As markets mature and demand in commodities plateau more companies look towards emerging markets with growing GDPs to tap into to stimulate their sales and growth. Africa’s emerging economies offer multinationals exceptional growth potential as predictions indicate Africa will account for one-fifth of the world’s affluent or middle-class by the end of the decade and already boasts a staggering 400 companies that earn over $1 billion in annual revenue.
To ensure that they enter these markets with enough impact to guarantee a stronger foothold than their competitors, multinationals first need to understand the market they’re dealing with. Here are some of the unique characteristics to consider regarding the African market and how companies can capitalise on the resulting trends/opportunities they offer:
Sheer size and diversity
Africa consists of 54 countries and its land area exceeds that of China, Europe, and the United States combined, and, according to McKinsey and Company, “has over a thousand languages and huge diversity in income levels, resource endowment, infrastructure development, educational attainment, and business sophistication.”
This in itself poses various entry barriers for multinationals but initiatives such as the African Continent Free Trade Area offer solutions to many of these. According to Lionel Reina, APO Group CEO, the AfCFTA will be a true gamechanger resulting in an increase in intra-trade by nearly double in the years to come and thus offering greater economic stability and growth.
Rising middle and upper class
Opportunities in cities far outweigh those in the rural areas and, when you consider the fact that Africa’s cities have an income per capita of more than double the continental average, it’s not hard to understand why Africa is the fastest-urbanizing region in the world.
The Brookings Institution reports that as more of the population benefit from the economic upturn, household consumption will increase to $2.5 trillion by 2030. Brookings also predicts that middle-class households will collectively have disposable incomes of nearly $680 billion in 2020. The majority of which is expected to be spent on fast-moving consumer goods and distribution services sectors in the short term, and, as discretionary incomes start to grow, the demand for luxury (high-quality, niche and foreign-produced) goods will also increase.
The fastest-growing mobile telecom market in the world
The number of smartphone connections in Africa is expected to grow to 636 million in 2022 and between 2015 and 2022 data traffic is expected to increase sevenfold. According to Reina: “The opportunity for the continent is how do we use technology and put it at the service of the population for the future.”
This also means that companies have access to big data and therefore better and more accurate insights about the market right at their fingertips.
Mistrust in local governments and brand morality
Jordan Rittenbury, Edelman Africa CEO, states that as opposed to many other countries where the media and journalists are treated with mistrust due to the prevalence of “fake news”, news organisations and journalists in Africa are often more trusted than governments and people engage more regularly with the news articles.
This interest and active engagement in important social and environmental topics also translates into the market’s preference for brands that choose to take a stance on these topics as well (brand morality). It’s also, therefore, vital that companies take a closer look at their reputation management, crisis communications strategies, and transparent communications as, according to Rittenbury, “consumers are looking to business leaders as drivers of the economy in the absence of clear and progressive government leadership.”
Population size and age
Africa is the world’s fastest-growing population and accounts for 16.72% of the total world population (this is estimated to grow to 25% by 2050) with Sub-Saharan Africa accounting for more than 1 billion of the population in 2018 (almost triple the population of the United States’ 327 million).
It is also the youngest continent in the world (the median age of the population in Africa is 19.7 years), whereas North America and Europe have the largest proportion of seniors in the world. This means a boost in labour supply and the ratio of active contributors to the economy vs ratio of population that is dependent on them (people younger than 15 or older than 65).
This also means that the majority of the population belong to generation Z which is characterised by their quick up-take of complex technologies, love of social media and appreciation of authenticity. According to Jordan Rittenbury, Edelman Africa CEO, an example if this is the growing number of influencers and how companies are better served when aligning with influencers that have a better brand-fit than just selecting those with larger followings.
Get in early and plan for the long term
Tidjane Thiam, the Ivorian-born CEO of Credit Suisse and former head of Prudential, states that “companies that get in early and shape the right strategy can sustain double-digit profit growth over decades.” A sentiment that McKinsey and Company found was echoed by thousands of global and African executives in a survey they conducted. A perfect example of this would be SABMiller.