BS News & Media Services
A free thinker, not labelled as anything, not associated with any party, not part of any group or engaged with any religion... A simple guy tired of the nowadays bullshit who decided to promote more serious debates about what is really happening hoping to bring back intelligence to the superficial and shallow news & headlines that unfortunately took over the existing media scene.
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