Improved governance, commodity prices and a middle class that’s bigger than India’s means it’s time to take exporting to Africa seriously
Topic : Africa, Foreign Markets, Exporting
After decades of boom-and-bust cycles, much of Africa has enjoyed a long stretch of impressive economic growth and increased political stability that make the continent an increasingly attractive market for Canadian exporters. Seven of the world’s top-10 fastest growing economies are located in the region: Ethiopia, Mozambique, Tanzania, Congo, Ghana, Zambia and Nigeria, totalling 372.5 million people. But right across Africa’s 54 countries, annual GDP growth has averaged an impressive 5% over the last few years.
That’s meant African consumers, corporations and governments have more money to spend. The number of people living on less than $1.25 a day in Africa has fallen for the first time in history—by nine million people, according to the World Bank Group. Africa’s middle class is now bigger than India’s and by 2020 half of African households will have discretionary spending power.
What’s been driving this pace of growth? Experts suggest that foreign capital (including major investment from China), debt relief, improved economic governance, strong commodity prices and increased domestic demand and investment have all played a part. The governments of Ethiopia, Ghana, Nigeria, Tanzania and Zambia, in particular, have been boldly spending on infrastructure, while consumers are spending more on telecommunications, retail, services and transportation, according to a report by the African Progress Panel. Half of the world’s population growth between now and 2050 will occur in Africa, not because of higher fertility but because of longer life expectancy.
Several key factors should guide Canadian SMEs looking to export to a region where incomes are expected to double in the next 22 years.
1. Get the right help
The Canadian Trade Commissioner Service can provide market intelligence and match companies with reputable local partners. Export Development Canada (EDC) has a suite of services that can reduce the risk of doing business abroad. That includes accounts receivable insurance which guarantees payment if the political situation or other factors cause non-payment; “It’s a risk-mitigation tool Canadian banks like, too,” says Robert Pelletier, chief representative for Africa at EDC.
2. Pursue deals that are right-sized for your business
“You don’t want to bet the company on one particular opportunity, especially if it’s your first endeavour in the market,” says Pelletier. But that doesn’t mean your company can’t take part in major infrastructure projects. Smaller enterprises can sell to larger Canadian and international enterprises doing business with African governments. With a country like Nigeria planning to increase electricity production by six fold over the next decade, as well as dramatically increase development of its mining sector, there will be opportunities throughout the supply chain for Canadian companies of all sizes.
3. Go where the buyers are
The spending power of South Africa’s black middle class has doubled in the last decade, driving demand for imported brands in industries such as packaged food, clothing and electronics. “The same phenomenon is now spreading in the rest of sub-Saharan Africa, including Nigeria, Kenya and Cameroon,” states a 2013 report by the UK-based market research group Euromonitor International. That means targeting the countries, regions and neighbourhoods where this growing middle class lives.
4. Go where other Canadians have succeeded
With a population of more than 170 million, Nigeria has been carrying the banner for a growing, prosperous Africa. Its role as the continent’s leading oil producer has made it attractive to Canadian oil and gas companies and the country imported $326.6 million worth of Canadian goods last year. But size isn’t everything. The same year, much smaller Ghana, with a population of about 25.6 million, imported $216.3 million worth of Canadian goods. Pelletier says EDC is currently focused on South Africa, Ghana and Nigeria, while Kenya, Ethiopia, Zambia and Gabon are also considered safe and stable places to do business.
5. Think young, urban and connected
With 200 million people aged between 15 and 24, Africa has the youngest population in the world, one that will double in size by 2045, according to a report by African Economic Outlook. Better educated than their parents, this generation will be more likely to live in cities (50% of Africans are expected to live in cities by 2030) and covet the latest mobile technology, providing opportunities in industries ranging from telecom to vocational training.
6. Serve growing appetites
Despite the abundance of arable land in much of the continent, sub-Saharan Africa spent more than $40 million importing food in 2012, according to estimates by the UN Food and Agriculture Organization. This creates demand both in the retail food sector and in the agricultural sector, where strategies are needed to increase agricultural production, improve nature resource management and increase the ability of countries to prevent and respond to natural disasters. In Ethiopia, for example, the government is spending US$4.4 billion to import and adapt agricultural technologies, including mechanization and research on crop, livestock and natural resources.
7. Learn the nuances of local markets
Although malls are springing up across Africa, much shopping still takes place in open-air markets where wholesalers bridge the relationship between manufacturer and retailer, a system that is different than many North American companies are used to. Cultures can vary dramatically from country to county and even within countries. High illiteracy rates in some regions will dictate packaging and marketing strategies, suggests a report by Euromonitor International.
by Paul Gallant
ProfitGuide.com
